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Ho-Chunk, Inc.: A national model in reservation economic development.

Introduction

Thirty miles south of the South Dakota border in Thurston County, Nebraska on the Winnebago Indian Reservation there is a shining example of Indian Country economic development. Ho-Chunk, inc. with its 8 divisions and $51 million in revenues posted for the year 2001 has become a regional economic powerhouse in northeast Nebraska. (see Chart 1) The Ho-Chunk, Inc. model may hold possibilities for development on other reservations.

The History

Ho-Chunk, Inc. CEO Lance Morgan of Winnebago ancestry and a Harvard Law School graduate has been at the helm of Ho-Chunk, Inc. since 1994. At that time the Winnebago Nation was depending on its gaming operation, "Winnevegas" in Sloan, Iowa, which opened in 1992, to generate most of the Tribe's revenues. Although tribes have the power to tax, often they have a very small tax base. Therefore, tribes must rely on tribal businesses to fund their government programs. In 1994 the state of Iowa was about to put some pressure on the Winnebago Nation. They were allowing for expansion of riverboat gaming.

In March of 1994, legislation was enacted that would allow for unlimited wagering and elimination of loss limits, pending local referendum approval, for the expansion of gaming in counties where riverboat gaming operations existed. (1)

This was going to create tough competition for the Tribe's gaming enterprise. With gaming profits sun-setting on the tribe, they were faced with diversifying their economic development efforts away from gaming. That is when John Blackhawk, Chairman of the Tribal Council, recruited Morgan to the community from his job with the large corporate law firm of Dorsey & Whitney LLP in Minneapolis. Morgan was given the task of constructing an economy. His tools were a wholly owned tribal enterprise known as Ho-Chunk, Inc. and twenty percent of gaming profits for two years as seed money.

Initially Morgan, working out of his apartment, invested the profits into existing ventures such as hotels. As the gaming revenues dwindled due to the success of the non-Indian gaming competition, it was becoming obvious that Ho-Chunk, Inc. was going to need a new approach.

Without significant funding from the Tribe, the fledgling tribal enterprise initiated reservation-based tribal businesses to generate revenues that would replace the lost gaming revenues. This began what would become the economic engine that is Ho-Chunk, Inc. today. "This 'make or break' the company experience was extremely beneficial because it forced Ho-Chunk, Inc. to be an innovative and aggressive entity. Almost all of Ho-Chunk, Inc.'s current operations stem from the decisions made after our funding from gaming was eliminated," states Morgan.

Mission Statement

The Winnebago Tribal Council understands that the Winnebago Tribe of Nebraska (Tribe) is entering into a new phase of economic development Tribal business operations are growing in sophistication and in the amount of attention they require. In order to allow tribal business enterprises to be developed and operated more efficiently, the Tribal Council has, established Ho-Chunk, Inc., a tribally-chartered corporation which is wholly-owned by the Tribe. Ho-Chunk, Inc. was established so that tribal business operations Would be free from political influence and outside of the bureaucratic process of the government.

Ho-Chunk, Inc.'s immediate mission is a simple one--to use the Tribe's various economic and legal advantages to develop and operate successfully tribally-owned business enterprises, and to provide jobs and opportunities for tribal members. Such businesses will be developed both on and off the Winnebago reservation. The long-term mission of Ho-Chunk, Inc. is to provide the Tribe with a large enough income stream from its business operations to enable the Tribe to reach total economic self-sufficiency. (2) (see Chart 2)

Divisions

Ho-Chunk, Inc. is made up of 8 divisions that include the following: HCI Distribution Company, Heritage Express, All Native.com, Indianz.com, All Native Systems, Dynamic Homes, HCI Construction, and Ho-Chunk Community Development All of these divisions fall under the Ho-Chunk, Inc. leadership and are operated separate from tribal government

The Strategy

Morgan labels his plan: Reservation Economic Development "A Total Approach". He outlined this plan in a speech he' delivered at RES 2002, (3) a R.eservation E.conomic S.ummit & American Indian Business Trade Fair coordinated by the National Center for American Indian Economic Development (NCAIED). What makes HoChunk work? Morgan points to four main elements that will allow tribal success:

