Excerpted From: Michael K. Velchik and Jeffery Y. Zhang, Restoring Indian Reservation Status: An Empirical Analysis, 40 Yale Journal on Regulation 339 (Winter, 2023) (315 Footnotes) (Full Document)


VelchikZhangOn August 8, 2017, a three-judge panel on the Tenth Circuit issued a 127-page opinion in Murphy v. Royal declaring that the eastern half of Oklahoma was Indian country. The case concerned the habeas petition of death-row inmate Patrick Murphy, who had been convicted in state court of first-degree murder. After seventeen years of post-conviction litigation, Murphy raised a novel argument: even accepting that he was guilty of the crime, the State of Oklahoma lacked jurisdiction to prosecute him because he was a member of a federally recognized Indian tribe.

Under the Major Crimes Act, the federal government has exclusive criminal jurisdiction over major crimes--such as murder--committed by a member of a federally recognized Indian tribe in “Indian country.” Both Murphy and his victims were members of the Muskogee (Creek) Tribe, one of the so-called “Five Civilized Tribes” that relocated to Oklahoma in the 19th century. The only question was whether the eastern half of Oklahoma was still “Indian country.” Until 2017, practically everyone understood that the Five Tribes had no reservations in Oklahoma after it became a state in 1907. It was therefore a shock to have a federal appellate court declare that Indian tribes suddenly enjoyed sovereignty over 1.8 million people inhabiting 19 million acres of land (including the city of Tulsa). The Creek reservation instantly became by far the largest reservation by population in the United States. The potential economic effects of this decision were enormous.

The Supreme Court granted certiorari. During the litigation, the parties relied heavily on consequence-based arguments. The State of Oklahoma argued that the sudden recognition of Indian territory over half the state would destabilize the local economy by creating the largest Indian reservation in America today, one that would include Oklahoma's second-largest city. Murphy, the Creek Tribe, and amici argued otherwise. At oral argument, Justice Alito asked the United States “about the practical effects of the Tenth Circuit's decision.” Justice Kavanaugh mused that “stability is a critical value in judicial decision-making, and we would be departing from that and creating a great deal of turmoil. And so why shouldn't the historical practice, the contemporaneous understanding, the 100 years, all the practical implications say leave well enough alone here?” Justice Breyer even raised concerns over tribes regulating non-Indians' pet dogs. No area of administrative law was left unexamined! The Court also granted certiorari and heard arguments in a companion case presenting the same question: McGirt v. Oklahoma.

On July 9, 2020, the Supreme Court decided both McGirt v. Oklahoma and Sharp v. Murphy. Writing for the majority, Justice Gorsuch eschewed any consequence-based arguments, characterizing them as “self-defeating.” He explained:

In reaching our legal conclusion, we do not pretend to foretell the future and we proceed aware of the potential for cost and conflict around jurisdictional boundaries, especially ones that have gone unappreciated for so long. But it is unclear why pessimism should rule the day. With the passage of time, Oklahoma and its Tribes have proven they can work successfully together as partners. No one before us claims that the spirit of good faith, “comity and cooperative sovereignty” behind these agreements will be imperiled by an adverse decision for the State today any more than it might be by a favorable one.

The Chief Justice dissented, joined by Justices Thomas, Alito, and Kavanaugh. In contrast, he raised concerns over the economic consequences of this decision:

The rediscovered reservations encompass the entire eastern half of the State--19 million acres that are home to 1.8 million people, only 10%-15% of whom are Indians .... [T]he Court has profoundly destabilized the governance of eastern Oklahoma. The decision today creates significant uncertainty for the State's continuing authority over any area that touches Indian affairs, ranging from zoning and taxation to family and environmental law .... Here those burdens--the product of a century of settled understanding--are extraordinary .... Beyond the criminal law, the decision may destabilize the governance of vast swathes of Oklahoma .... State and tribal authority are also transformed. As to the State, its authority is clouded in significant respects when land is designated a reservation .... In addition to undermining state authority, reservation status adds an additional, complicated layer of governance over the massive territory here, conferring on tribal government power over numerous areas of life--including powers over non-Indian citizens and businesses .... Recognizing the significant ‘potential for cost and conflict’ caused by its decision, the Court insists any problems can be ameliorated if the citizens of Oklahoma just keep up the ‘spirit’ of cooperation behind existing intergovernmental agreements between Oklahoma and the Five Tribes. But those agreements are small potatoes compared to what will be necessary to address the disruption inflicted by today's decision.

