New jails, courts result of innovative line of credit

When construction on new jail and court facilities begins this summer, it will mark the end of seven years of planning and fruitless searches for money that never seemed to be there.

It turns out, like a well, the money just had to be tapped.

The Navajo Nation Council approved a $60 million loan with Cleveland-based Key Bank during its winter session that will be used for construction of up to three new jail facilities throughout the reservation.

It is believed to be one of the largest transactions the tribe has made with an outside entity in its history and will be repaid with a tax fund the council created two years ago.

The first site, Tuba City, is expected to start physical construction in July. Presumably it will be a welcome sight for the community, which saw its original jail condemned in 2005 and demolished in 2008.

"There's been an energized feeling these past few days," said Delores Greyeyes, Department of Corrections director. "Just knowing we're going to have something in 18 months, 24 months from now, it's very exciting."
The loan is a tax-exempt line of credit with Key Bank's Native American Financial Services based in Bellevue, Wash., and loans from it will be repaid over 20 years using a tribal tax fund created specifically for jails and courthouse construction.

The tribe increased the Navajo Nation sales tax by 1 percent in 2007. The money earned from the increase is earmarked to pay for public safety and judicial facilities.

Kee Allen Begay (Many Farms/Round Rock) sponsored the plan in an effort to pool money that before then had been hard to come by. He envisioned constructing joint public safety/judicial buildings in each agency. And with the tax fund, that plan was ... well, it was still out of reach.

At the time, each justice complex was estimated at up to $40 million, while the 1 cent tax was projected to raise about $5 million annually.

"If you do the math, that means we would have to wait 10 years just to get one facility," Begay said. "It would be 70 years before we completed what we wanted to do."

Begay, Judiciary Committee chair, then brought his committee to the Budget and Finance Committee to discuss alternatives. The committees agreed to look for a way to leverage the tax revenues as loan collateral, thereby raising the money needed to complete projects.

The unpleasant necessity

Begay said it wasn't surprising the council was hesitant to use tribal revenue to construct jail facilities, although it has given money to the Department of Corrections for related costs. Begay theorized that delegates might think building jails is surrendering to the notion that crimes are imminent, that more jail beds will lead to more inmates.

However, jail facilities are like other social needs, Begay said.

"It's like saying, 'Why do we need a hospital?' People might say they keep themselves healthy, but they don't realize that one day they might have an accident, break a leg. That's the purpose of having a hospital.

"We aren't saying that our Navajo people are really lawless, but we should have something in place," Begay said.

The Tuba City facility is expected to cover 133,000 square feet and cost more than $50 million. However, only $10 million is expected to come from the loan, while the rest is financed under the American Recovery and Reinvestment Act.

Similarly, Crownpoint, which was not far enough along to be eligible for ARRA funds, will cost $38.6 million and will be 112,000 square feet of police, jail and court space.

Any leftover loan money - about $10 million - will be set aside for a facility in Chinle, Greyeyes said.

The tribe will have 20 years to repay the line-of-credit loans. The line of credit itself is a marvel considering the current economic climate.

"The Navajo Nation has carried with it a reputation for being extremely solid financially," said Mike Lettig, executive vice president and national executive for Native American Financial Services and Agribusiness for Key Bank. "It would suggest a number of institutions are clamoring to do business with the nation."
Key Bank has also agreed to allow the Navajo court system to oversee any dispute resolutions that might occur.

"That in itself is an important achievement," said LoRenzo Bates (Upper Fruitland), Budget and Finance Committee chair, and sponsor of the line-of-credit legislation. "To have a major financial institution recognize Navajo Nation law and courts, that has never happened, that I know of, in the history of the Navajo Nation."

Lettig said the move by the bank is not far-fetched, particularly after the bank invested a significant amount of due diligence.

"The Navajo court system is one of the most sophisticated within Indian Country," he said. He referred to a legal brief prepared before the U.S. Supreme Court in 2007 regarding jurisdiction in a defaulted loan.

According to a review of Navajo Nation court cases from 1969 through 2007, nearly 20 percent involved litigants who were not tribal members in a wide range of cases. And of those, non-Navajo parties won in 47.4 percent of the cases.

"There is no basis to believe that there is any unfairness toward or bias against non-Indians in the Navajo courts," states the brief, which was prepared by attorney Steven McSloy, of the Hughes and Hubbard law firm in New York.

For Key Bank, the brief was simple, Lettig said.

"It convinced us that we were looking at an unbiased system," he said. "And justice truly is blind within the Navajo Nation."
Still, Bates said the Navajo courts could find themselves in unplumbed waters if it becomes necessary to try a case involving the line of credit. The court system does not have a section that primarily deals with commerce or business.

"This is where the nation has to become an expert," Bates said. "The courts have not been tested. With this agreement, we can no longer sit back and take for granted that we are all going to get along."

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