1. Government Continuity

2. Separation of Business and Politics

3. Proper Strategy

4. Intra-Tribal Coordination of Resources

1. Government Continuity

There is a specific role of the tribal council in tribal enterprise. The tribal government must be stable and provide continuity from one administration to the next. Morgan makes one simple recommendation to all tribes in regard to assuring government stability and continuity. Stagger your terms for electing tribal councilmen. Highlights of the differences between staggered and non staggered terms are as follows:
Staggered Terms Non Staggered Terms

Allows long term planning Hurts implementation of long
 term plan
Positive political environment Spoils system of governance,
 all or none
Reduces chances of radical short Decision making becomes
term decision making both before politically motivated both
and after elections before and after elections,
 elections becomes
 destabilizing events


System of Principles Governing the interaction between the Tribe and Ho-Chunk, Inc.

-Pool of Investment Capital

Funding set at 20 percent of casino profits initially. The rule here is that the funding source cannot be determined completely through the tribal system. By gaining quasi independent seed funding from the Casino profits they, were able to bypass the tribal decision making process and therefore bypass politically motivated decisions.

-Reinvestment of Profits

For the first five years profits would be reinvested back into the company. After five years there would be an automatic dividend paid to tribal members of 10 percent of the profits annually.

-Personnel Decisions

All personnel decisions will be made by Ho-Chunk, Inc. This system is independent of the tribes hiring practices and is insulated against political interference.

-Accounting Systems

Ho-Chunk, Inc. operates its own accounting systems independent of the tribe so that they can establish a business friendly system that can provide access to information immediately.

-No Governmental Function

Ho-Chunk is barred from making any governmental decisions. Again, this keeps business and politics separated.

-Legal and Economic Advantages

Tribes have unique legal status and along with that status goes significant economic advantages. It is the function of Ho-Chunk, Inc. to maximize these advantages.

2. Separation of Business and Politics

Morgan states that tribal governments are like all governments; they are terrible at running businesses. He mentions Russia, Cuba, and Eastern Europe as examples. Political motivations crept into all aspects of the decision making process, and thereby, hurt the long term prospectus of the business operations. However, because most tribes lack sufficient tax revenues to fund their government they are forced to enter into business to generate governmental revenues. (4)

Morgan further describes Ho-Chunk, Inc. as a hybrid solution; it is a corporation which is wholly owned by the Winnebago Tribe with all of its legal and economic advantages, but with a different system of checks and balances that limits politician's ability to impact business decisions. The answer to this problem is clearly defined roles.

Ho-Chunk Team Member Roles:

Winnebago Tribal Council role:

* Appoint Ho-Chunk, Inc. board of directors

* Approve long-term plan

* Approve annual investment plans for the company

Ho-Chunk, Inc. Board of Directors role:

* Hire CEO

* Conduct financial audit

* Develop annual report and annual plan

* Match investments to long term plan

CEO:

* Handle day to day operations

* Implement the operating and investment plans

* Make all personnel decisions

Board composition:

* Five members

* Two members are required to be Tribal Council members

* One of remaining three must be tribal community member

* Two remaining Board members do not have. to be tribal members but must bring some sort of expertise to the board

Ho-Chunk felt it was necessary to take the further step of including in the long term plan a system that governs the interaction between the two entities. They were fearful that if they left this in the accepted tribal configuration that it would be part of the articles of incorporation. If this were the only check on the power of the tribe it would ignore the articles of incorporation whenever it was political advantageous.

3. Proper Strategy

Morgan has organized the types of economic development available to all tribes into the following groups:

Common Types of Tribal Economic Development

A. Grant based economic development

B. Non-profit based economic development

C. Entrepreneur based development

D. Tribal corporate economic development (Tribal Enterprise)

a. Single purpose entity. One business idea with no plans of moving past this one idea

b. General purpose entity. Multiple types of business development will expand to fill needs.

c. Financial entity. Invest tribes revenues into passive investments with little human capital required

d. Government contracting. By nature of tribal government status they gain preference for various government contracts.