These are fundamentally empirical claims about the consequences of “significant uncertainty.” Indeed, when evaluating these jurisdictional claims, courts have historically been moved by consequence-based arguments. Knowing this, litigants often bring statistics to bear in these cases. Inevitably, one side raises a “parade of horribles.” The other side argues that “the sky is not falling.” And occasionally a judge will respond, in the idiom of Lord Mansfield, fiat iustitia, ruat coelum--“let justice be done, though the sky may fall.”

To date, there has been hardly any empirical work measuring the impact of Indian reservation status. Much of the literature focuses on broad narratives or summaries of census-based data documenting the relative poverty of Native American communities. Other work presents case studies of niche industries, discusses the difficulty of exploiting of natural resources on reservation lands, or bemoans the complexity of Indian-law regulations generally. To the extent that these articles advocate for greater or lesser Tribal autonomy, these arguments are not tethered to empirical evidence. The few exceptions are studies measuring the effects of Public Law 280 on affected reservations, which arrived at conflicting results, and the impact of property rights on agricultural productivity. Prior to McGirt, there had been no systematic or empirical analysis. Litigants and courts have been left to rely upon impressionistic reasoning and economic intuitions.

In this Article, we evaluate the economic effects of restoring tribal sovereignty by exploiting natural experiments created by judicial rulings altering the status quo of Indian reservation status. We apply well-established difference-in-differences econometric techniques to evaluate the impact. Contrary to the “falling sky” hypothesis that recognition of Indian jurisdiction would negatively impact the local economy, we observe no statistically significant effect of the Tenth Circuit or Supreme Court opinions on economic output in the affected counties. These decisions have neither helped nor hurt local economic activity.

Part II provides the relevant legal framework for evaluating claims to recognize land as Indian country. We then analyze the economic consequences of the Tenth Circuit's Murphy decision and the Supreme Court's McGirt decision. We first measure the effect of the Tenth Circuit's Murphy decision on county-level employment and real GDP. We report evidence that strongly suggests that economic activity did not decline following the Tenth Circuit's ruling. We then expand our analysis to include the Supreme Court's McGirt decision. Using daily data of publicly traded companies based in Oklahoma as well as county-level employment data, we again find no impact.

Part III supplements this analysis with five additional case studies involving tribal jurisdictional disputes. We selected these examples based on several factors, including the size of the affected area, the productivity of the economies in the region, and the alignment of reservation borders with county borders (since our sources report economic data at the county level). These cases include three Supreme Court decisions addressing uncertain reservation status: Nebraska v. Parker, City of Sherrill v. Oneida Indian Nation, and South Dakota v. Yankton Sioux Tribe. We also analyze intergovernmental settlements between Michigan and the Saginaw Chippewa Indian Tribe in 2010 (Mt. Pleasant, Michigan) and between Washington and the Puyallup Tribe in 1989 (Tacoma, Washington). On balance, the recognition of tribal jurisdiction does not reduce economic performance in the affected counties.

Part IV discusses these findings. We specifically evaluate our results through the lens of four models: (1) the Falling Sky Model, associated with state litigants, which predicts significantly reduced economic activity following the recognition of Indian sovereignty because of weak institutions; (2) the Economic Stimulus Model, associated with tribal litigants, which predicts a boost in economic performance following the recognition of Indian tribal sovereignty and, by logical implication, worse economic performance following the removal of Indian sovereignty; (3) the Uncertainty Shock Model, associated with the Chief Justice's dissent in McGirt, which predicts a negative impact on economic performance following a federal court decision that unexpectedly alters the status quo in favor of Indian tribal sovereignty and, by logical extension, improved economic performance following a mitigation of uncertainty (i.e., an appellate court reversing the initial ruling); and (4) the Game Theory Model, associated with Justice Gorsuch's majority opinion in McGirt, which predicts no substantial difference in economic performance from marginal changes in sovereignty between neighbors that have repeated interactions, because they will cooperate in order to smooth out any downsides caused by the sudden change in legal status. Our analysis provides no evidence to support the Falling Sky Model, scant evidence for the Uncertainty Shock Model, and suggestive evidence in favor of the Economic Stimulus Model. We conclude that, of the four models, the Game Theory Model best fits and justifies the data.

