Alaska native corporations defend their programs

To many small business owners, the preferences granted Alaska native corporations in federal contracting might appear unwarranted. But, in rural Alaska, where a gallon of milk can exceed $10 and gasoline prices are the highest in the nation, the advantages are viewed not as a government handout but as an opportunity for a better way of life.

"Western Alaska is an economically depressed area, but because of the [contracting] program they have been able to train and employ people from the villages and the profits go to native shareholders," said Democratic Sen. Mark Begich, Alaska's junior senator.

Alaska natives are among the poorest citizens in the United States, with a poverty rate of more than 20 percent, according to the 2000 census. That figure far exceeds the national average and is higher than the rate for any other racial or ethnic group, with the exception of American Indians.

"The rationale is that these are organizations [that] have an obligation to entire communities and they provide a benefit [for] the whole community," said Karen Atkinson, executive director of the Native American Contractor Association, a Washington trade group.

Related Graphic: Alaska Native Contracting

This slideshow documents the explosive growth in contracting with Alaska native corporations in a series of charts.
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Advocates point out that the 13 regional and more than 200 village corporations created by the 1971 Alaska Native Claims Settlement Act do not operate like typical small businesses, in which all the revenue goes to the company's owners. Native corporations disburse a significant portion of their profits in the form of dividends to local shareholders, and invest in the larger community through economic, social and cultural programs.

The program initially was unprofitable. For their first 20 years the regional corporations collectively sustained an average annual loss of 3.9 percent, according to a 2001 report by Steve Colt, an associate professor of economics at the University of Alaska Anchorage who has studied ANC data.

But, business began to pick up in 1992 when then-Sen. Ted Stevens, R-Alaska, drafted legislation that ANCs, along with companies owned by native Hawaiian organizations and Indian tribes, should be considered small and disadvantaged, and eligible to participate in the Small Business Administration's 8(a) Business Development program.

Stevens later gained additional advantages for ANCs, allowing them to earn sole source contracts of any value and to have multiple subsidiary firms in the 8(a) program concurrently.

The changes paid off. A 2006 Native American Contractors Association survey found that more than $33 million in dividends distributed in 2005 by 10 regional corporations and two village corporations were attributable specifically to federal contracts.

ANCs point out those figures can be deceiving. The 12 regional and village corporations cited in the survey had more than 86,000 shareholders, greatly diminishing the size of members' individual dividends.

A successful ANC, however, can make a measurable difference for the native population. For example, in 2005 Afognak Native Corporation paid $10.8 million in dividends for its nearly 700 shareholders, or more than $15,000 per person, according to a 2007 report commissioned by NACA.

At Arctic Slope Regional Corporation in Alaska's North Slope, $35 is paid to shareholders for every $100 earned. The remainder is reinvested in the company to grow the value of shareholder stock, said Tara Sweeney, spokeswoman for corporation, which has earned nearly $3 billion in federal contracts since 2000.

"The 8(a) program contributes to ASRC's overall mission to enhance the cultural and economic freedom of our 10,000 Iñupiat Eskimo members, our shareholders," Sweeney said. "Forty percent of our shareholder population is under the age of 18. The revenues generated from our 8(a) operations are applied to shareholder training and education programs; they contribute to building our education foundation and meaningful partnerships with education institutions."

The program's impact on local jobs is somewhat less encouraging. The NACA survey showed that the 8(a) contracts held by 12 regional or village corporations generated 9,750 jobs in Alaska, but less than one third were filled by native Alaskans.

The corporations defend their hiring practices, arguing they must balance competing objectives: the desire hire local shareholders and the need for experienced and specialized employees.

But, while ANCs concede their program has flaws, they caution that congressional proposals to scale back their contracting preferences are not only unnecessary, but could have devastating results.

"It would have a significant negative impact and would result in increasing unemployment, and of course, the direct benefit to tribal members and shareholders would evaporate," said Chris E. McNeil Jr., chief executive officer of Sealaska, a regional corporation in southeast Alaska. "You need to remember, they don't have casinos. They need to find any entrepreneurial activity to sustain an economic future for themselves. So if this was to disappear it would create a very significant hole in the revenue and also in their opportunity for professional advancement."