A Tale Of Two Tribes And Their Fortunes

INDIAN TOWNSHIP, Maine - This is a tale of big money and two small Indian tribes that got it.

It began 10 years ago - on Oct. 10, 1980 - when President Jimmy Carter signed an agreement to give the Passamaquoddy and Penobscot tribes of Maine $81.5 million to settle a long and nasty land dispute. The tribes had contended that they owned nearly two-thirds of Maine, which they said had been unfairly taken from them in the past 200 years.

The federal government agreed that the tribes had been wronged and offered them money. The Indians, weary of fighting in court and fearful of ending up with nothing, accepted.

With the settlement, the Passamaquoddies and Penobscots began on equal footing. They shared the same hefty bank balance, splitting the money down the middle. They shared the same goals - to buy land and improve the lot of their impoverished members. And they shared the same amount of experience in the white man's world of high finance - none.

During the next 10 years, they did not share the same fate.

Today, the 2,600-member Passamaquoddy tribe has multiplied its initial wealth more than 2 1/2 times - an achievement that would make most Wall Street money managers envious. In one deal last year, the tribe netted a $60 million profit from the sale of a cement company. And the Passamaquoddies are poised to earn millions more, perhaps tens of millions, from a spinoff company that is pioneering anti-pollution technology for the cement industry.

In contrast, the 1,950-member Penobscot tribe has suffered from a series of bad land deals and other soured investments that have mired it in debt and triggered bitter political infighting. While on paper the tribe has not lost any money, its assets have increased only modestly - despite a decade in which it seemed nearly impossible not to make mountains of money from investing in land.

How one tribe did so well and the other so poorly is a saga of made and missed opportunities, of good and bad timing, of luck and misfortune. It also is a tale without a happy ending for either tribe, at least not yet. Both the Penobscots and the Passamaquoddies still suffer from high unemployment, alcohol and drug abuse, dependence on welfare and internal feuds - longstanding problems that money, even invested wisely, cannot quickly solve.

Looking back, Timothy Love is brutally frank in assessing the financial decisions he made while serving as the Penobscots' governor from 1980 to 1986. Love, who was 28 when the land-claims suit was settled, describes himself in three words: ``Young and dumb.''

``If I knew then what I know now, I would have done some things very differently,'' said Love, who now lives in Massachusetts.

Ironically, Love's biggest blunder was quickly investing his tribe's new-found wealth in thousands of acres - a strategy that seemed logical at the time. After all, the point of the settlement was to allow the tribe to recoup the vast tracts of hunting grounds that had been lost to American colonialists two centuries ago.

``This was the Land Claims Settlement Act,'' said Philip Guimond, the tribe's current lieutenant governor. ``We wanted to get as much land back as we could.''

But Love, Guimond and other tribal members now acknowledge that buying land right away was an ill-timed and costly mistake.

Under the terms of the settlement, the tribes could spend two-thirds of their money on land or other investments, with the rest going to a conservatively managed permanent trust fund that would pay tax-free dividends to tribal members. While the tribes were free to buy land wherever and whenever they wanted, each was entitled to purchase up to 150,000 acres of permanent trust land - specially designated acreage in undeveloped parts of the state that was exempt from property taxes.

The Passamaquoddies were in no hurry to buy land. With interest rates approaching 20 percent in the early 1980s, they decided to bank most of their cash or invest it in economic-development projects.

They bought property only when they saw a good deal. During the last 10 years, they accumulated 143,000 acres, all but 10,000 in trust. Most of the land was freshly cut timber land, the cheapest acreage available in Maine.

In contrast, the Penobscots bought 144,000 acres of higher-priced, unharvested timber land in less than two years - the majority of it ineligible as trust land. The tribe hoped to speculate, using the non-trust property as collateral for other investments and selling or trading it as its value increased.

Unfortunately, the Penobscots had purchased the land at the very peak of the market - and soon watched it fall in value.

``It was a bet,'' said Thomas Tureen, a Portland attorney who has advised both tribes on their investments and recommended against the Penobscots' land purchases. ``As it turned out, it made them land-poor.''

To finance other deals, the Penobscots were forced to borrow. Their first major project, paid for with a $1.5 million loan, was another disastrous mistake.

That was the Sockalexis Arena - an ice hockey arena the tribe built in 1984 on its reservation on Indian Island, which lies in the Penobscot River about 10 miles north of Bangor. The idea was to improve the tribe's relationship with neighboring communities by bringing in area hockey teams and skaters. Tureen was against it.

``When we tried to run it,'' said Jim Sappier, the tribe's current governor, ``we lost our shirt.''

Losses were reduced when the tribe later let the University of Maine manage the facility, but the rink has continued to drain the tribe's assets.

There have been other fiscal fiascos. In 1986, the Penobscots purchased the state's largest mobile-home dealer, only to see it go bankrupt two years later. The tribe also guaranteed a loan to a condominium developer. The company, too, went under.

The Penobscots also lost more than $400,000 from their permanent trust fund - which by law is never supposed to drop below its original balance - when dividends were paid out to tribal members before the fund's certificates of deposit had matured.

Because of such mistakes, 72 percent of the tribe's operating budget is used to pay off $3 million in debt - a heavy burden on a newly elected tribal government struggling to turn things around.

``I've never been so tired in my life,'' lamented Sappier, 49, who was elected to a second term.

Just a quick drive through the Passamaquoddy reservation at Indian Township, along Route 1 on Maine's eastern border with Canada, provides ample evidence that this tribe has money to spend.

There's a gleaming new $1.2 million recreation center, with an indoor swimming pool and a 10-lane, computerized bowling alley; a contemporary, blond-shingled government center; a bevy of satellite dishes bringing in two dozen cable TV channels; a newly enlarged and spruced-up bingo hall, and a freshly cleared construction site where bulldozers have been flattening the earth to make way for an industrial complex.

All this in a county that is one of the most economically depressed in all of Maine.

The Passamaquoddies' good fortune can largely be traced to the tribe's spectacular success in the cement industry - an investment that has become a Harvard Business School case study.

In 1983, the Passamaquoddies purchased Dragon Cement Co. for $2 million in cash and $6 million in loans. The tribe later expanded the operation with additional loans and $13 million in tribe-issued tax-exempt bonds - the first leveraged buyout by a North American Indian tribe.

Then in 1988, with some tribal members nervous about Maine's economy, the Passamaquoddies sold the cement operation to a Spanish company for $81.3 million. In five years, the tribe had earned about $60 million - 1 1/2 times the initial land-claims settlement - on a $2 million investment.

The tribe set aside some of the money to provide financing for the plant sale and to fund new projects. It also spread some of the wealth to its members, paying out $8 million in dividends. Each member received $2,400, with those over 60 getting an additional $9,800. An additional $12.5 million was used to double the tribe's permanent trust fund.