(e.g., input-output modeling), authoritative sources of data (e.g., the Congressional Research Service, the U.S. Department of Commerce and the U.S. Census Bureau), and conventional measures of state and federal fiscal conditions (e.g., state and federal budgets and government sponsored cost/revenue analyses). While our findings at this stage must be considered preliminary, we feel they warrant careful review by the Committee.?

We observe that America's Indian reservations exert an impact on the national economy (and the respective state economies in which they are situated) in three different respects.

First, residents of Indian reservations (numbering 1.24 million persons in 337,309 households) make approximately $3.1 billion in annual personal consumption expenditures off the reservation (see Figure 2, A Statistical Profile of Indian Country). These expenditures for goods and services are made in the more diverse local, state and national economies of which reservations are a part. As can be seen in Table 1, Economic Model Assumptions and Data Inputs, the $3.1 billion expenditure amount represents only a portion of total reservation household income and consumer spending.3

Second, tribal governments make approximately $1.2 billion in annual expenditures off their reservations for goods and services that are required to maintain the health, safety and welfare of their reservations. This figure does not include the capital expenditures of tribal governments for infrastructure and other physical improvements on the reservations.

Third, reservation-based businesses (e.g., mining companies, energy producers, and tourist, gaming, and fine arts enterprises) make approximately $4.4 billion in off-reservation expenditures each year for necessary goods and services.

2A final report, including a technical appendix describing the methods, data sources, and assumptions used by the Center for Applied Research is currently in preparation.

3Total reservation household income is shown in Table I to be much larger than the "off reservation" household expenditure amount of $3.1 billion. This figure represents only the amount of total personal consumption expenditures that residents of reservation households make off the reservation. This figure is net of reservation residents' payments for federal (and in certain cases, state) income tax, savings and investments, and other consumption spending made by reservation residents on their respective reservations.

The magnitude of this annual, off-reservation spending by reservation residents, tribal governments, and reservation based businesses is shown in Figure 3, The Importance of Indian Country in the U.S. Economy. These expenditures, along with the savings and investments of reservation residents, tribal governments and reservation-based enterprises, have a positive impact in local, state and national economies. For example, Figure 3 shows that over 300,000 jobs and $10 billion in annual wage and salary income are generated in the national economy due to this combined spending attributable to America's Indian reservations.

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Figure 4, The Fiscal Importance of Indian Country to Federal, State and Local Governments, illustrates the commensurate fiscal importance of Indian reservations by comparing the state and federal spending that is made on behalf of Indian reservations with the state and federal revenue that is generated as a result of economic activity stimulated by Indian reservation residents, tribal governments and reservation-based businesses. Figure 4 shows that state governments in proximity to America's Indian reservations, expend approximately $226 million dollars annually on behalf of reservation residents. However, the residents, tribal governments and businesses on America's Indian reservations generate a total of $246 million dollars in annual state tax revenue that benefits the governments of the states in which Indian reservations are located. Similarly, the federal government spends approximately $4 billion dollars annually on behalf of America's Indian reservations, while reservation residents, tribal governments and businesses generate approximately $4.1 billion in annual federal tax revenue.

One of the most important observations that can be made based on the research at hand, is that the fiscal relationship between states and Indian reservations, and between the federal government and Indian reservations, reflects a symmetry between expenses incurred on

*Many tribes have funds deposited in local and national investment banking concerns; and, in addition to these investments, the BIA administers $2.5 billion in trust funds on behalf of America's Indian tribes. These "trust funds" are invested in various types of securities by over 50 leading national investment banking firms under the supervision of the BIA.

S"Reservation-based businesses" include both Indian and non-Indian owned enterprises.

"Roger Walke, Specialist in American Indian Policy, Government Division, Congressional Research Service, Library of Congress, Memorandum to the Senate Committee on Indian Affairs, February 18, 1998, "Indian Related Federal Spending Trends, FY 1975-1999".

behalf of reservations and fiscal revenues generated as a result of reservation based economic activity. The fiscal "flow" (of costs and revenues) across reservation and state boundaries will inevitably vary from year to year, and certainly from state to state. However, that there tends to be a balanced fiscal relationship in the aggregate attests to the reciprocal nature of the economic interactions between American Indian reservations and the state and national economies of which they are a part. Table 2, Statistical Summary of the Economic Importance of Indian Country, provides a summary of the economic and fiscal impacts of Indian Country in state economies and the national economy.

