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At last, some bright spots in Indian country

By Terry L. Anderson

When Supreme Court Justice John Marshall described the relationship between Indians and the federal government in 1831 as that of "a ward to his guardian," he sent Native Americans on a path of dependency and poverty. To this day, the Bureau of Indian Affairs (BIA) is the trustee of Indian assets. Unfortunately, it has not served Indians well.

As trustee, the federal government collects revenue from reservation resources such as land, timber and minerals and deposits it into trust accounts for individual Native Americans. Lax accounting, however, led to a class-action suit against the government in 1996. In 2009 the case of Cobell v. Salazar was finally settled for $3.4 billion—far less than the $176 billion that Indian plaintiffs claimed they were owed.

From the settlement, $1.4 billion is to go to individual Indians with checks ranging from $500 to $1,500, and $1.9 billion is to purchase land from individual Indians and turn it over to tribes. The BIA contends that the land transfer will save on the bureaucratic cost of administering the land and free up budgets "to serve other Tribal needs."

The targeted lands are small parcels called "fractionated" because they have multiple Indian owners. This fractionation problem dates back to the Allotment Act of 1887, when Congress allotted small parcels of reservation land to individual Indians. These parcels were held in trust until the Indian owner was declared "competent"—the actual words in the legislation. Only then would the Indian owner be given full ownership rights, including the right to sell. With that right, millions of allotted acres within reservations were sold to non-Indians and taken out of BIA control.

To stop these sales and maintain federal trusteeship, Congress in 1934 froze Indian-owned lands in trust where they remain. Trust lands left intestate—without a will, as most lands were—had to be divided equally among all heirs. Today the BIA estimates there is an average of 30 owners per parcel, and one 80 acre tract in Wisconsin has 2,285 owners! Imagine getting together with 30 or more of your favorite relatives to make land management decisions, and add bureaucratic red tape, and you can understand why these lands generate little revenue.

Will the proposed reallocation plan help Indians? Research I conducted in the 1990s with Dean Lueck showed the value of agricultural output per acre on tribal lands is 85% less than on privately owned reservation lands formerly held in trust. Trust lands, including those that are fractionated, are 35% less productive. This suggests that moving land from individual trust to tribal ownership could worsen the productivity problem.

Also, most tribal governments, especially as they operate under BIA tutelage and controls, are not performing well in business. The Crow tribe in Montana, for example, owns an estimated $90 billion worth of recoverable coal, yet its last reported annual revenue was only $17 million. Given the BIA trust responsibility to protect Indian assets, any permitting for coal development must be approved by Washington bureaucrats. Such permitting is governed by thousands of pages in the Code of Federal Regulations.

On the other hand, there are some bright spots in Indian Country suggesting that truly independent tribal management could be a solution rather than a problem. Under the Indian Self-Determination Act of 1976, the Salish-Kootenai Confederated Tribes on Montana’s Flathead Reservation took control of more than 100 programs previously run by the BIA and other federal agencies. Their success led them to lobby in 1988 to become one of 10 reservations participating in the Self-Governance Demonstration Project, and in 1995 they came to an agreement with the BIA that gave them full control of their forest management. Similarly, the White Mountain Apache tribe earns thousands of dollars from elk hunting and provides jobs for tribal members.

As Salish-Kootenai tribal forest manager Jim Durglo puts it, "Timber production, non-timber forest products, and grazing provide jobs and income for tribal members." In other words, it pays the tribe to manage efficiently and earn a profit. And profit they do. The Flathead Reservation earns $2.04 for every dollar it spends on timber management. The neighboring Lolo National Forest, in contrast, earns only $1.10 for every dollar it spends. Moreover, the Flathead tribe’s timber, water and wildlife habitat are all in better shape.

Crow tribal member Bill Yellowtail says it is time to give "Indians permission to pursue . . . entrepreneurial self-sufficiency."

Tribes such as the Salish-Kootenai and White Mountain Apache show what Native Americans can do if freed from the heavy hand of the bureaucracy.

Mr. Anderson is executive director of PERC—the Property and Environment Research Center in Bozeman, Mont., and a senior fellow at Stanford University’s Hoover Institution.

A version of this article appeared Mar. 24, 2012, on page A13 in some U.S. editions of The Wall Street Journal, with the headline: At Last, Some Bright Spots in Indian Country.

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