Council gives $50 million to tribal LLC
Kituwah LLC’s offices are located on U.S. 441 across from Waffle House. Holly Kays photo
The Cherokee Tribal Council voted to allocate an additional $50 million to Kituwah LLC, the tribe’s economic development arm, during its regular monthly meeting Thursday, Aug. 1.
“With the first $25 million of seed money, our performance has proven that we are good stewards who have been fiduciarily responsible with the tribal funds, with the people’s funds,” Kituwah Board Member Samuel Owle told Tribal Council. “This additional $50 million will help us manage our assets more efficiently.”
The LLC was formed in March 2018, with its board seated in June 2018 and a CEO hired in November. The initial $25 million has already been allocated. In the last 90 days, the entity sifted through nearly 80 business proposals and ultimately approved 12 for investments, with another 16 slated for further due diligence, Councilmember Jeremy Wilson, of Wolfetown, said during the Aug. 1 meeting. Allocating the additional $50 million would allow the LLC to pursue further opportunities and cut overhead costs from 4 to 1.75 percent of equity, Owle said.
“Every project that we have funded and every investment that we have made is profitable, and with the closing of two additional projects in the next 20 days approximately, those will be immediately profitable as well,” said Mark Hubble, CEO of Kituwah LLC.
However, some Tribal Council members were uncertain about transferring such a large sum of money. The tribe’s endowment funds are doing well, earning a return of 8 percent, said Councilmember Perry Shell, of Big Cove. Is more discussion needed to ensure the $50 million investment will be a good one and that the tribe can afford it right now?
“I want to see this happen,” he said. “I want to see you guys succeed as well, but at the same time I don’t want to do anything that would negatively impact our own financial situation with the obligations that we already have.”
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Shell’s comment was partially in response to Finance Secretary Cory Blankenship, who said that Equity Fund No. 2, out of which the resolution proposed to withdraw the $50 million, wasn’t sufficient to contribute such a large sum while also funding the various “essential projects of the tribe” planned to come out of it. Additionally, said Blankenship, he hadn’t yet received the information he’d requested from the LLC to help Tribal Council make an informed decision.
“At this time I cannot provide an endorsement for the $50 million equity contribution,” said Blankenship. “I think the LLC should consider some types of milestone distributions so that Council is not necessarily involved in the individual transactions that are occurring with the LLC but the LLC is providing some information that when we hit this milestone, there is an additional $10 million contribution once this milestone is reached.”
But waiting, said Hubble, could prove detrimental to some of the LLC’s pending deals. For example, the organization is looking into buying a modular home company that currently supplies many of the homes purchased by tribal members. If the LLC purchased the business, it could sell the homes to tribal members at cost, cutting out the middleman and decreasing the cost of buying a house by 5 to 10 percent.
“We’re buying this at kind of a distress price,” he said. “It probably will not be available if we wait.”
Some councilmembers then voiced their support for the request.
“I don’t think they would be bringing this in here if it wasn’t going to be making us money,” said Councilmember Albert Rose, of Birdtown. “I know they’re already making profit and some of the projects we met on two years ago we have not even started.”
“I guess from my standpoint based on the information that’s laying in front of me is that you’re doing your job, you’re doing your work,” said Wilson. “I’ve got all the information that I personally need.”
Other councilmembers maintained their reticence.
“The price might even go down on that modular company if we table this and let finance meet with them and see what it is that we’ve approved already that won’t be funded now versus this $50 million to the LLC,” said Shell. “We’ve already committed some of this or have already obligated the money we’re talking about right now from my understanding.”
Blankenship then followed up to say the tribe could meet the $50 million request if it were spread across multiple funds. He asked that the resolution be amended to include the debt service sinking fund and Endowment Fund No. 1 as additional revenue sources.
“You have adequate resources across those three funds to make a $50 million contribution if you have a comfort level with doing that,” said Blankenship, “but it needs to be split across those three funds.”
Tribal Council voted to accept Blankenship’s amendment.
Before voting on the $50 million, asked Councilmember Bo Crowe, of Wolfetown, wouldn’t it be better to inform the community about what had been done with the original $25 million, thus increasing their comfort level with the $50 million?
“The only thing I’m not comfortable with is when you take the $50 million out of our investment funds, are you able to assure us that it’s going to get the same kind of gains we’ve been seeing in investments, up to 8 percent?” asked Chairman Adam Wachacha, of Snowbird.
“If the targeted return to the endowment is 8 percent, we will do better than that,” Hubble replied.
He added that a strong market overall has allowed the endowment funds to do as well as they have recently, but that the LLC’s investments will prove more steady than the endowment funds’ returns in the case of a downturn or flattening in the market.
Crowe moved to table the resolution, but it failed for lack of a second. Ultimately, Tribal Council voted to fund the LLC’s request, approving the resolution 9-3. Crowe, Wachacha and Vice Chairman David Wolfe voted against the move to pass, with the other nine councilmembers voting in favor.
