Navajo Arts and Crafts struggling with debt

Copyright © 2009
Gallup Independent
By Kathy Helms
Diné Bureau

WINDOW ROCK — Navajo Arts and Crafts was called on the carpet before the Budget and Finance Committee this week to discuss how it was going deal with outstanding debt after the Bureau of Indian Affairs canceled the guaranty on a loan to the enterprise, causing Native American Bank to exceed its legal lending limit.

Barbara McGough, chief executive officer for Arts and Crafts, told the committee that the tribal enterprise is now “absolutely current” with all of its Native American Bank obligations.

“All of our commitments with regard to any loan document requirements are being met. Our audit started last week for the year 2008, and hopefully it will be presented to the board of directors on approximately July 27. That’s our schedule.

“As far as a corrective action plan, the board has directed me to hold off presenting that to you because we do not have it presented and approved by our oversight committee at this time,” she said.

Budget and Finance member Lorenzo Curley shifted back and forth in his chair, shaking his head, prompting Chairman LoRenzo Bates to remark, “Mr. Curley, you look like you have something you want to say.”

“I am just disgusted that there’s nothing here to report because it seems to me, based on this letter written to you (from Native American Bank), that there’s big issues and we’re here today to discuss that, but we just get window dressing and that’s it. That’s totally unacceptable. These are assets of the Navajo Nation.”

“I understand your frustration, Mr. Curley, because we have the same frustration,” McGough said. “All I can tell you at this time is we are dealing with all of our debts.”

Bates questioned whether they had made arrangements to pay employee insurance owed to the Navajo Nation.

“That balance was $423,000. We have made arrangements with them for $5,000 a month. This week we will be making our third payment. That’s how much money has been available to pay them back,” she said, adding that she has contacted the insurance program and requested that the insurance be reinstated, prompting Bates to ask whether that has occurred.

“No, it has not been reinstated yet. It’s going to depend on the insurance commission and when they decide whether we’re worthy or not, for lack of a better word,” she said.

“So at this point, you’re still a very serious liability to the Navajo Nation until you are reinstated?” Bates inquired. McGough agreed.

Arts and Crafts has reduced its accounts payable with regard to vendors since Jan. 29 by almost $1 million, she said. “We’ve met with the Tax Commission and we have filed the reports that were missing for ’06 and ’07. That’s about $600,000. We have received a penalty of $400,000. We have sent a letter requesting a conference to appeal that.”

In response to a question from Hoskie Kee regarding a plan for Navajo Housing Authority to purchase residences owned by Arts and Crafts, McGough said the enterprise has two residences left. “One is a triplex in Gallup, which I have contacted a real estate agent in Gallup and am trying to sell.

The issue is that we purchased that triplex at $180,000 and it’s probably valued at about $140,000.”

“As far as the residence at Karrigan, at this point we’re keeping that. I am in residence at that house until the end of June when my contract expires, and the board is looking for a CEO. She said they are keeping the house there ‘because we know finding a residence is very difficult.’”

One reason the idea came up about selling the residences, she said, was because Arts and Crafts lost the BIA guarantee on the loan and Native American Bank exceeded its percentage with regard to lending any one entity a certain amount of money.

In an April 20 letter to Bates, the bank said it met with BIA on March 31 regarding a $1.2 million loan to Navajo Arts and Crafts made in January 2007.

“Since that time, NACE has experienced various challenges and management changes. NAB has asked for but not received financial reporting from NACE. Due to the lack of financial reporting, NAB was advised by the BIA that the guarantee is no longer valid.”

This exposed NAB to legal limit issues, said Mark Patterson, the bank’s business development officer, because as of March 31, the bank can only have $1.544 million out to any one borrower. With the 90 percent BIA guaranty, the bank only had to count 10 percent of the $1.2 million loan toward the legal lending limit.

Because the BIA guaranty is no longer in effect, he said, the full balance of the loan counts toward the legal lending limit, causing the bank to be over its limit by $265,378, and posing significant risk to the bank.

He recommended Navajo Housing Authority buy the residences owned by Arts and Crafts and then enter into long-term leases for the houses. In addition, he said, the Navajo Nation would need to come on as co-borrowers for the remaining credits.

Arts and Crafts has seven loans with the bank totaling $1,809,378.