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Weekly UpdatesAlaska's economy is benefiting from a new and diverse financial force that has matured in recent years-the 173 Native village corporations that call the Last Frontier home.
Created in the early 1970s along with the 13 Native regional corporations, Alaska village corporations are designed to provide shareholders with a management structure and ultimately, a positive economic return, on the financial and land assets conveyed by the Alaska Native Claims Settlement Act.
Some village corporations, located in resource-rich areas, developed into large corporations employing hundreds of people, such as the Barrow-based Ukpeagvik Inupiat Corp. UIC reported revenues of $267.1 million in 2005, employing 486 people in the myriad of subsidiaries, many related to the oil and gas industry.
Other village corporations have found substantial success in the federal contracting arena, such as the Chenega Corp., headquartered in Anchorage with cultural roots in Prince William Sound. Insolvent in 1983, Chenega bounced back in the late 1980s and early 1990s, landing considerable contractual work in the aftermath of the 1989 Exxon Valdez oil spill.
That contracting work has grown for Chenega and its subsidiaries. Doubling its business volume for the past two years, Chenega reported $643 million in revenues for 2005. Only 70 employees work in Alaska for the Native village corporation. According to the company's Web site, Chenega subsidiaries service more than 70 federal contracts in more than 33 states and in seven overseas countries.
JOINING FORCES
Some of the smaller village corporations have chosen to merge, forming a larger and more powerful entity. The Kuskokwim Corp. in Southwest Alaska is one such entity, formed in 1977 when 10 ANCSA village corporations in the middle region of the Kuskokwim River joined forces.
In recent years, TKC found partnering with an Anchorage-based real estate development company to be profitable. TKC has invested in several large properties in both Fairbanks and Anchorage. About one-third of the corporation's assets-$5.8 million-is invested in real estate, generating more than $850,000 in revenue in 2005, according to the company's Web site.
Initially, more than 200 village corporations were created. Mergers and restructuring has cut that number down to 173. Today, many of the remaining village corporations have found their footing in the financial world and are evolving as a financial force in Alaska's economy, providing thousands of jobs, diversified business revenues in the billions and substantial dividends to shareholders, most of who reside in the state.
"I do believe village corporations are becoming a very important part of our economy," said Alexandra McClanahan, historian at CIRI and also the lead author of the 6th annual report by the Association of ANCSA Presidents and CEOs on Alaska Native corporations' combined economic impact, published in 2006. "A lot has to do with good management. Native corporations have matured in their understanding of business."
AN OVERVIEW
According to that report, revenues totaling $4.47 billion were produced in 2004 by the 13 regional corporations and 29 of the 173 village corporations in the state. Those regional and village corporations paid $117.5 million in dividends to their shareholders, as well as paying out $5.4 million in scholarships to 3,040 recipients and spending $8.5 million on charitable donations.
"The corporations generally pay out a higher percentage of their net income as dividends than publicly held business corporations and they have made substantial philanthropic contributions in the form of scholarships and other charitable donations," the report stated.
A HARD ROAD
The road to financial success has come with a number of obstacles and learning curves to negotiate. In the formative years, many of the village corporations struggled through the transition from traditional lifestyles to the modern-day business world.
"When the corporations were formed, you were taking someone who was out harpooning whales the year before and putting them in charge of an organization," said Bob Poe, former president and CEO of the Anchorage Economic Development Corp.
While ANCSA envisioned Natives developing natural resources on their lands as a financial support, that investment was not as successful as was hoped.
"The Native corporations found that (natural resource development) was pretty expensive and it takes lot of time. It did not produce the returns they had hoped," Poe said.
REVENUE SHARING
Another hindrance was a provision in ANCSA, requiring Alaska Native corporations to share with other Native corporations a majority of the revenues from natural resource development. That 7(i) sharing provision, which took many years, lawsuits and extensive negotiations to define accounting procedures for revenue calculations, dramatically distinguishes Alaska Native corporations in today's competitive and oftentimes cutthroat business world.