Our empirical inquiry has application to ongoing and future litigation over the extent of Indian reservations across the nation. McGirt and Sharp technically concerned only the historical boundaries of the Muskogee Creek Nation. But the other Five Tribes are also litigating related claims concerning their historical territories. In addition, in the same month that McGirt was decided, the Seventh Circuit held that Oneida Nation's reservation established by treaty in 1838 remains Indian country. In reaching this decision, that court interpreted McGirt as altering the legal framework for evaluating claims of Indian status, “making it even more difficult to establish the congressional intent to disestablish or diminish a reservation.” This is likely to spur other tribes to raise similar claims. Meanwhile, the State of Oklahoma retained outside counsel to litigate claims relating to McGirt and, spectacularly, filed over forty petitions for certiorari presenting the question of “Whether McGirt v. Oklahoma, 140 S. Ct. 2452 (2020), should be overruled.” On January 21, 2022, the Supreme Court granted certiorari in one of these cases, Oklahoma v. Castro-Huerta, but limited its review to whether, after McGirt, the “State has the authority to prosecute non-Indians who commit crimes against Indians in Indian country.” On June 29, 2022, the Supreme Court issued its opinion, holding that the federal government and states have concurrent jurisdiction to prosecute crimes committed by non-Indians against Indians in Indian country. In reaching this decision, the majority and dissenting opinions continued litigating the effects of the McGirt decision. For his part, Justice Gorsuch explicitly stated that Congress and courts lacked a full accounting of the effects of recognizing tribal jurisdiction in the wake of McGirt. We fill this gap in the literature.

[. . .]

Indian-reservation cases often turn on consequences. Using difference-indifferences techniques, we show in this Article that the sky does not fall when courts recognize Indian-reservation status. We first examine the Tenth Circuit's Murphy v. Royal decision in 2017 to measure the economic impact of restoring Indian-reservation status. In doing so, we leverage monthly employment data at the county level, annual output data at the county level, and daily equity data for public companies incorporated in Oklahoma. Contrary to the stated hypothesis that recognizing Indian jurisdiction would negatively impact the affected economy, we observe no statistically significant change in real economic activity in the aftermath of the Murphy and McGirt decisions. We supplement these findings by analyzing five further case studies, which support this conclusion.

Our empirical findings have important implications for both lawyers and economists. First and foremost, our results inform ongoing and future litigation. At the very least, our results suggest that fears presented by states or actors seeking to preserve the status quo are often overblown. When evaluating claims of Indian sovereignty, courts should be skeptical of government attorneys claiming that the sky will fall. This is consistent with the core holding of McGirt, namely, that sovereignty should analyzed by reference to law rather than potential negative consequences. That is because sovereignty must be clearly abrogated as matter of law, and because concerns of potential economic uncertainty are often unsubstantiated.

Our results are also consistent with the broader trend in federal policy, legal scholarship, and Supreme Court case law promoting greater tribal self-determination. Our findings suggest that tribes are not substantially inferior to state regulators; tribes may be more responsive to the needs of the local population; and a judicial decision recognizing their continued existence may even stimulate economy activity in the short run.

Finally, our results speak directly to the law-and-economics literature on the role of institutions in economic growth. A segment of that literature has argued that Indian reservations experience significantly lower economic growth because tribal institutions are less credible when it comes to matters of economic growth, namely, enforcing contractual rights. Yet, using the best natural experiment we will likely ever see in the United States, using the most disaggregated publicly available data recorded by our government statisticians, and using the most well-established econometric methods, we show that such a theory should not be held up as gospel.

Indeed, the iterative nature of these economic interactions makes cooperation in the interest of all parties. Unsurprisingly, we find that our data are best explained by a model that suggests that all parties cooperate following unexpected changes to jurisdictional boundaries in order to smooth out adverse consequences. As courts continue to evaluate claims of tribal sovereignty, they will likely face concerns about the economic consequences of changes in sovereignty. Until now, courts have had to rely upon economic intuitions. We now have data.

Michael Velchik is a Legislative Director and Senior Counsel in the U.S. Senate and served as co-counsel on behalf of petitioner in Sharp v. Murphy, 140 S. Ct. 2412 (2020).

Jeffery Zhang is an Assistant Professor at the University of Michigan Law School.