E. Business recruitment (5)

All of these types of economic development are being put to use in Indian Country today with varying degrees of success. Morgan's premise is that each tribe must first consider what unique advantages and the tribe's political and economic motivations are. A tribe's first consideration should be the population of the tribe and the need for corresponding tribal employment versus its available financial resources.

The above illustration shows two different types of tribes. The Mdewakanton Dakota Community which operates Mystic Lake Casino has a small population and a large amount of revenue generated from their casino operation. They do not need to create jobs; their focus should be on reinvestment of tribal profits in order to maximize the tribe's investment. On the other hand a community like Pine Ridge with a very large population and a small amount of per capita financial resources is going to need to look at job development. Their strategy should maximize grant and non-profit based resources along with an effective business recruitment strategy. This approach would make more strategic sense.

4. Intra-Tribal Coordination of Resources--"The Total Approach"

Morgan's last thesis is "The Total Approach". "The Total Approach" states that most all tribes have the resources available to them to implement a successful economic development strategy. His concern is that they are poorly coordinated. Ho-Chunk, Inc. has pulled-these often competing resources into one strategic plan. Ho-Chunk, Inc. did not start out as a socially responsible development entity. It started as a for profit corporation that was intended to provide revenue to fund government services. There was an indirect consequence of the success that Ho-Chunk, Inc. enjoyed; tribal member's lives were improved, more jobs where created and better services were provided. The leaders of Ho-Chunk, Inc. were not satisfied by the speed with which this was occurring. The leaders decided to include a social aspect into their business plan and better control this initially unintended consequence. By adding a planning department and a non-profit corporation they were able to seek out government funding .to help with the effort of developing infrastructure and community development.

The Winnebago tribe now has a single entity that is responsible for the coordination of all funding sources and can implement a reservation wide economic development strategy that minimizes upfront capital investments, maximizes corporate resources and has an immediate social impact. (6) (see Chart 3)

Impact on the Tribe

Ho-Chunk, Inc.'s meteoric economic development has helped reduce the Winnebago Reservation's unemployment rate from 65 percent to 10 percent in seven years. "To give you a sense of how quickly we've grown," Morgan said, "HCI went from one employee... in 1995 to 300 employees this year, and an anticipated $80 million revenue stream by the end of the year, making a huge difference on our reservation." (7) (see Charts 1 and 4) This is an exciting and uplifting story in what has historically been a sad rendition of failure after failure of economic development in Indian Country.

Controversy

I have mentioned the tribes various economic and legal advantages. These advantages take the form of tax free status, primarily in the area of gasoline and cigarette distribution. Ho-Chunk, Inc., as a wholly owned tribal entity, distributes to retail outlets on reservations in surrounding states. Some feel that the advantage is an unfair one. In fact the Kansas Department of Revenue claims Ho-Chunk, Inc. owes delinquent excise taxes from the sale of gasoline to Indian-owned stores in the Sunflower State. The most recent finding favored Ho-Chunk, Inc.; U.S. District Judge J. Thomas Marten's ordered the state to cease attempts to collect taxes on Winnebago gasoline. The State of Kansas is appealing the decision.

Conclusions

Ho-Chunk, Inc. is a model for the rest of Indian Country to study and learn from. Not every tribe will be able to emulate their success. However all will be able to take lessons from them. They have taken the treaty rights their ancestors fought for and the sovereignty they were awarded and molded an economic society where there once was none. The Winnebago people built an economy and are in the process of redefining their society. Poverty is losing its strangle hold on this community. People are returning to their traditions and are proud to identify with their tribe and its achievements.

