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Wednesday, 03 August 2011 12:46

Cherokee election politics fixed on looming casino debt

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In the current political debate, the word ‘debt’ has become ubiquitous. Cherokee is no exception, where discussion of the debt of the Eastern Band of Cherokee Indians — and how, precisely, to dispose of it — has dominated the election season since it began this spring.

With one month to go until the election for chief, vice chief and tribal council, voters are standing up at every public forum to ask questions about the debt while candidates are touting their plans to eradicate it.

Meanwhile, the finance department for the tribe has gone on a massive public information campaign: opening a forum on the tribe’s website, starting a hotline where people can e-mail questions and get an answer back from a finance officer and leafleting the reservation with brochures entitled things like “A Closer Look at Tribal Debt.”

One question seems to underlie the whole discussion: how much, exactly, is the debt?

Answers from different sources have been many and varied, and depend very much on where you stand politically. The incumbent chief and vice chief claim the tribe’s debt is manageable. The challengers claim it has ballooned out of control.

It’s often said that numbers don’t lie, and with tribal debt, these are the raw numbers as of June 30, the end of the last fiscal year.

The tribal government has two debts it’s paying off directly: $57.2 million is still owed on the $107 million school complex and $10.8 million is still owed on the Sequoyah National Golf Club.

There’s also an $8.9 million series of loan guarantees that the tribe backs for the Cherokee Historical Association’s line of credit, the Tribal Bingo Enterprise and Balsam West, a broadband enterprise the tribe has a stake in.

If you take the position of the tribe’s finance department and Principal Chief Michell Hicks, that’s all the debt the tribe has — $76.9 million.

But then, of course, there’s the casino debt.

The casino is undergoing a massive expansion project, for which the tribe’s casino enterprise has secured a $650 million line of credit. So far, the enterprise has tapped $494.3 million of it.

Deputy Financial Officer Kim Peone expects that not all of it will be spent when the expansion is complete, and she doesn’t consider that tribal debt at all.

The casino is an entity of the tribe, but is run by a separate group called the Tribal Casino Gaming Enterprise. The gaming enterprise, not the tribe itself, is responsible for the casino’s half billion in debt.

But here’s where politics comes into play. The current administration running for re-election is adamant that tribal debt shouldn’t include casino loans.

And it’s true that, if the casino defaulted, the bank wouldn’t come looking for the tribal government’s assets.

“We’re not ignoring the impact that a default would have on this tribal government and the services that we provide to this community,” said Peone. “But the casino debt is not guaranteed by the tribe, it’s guaranteed by TCGE.”

From that perspective, there’s $76.9 million in debt. Meanwhile, the tribe’s designated account it makes debt payments from has just over $134 million in it.

Simple math tells you that the tribe could pay the debt off today, but according to Peone, choose not to because that money is earning more interest than the debt is costing.

“Currently, the interest rate on that loan is less than the funds that we’ve invested in,” said Peone. “From year-to-date, that fund has earned 4.5 percent as opposed to 2 percent in a loan.”

On the current schedule, she plans to have both the school and golf course loans paid in full by 2014.

 

Casino debt part of bigger picture

But opponents say you can’t remove the tribe from the casino; they’re inextricably linked.

For starters, profits from Harrah’s Cherokee Casino accounts for roughly 90 percent of the tribe’s operating budget. If more of those profits were diverted to making debt payments, the tribe’s budget for providing services to enrolled members — such as schools and medical care — would be impacted.  

Patrick Lambert, a challenger for the position of principal chief, said he thinks it’s impossible to separate casino debt from the tribe.

“It’s all tribal debt,” said Lambert, pointing out that the tribe’s operating budget would plummet precipitously were anything to happen to the casino debt.

This is Lambert’s second time going for the chief’s seat, and though he lost by a slim margin in the 2007 election, he defeated Hicks in the July primary. He is a lawyer for the Tribal Gaming Commission.

Lambert said he is concerned, too, about just where the tribe is investing its money to get such good returns, asking if such investments are too risky.

“I think it’s pretty clear on debt. I come from a background of small business, and so I understand about debt and borrowing and those type of issues,” said Lambert. “Debt is a necessity, but it’s also something you can’t let get out of control. We need to control the spending so we can start applying more of the revenues we do have to overall debt.’

Right now, said Peone, the tribe puts 8 percent of every dollar it spends to paying off its non-casino debts.

The casino pays $20 million a year on its debt, plus more on interest.

Both principal chief candidates have promised to pay down the debt if they are elected, though that could be plus or minus a few hundred million depending on what you consider “the debt.”

The current administration is out to prove that the tribe is on sound financial footing, especially compared to other municipal governments.

The opposition is calling for a check on spending and reigning in the debt.

And when voters visit the polls September 1, it may be the best numbers that win.

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