"Since ANCSA's passage in 1971, nearly $675 million has been distributed under the provisions of the agreement," the 2004 report from the Association of ANCSA Presidents and CEOs stated. "Under 7(i)'s unique requirements, the 'haves' are required to help the 'have-nots.' Significantly, this sharing is accomplished through the 7(i) agreement that Native leaders themselves crafted."
GOVERNMENT CONTRACTING
The revenue sharing, combined with an amendment allowing net operating losses to be sold, kept struggling Native corporations operating. Then, a new provision in the federal contracting arena, under the Small Business Administration's 8(a) program that allows consideration for small businesses, provided a new venue for Alaska Native corporations.
Increasingly using the 8(a) program, Alaska Native corporations are finding those federal contracts provide substantial revenues, but a small profit margin, according to the ANCSA Presidents and CEOs report.
In 2004, the Government Accountability Office reported that 13 percent of the 8(a) program's federal contracting dollars went to Alaska Native corporations, representing more than 100,000 Alaska Native people. The remaining 87 percent of the federal contracting dollars were split among 9,000 individually owned 8(a) businesses.
Transitioning to competitive federal contracting without assistance from 8(a) will be a key factor in the future for Native corporations, Poe said. But their past track record speaks well.
"When they got the chance in 8(a), they performed well. Their contracts would not be renewed or be expanding if they were not performing," Poe said.
The diversity of federal contracts and location of the work adds a new dimension of stability to Alaska's economy, which is largely resource-development based.
"What these corporations are doing to the Alaska economy is enormous," Poe said. "They are diversifying the economy for us, which is a big positive."
But unlike many of their counterparts in the Alaska business world, Native village corporations bring their profits back to the state, using that wealth to pay dividends and to support projects in their local area.
BREAKING THE MOLD
"The traditional business model in Alaska is that a company comes to Alaska, extracts some resource, turns it into money as quickly as possible and takes that money outside Alaska," Poe said. "Native corporations realized that if they all were competing in Alaska, no one would have any profits. They are going out and competing in the world-doing business literally all over the world and they're bringing those profits back to Alaska."
How much of the Native regional and village corporation revenues stem from work Outside is nearly impossible to track, according to Poe and to state economists. But one telling gauge may be found in the corporations' employment numbers reported in the 2006 Top 49ers listing compiled by Alaska Business Monthly, Poe said.
"Of the 18 Native corporations included in top 49, their total was 33,520 employees, but only 10,978 work in the state," he said. "The earnings from those people (working Outside) comes back to Alaska ... they are exporting talent and abilities and are bringing that money back to Alaska.
"Also, the owners live here and are paid the dividend, which is largely spent or held in Alaska, so we all benefit that way," he added.
The amount of in-state employment stemming from Native village corporations and their subsidiaries is also substantial.
HIRING ALASKANS
According to 2004 statistics compiled by the Alaska Department of Labor and Workforce Development, the "Top 100" employers with the largest work forces in the state include 16 organizations that are either Alaska Native nonprofit organizations or subsidiaries of Native corporations. Ten years prior, only nine Native employers were on the list.
In addition to immediate job offerings, these Native corporations provide potential career opportunities within Alaska for individuals possessing or seeking to gain leadership and financial management skills.
"There's a tremendous career-track opportunity for those individuals who get the education and the understanding of where these companies can go," Poe said. "The next generation of Alaska Natives is taking these corporations and running with them. We're seeing the fruits of that."
The new corporation buildings sprouting up in Anchorage and in other parts of Alaska may be one of the more visible public changes in Native village corporations. But the economic impact is widespread, from employment opportunities to a stronger and more diverse state economy.
"One thing all Alaskans need to recognize about these companies is that a small percentage of the people working for Native corporations are Natives," said Poe. "All Alaskans share in the benefit that these Native corporations create."
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