Indian nations are sovereign and enjoy a special relationship with the United States government. There will be controversy as Indian Nations choose to exercise their economic sovereignty, because for so long they have chosen not to. The broader community is not accustomed to this exercise of sovereignty. This will be hard for them to accept. These "advantages" have been bought and paid for by the land transaction of the past that resulted in the treaties that grant this sovereignty. Many people feel that the reservation system is broken with no hope for repair. I ask them to look at Ho-Chunk, Inc. and the Winnebago Tribe as a shining example of a tribal enterprise that is exercising its right to compete and flourish as a sovereign unit within the United States. Their entrepreneurship is adding value to the lives of the people of the Winnebago Nation as well as the people of the surrounding communities be they Native American or not.
 South Dakota
 Latest Latest Year Percent
General Indicators Quarter Quarter Ago Change

Personal Income ($ Mil.) 2002-3 21,119 20,326 3.9
Farm Prop. Income ($ Mil.) 2002-3 732 686 6.7
Non-ag Employment (Thous.) 2002-4 377 379 -0.5
Unemployment Rate (%) 2002-4 2.8 3.8
Total Employment (Thous.) 2002-4 400 391 2.3

 United States
 Latest Year Percent
General Indicators Quarter Ago Change

Personal Income ($ Mil.) 8,984,227 8,697,999 3.3
Farm Prop. Income ($ Mil.) 10,753 19,488 -44.8
Non-ag Employment (Thous.) 130,806 131,130 -0.2
Unemployment Rate (%) 5.9 5.6
Total Employment (Thous.) 134,364 134,308 0.0

Note: All U.S. data seasonally adjusted.

For South Dakota, all data is seasonally adjusted except for non-ag
employment.

Chart 1

Winnebago Nation Revenue In Thousand Dollars 1995 - 2001


1995 $580
1996 $1,460
1997 $3,890
1998 $8,100
1999 $15,175
2000 $22,971
2001 $51,612

Source: www.hochunkinc.com/images/financials.pdf

Note: Table made from bar graph

Chart 2

Winnebago Nation Net Income In Thousand Dollars 1995-2001


1995 $3
1996 $22
1997 $12
1998 $272
1999 $637
2000 $1,194
2001 * $843

Note: Excludes one time charge of $550,000 related to sales of hotel.

Source: www.hochunkinc.com/images/financials.pdf

Note: Table made from bar graph

Chart 3

Winnebago Nation Intra-Company Transactions In Thousand Dollars
1998-2001


1998 $76
1999 $2,483
2000 $7,72
2001 $15,309

Source: www.hochunkinc.com/images/financials.pdf

Note: Table made from bar graph

Chart 4

Winnebago Nation Employment Statistics 1999 - 2001


2001 285
2000 230
1999 135

Source: www.hochunkinc.com/images/financials.pdf

Note: Table made from bar graph


Endnotes

(1.) http://www.iowagaming.org/PressRoom/history.html

(2.) http://www.hochunkinc.com/heritage.htm

(3.) http://www.ncaied.org/res/

(4.) Lance Morgan Res 2002 Speech R.eservation E.conomic S.ummit & American Indian Business Trade Fair coordinated by the National center for American Indian Economic Development (NCAIED)

(5.) Ibid

(6.) Ibid

(7.) http://www.cjonline.com/stories/090202/kan_morgan.shtml

RELATED ARTICLE: 8 Divisions of Ho-Chunk, Inc.

HCI Distribution Company

* HCI Distribution Company sells Native American tobacco products and gasoline products blended on the Winnebago Reservation.

Heritage Express

* Convenience stores specializing in discount gas and cigarette sales.

AllNative.com

* Native American e-commerce website.

Indianz.com

* Internet Resource for Native American Indian News.

All Native Systems

* Voice and Data communications solutions.

Dynamic Homes

* The largest modular housing manufacturer in Minnesota.

HCI Construction

* Complete turn-key solutions for individual and commercial building.

Ho-Chunk Community Development

* The non-profit corporation of HCI.

About the author:

Clint Warra is the Coordinator of The University of South Dakota and Sitting Bull College Entrepreneurship Partnership, located at the Business Research Bureau, School of Business, The University of South Dakota in Vermillion.
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Author:Waara, Clint
Publication:South Dakota Business Review
Geographic Code:1USA
Date:Mar 1, 2003
Words:2817
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