Michou Kokodoko, Project Director, Community Development and Engagement

Michou Kokodoko, Project Director, Community Development and Engagement

For many people, running out of a staple like milk is no big deal. They hop in their car or run down to the nearest corner store for more. But in many lower-income areas, rural communities, or Native American reservations, there is no local grocery store. Residents may have to drive or walk several miles or more to access fresh milk and produce.

The Red Lake Trading Post, a grocery store located on the Red Lake Indian Reservation in northern Minnesota, aims to fill that gap in its community. Established in 1984, the Red Lake Trading Post moved to a new, larger facility in 2019 and expanded its operations and merchandise. At its new location, the store provides fresh fruits and vegetables, deli and bakery items, and even cosmetics, hardware, and auto supplies. New features include a gas station, a laundromat, ATMs, and a Subway restaurant.

New Markets Tax Credits (NMTCs) made it possible for the Red Lake Band of Chippewa Indians to build this full-service, 27,000-square-foot store in an area far from major population centers. NMTCs are designed to incentivize capital investment in low-income communities. Run through the U.S. Department of the Treasury’s Community Development Financial Institutions (CDFI) Fund, the NMTC Program can provide needed financing for initiatives that will help revitalize low-income communities like the Red Lake Nation. Under the program, the CDFI Fund awards NMTC allocations to certified financial intermediary organizations called Community Development Entities (CDEs), which sell the tax credits to private corporations or individuals in exchange for equity investments in those same CDEs. The CDEs then use the proceeds to make qualified investments—such as business loans or equity investments—in low-income communities. In previous work, the Center for Indian Country Development (CICD) has explored the ways in which NMTCs provide an important source of capital for economic development projects in Indian Country.

The Red Lake Trading Post was difficult for project partners to finance, due largely to longstanding barriers to lending that individuals and entities on reservations face. The project illustrates how parties structuring NMTC transactions can deal with those barriers.¹ In this article, we describe how several non-Native organizations and a tribe were able to work through tribal-sovereignty issues and credit and collateral challenges to fund a project that has had positive effects on a reservation economy.

Using multiple layers of financing

Organizations participating in the NMTC Program typically use a financing structure that can generate additional capital to provide all the financing needed for the project. “Multiple layers of financing are common in the community economic development industry or in difficult-to-finance projects, including this,” said one nonprofit executive when discussing the Red Lake project.

To make the financing work, the Red Lake Nation sought and secured involvement from multiple entities that filled distinct roles. Ultimately, the project spanned years of work among nine partners: Red Lake Retail Center, Inc. (borrower); Ogaakaanigh Enterprises, the Red Lake Nation’s economic development arm, formerly known as Red Lake, Inc. (guarantor); Native American Bank (co-lender); Clearinghouse CDFI (co-lender); U.S. Department of Agriculture (USDA) Rural Development (guarantor); Travois, Inc. (Community Development Entity allocatee); PNC Financial Services (NMTC investor); Brian Gorecki Real Estate Consultants LLC (consultant); and Midwest Minnesota Community Development Corporation, or MMCDC (consultant and co-lender).

NAFOA (founded as the Native American Financial Officers Association) awarded the Red Lake Nation and Ogaakaanigh Enterprises the 2019 Small Deal of the Year Award for the project. NAFOA praised the partners in the Red Lake project for their “creative use of multiple funding streams” over years of complex financial and development negotiations.