Public Policy Implications

Based on the preliminary findings presented here, it appears that the more vital reservation economies are, the more pronounced are their positive economic (and fiscal) impacts on the national economy. It also appears that the vitality of the reservation political economy appears to be a function of the viability of the tribal government. In this regard, the current sovereign status of tribal governments, particularly their authority to tax, to earn revenue and to function with the immunities and legal stature typically accorded all governments, clearly have a direct bearing on the viability of tribal governments. In addition, the ability of tribal governments to plan, budget and operate effectively is clearly enhanced by, if not completely dependent upon, a predictable and stable relationship vis a vis the federal government. Indeed, it would seem that the Committee, and Congress as a whole, would want to deliberate with special care, any legislative measure that may affect or alter the prevailing legal status of tribal governments; such changes could clearly alter the positive interdependence and equilibrium that currently characterizes the economic relationship between America's Indian reservations and the national economy.

The Committee, Congress as a whole, and state and tribal governments may profit from a more in-depth understanding of the unique economic relationship between Indian reservations, state economies and the national economy. The Center for Applied Research concurs with a growing number of analysts and policy makers that feel this type of information would enable elected officials to make more informed judgments related to legislation affecting the legal status of tribes. The type of analysis presented here could also provide important

Indian Country. The Center for Applied Research's analysis reveals great variation in the socioeconomic conditions present in Indian Country; not all tribes possess the wealth of the Mashantucket Pequot, but not all reservations are impoverished; there are degrees of well being and degrees of need manifested across all reservations. A more detailed version of our analysis could have important implications in the Congressional appropriations process.

Conclusions and Recommendations

The Center for Applied Research's analysis demonstrates that the benefits and costs to tribal governments of current state/reservation economic relations vary considerably. The benefits and costs to individual state governments also vary. However, there is a common perception, often articulated in public policy debates and forums, that Indian reservations, being underdeveloped, are a “drag” on state and federal economies and treasuries. The research findings summarized in this paper contradict this perception.

The Center for Applied Research's analysis is not concerned with and has not attempted to document the internal workings of reservation economies, but focuses on the external (i.e., off-reservation) influence of Indian reservation-based economic transactions. There are great differences among Indian reservations with respect to the magnitude and nature of offreservation spending, however, the Center's analysis shows that the residents of even the poorest reservations exercise economic influence in the state and national economies in which they participate.

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The analysis conducted by the Center for Applied Research on the economic importance of Indian Country in the national economy is a first step. A more definitive study of this important topic clearly is needed. To that end, we recommend that a sustained research and information

"This is particularly relevant to the current Congressional deliberations surrounding Tribal Priority Allocation funding.

*Internal reservation economic dynamics and economic development issues have been the subject of an exemplary program of research and development assistance sponsored by Dr. Joseph Kalt and the Harvard Project on American Indian Economic Development, at Harvard University's John F. Kennedy School of Government. While the analysis described in this paper emphasizes the off-reservation, macroeconomic influence and importance of Indian reservations, the unique dynamics of economic development on individual reservations also need to be studied.

dissemination effort (rather than a singular "study") be undertaken. This national inventory could involve the BIA, representatives of corporate America, experts in tribal governance and finance, and state and local government officials knowledgeable about the growing intergovernmental nature of human service delivery systems in America. This type of analysis could support meaningful dialogue between states and tribes regarding joint economic development strategies and coordinated investments in human services and infrastructure. It could also support informed debate and public policy decision making by the Committee and Congress as a whole.

The staff of the Center for Applied Research is committed to advancing research on this important topic and we commend the Committee for holding these hearings. I would like to thank you for the opportunity to present our research findings on the economic importance of Indian Country in the national economy.