Saturday, November 1, 2014

The Business of Alaska Native Corporations

03/21/2011

Michael Grabell/ProPublica The village of Chenega Bay, Alaska, sits on the tip of a cove amid an isolated chain of islands in the Prince William Sound.

When Darrell Totemoff’s dog needed an operation to fix its injured back, money was not a problem. Totemoff, an Alaska native who lives in the remote village of Chenega Bay, chartered a flight to see a specialist in Anchorage and paid $4,000 for the surgery.

Totemoff is only 45, but he’s well-off enough to have retired. He owns a Ford Explorer, two off-road vehicles and an 18-foot sports boat. He can afford it all thanks to about $65,000 a year in dividends he has received from shares in Alaska Native Corporations—native-owned businesses that by law have special access to no-bid federal contracts.

Five hundred miles away on the other side of Alaska, villagers in Napaskiak also own shares in native corporations. But dividends of only a few hundred dollars a year hardly cover the basics. The family of 76-year-old David Maxie, who is disabled, struggled for months to get social services so he can remain at home instead of in a nursing facility in far-off Anchorage.

(See a slideshow of the people and places named in this story here.)

Congress created the system of Alaska Native Corporations with the promise of bringing prosperity to a scattered indigenous population long stuck in poverty. Natives were granted shares in the corporations, which eventually gained special contracting privileges from Congress. But decades later, the villages of Chenega Bay and Napaskiak testify to the broad gap in benefits that ANCs provide.

Many of Chenega’s residents are shareholders in one of the most successful and politically connected ANCs, Chenega Corp., which has won multimillion-dollar contracts rebuilding Iraq, securing Guantanamo Bay and repairing X-ray machines at airports and borders. One of the top-grossing ANCs, Chenega has only 170 shareholders, Totemoff among them.

Calista Corp., the primary ANC serving Napaskiak and its neighboring villages, has paid dividends only three times in more than 25 years. The largest, in 2010, provided $225 for the typical shareholder in a region where a gallon of milk costs $9 and annual heating costs can run in the thousands. In part, geography and math work against Calista, which has more than 13,000 shareholders spread over an area the size of Michigan.

Alaska natives like Totemoff and the Maxies are now at the center of a national debate over ANCs. Critics in Congress want to strip some of the ANCs’ contracting privileges, arguing that the lion’s share of benefits has gone to non-native consultants and subcontractors hired to do the work. Their defenders say the accusations are overblown and that punishing ANCs will make it even harder to create needed jobs, educational opportunities and cultural programs.

To get a sense of the difference ANCs make in their own communities, ProPublica visited two Alaskan villages whose experiences add nuance to an often-polarized debate. They are among the most isolated places in the country: Chenega Bay sits on the tip of a rocky island in the Prince William Sound, while Napaskiak is one of dozens of villages that dot the flat Arctic tundra along the Kuskokwim River in southwestern Alaska.

Their native corporations, Chenega and Calista, have received nearly all their contracting revenue through no-bid contracts or in competitions restricted to small minority firms.

Their different experiences illustrate how the contracting privileges afforded by a Small Business Administration program, known as 8(a), have created pockets of success but have not been a wide-scale solution for joblessness and other social ills affecting Alaska natives.

A previous ProPublica analysis found that top ANCs saw revenues rise 82 percent from 2005 through 2009, largely as a result of the SBA contracts. Despite such growth, most ANC shareholders receive less than $500 a year in dividends. 

Chenega and Calista have shared in the expansion, though in different measure. In Chenega’s case, revenues ballooned from a mere $13 million in 2000 to $1.1 billion by 2009, according to annual rankings compiled by the magazine Alaska Business Monthly. Calista grew far more slowly over the same period, from $14 million to $200 million, according to the ANC’s annual reports.

Few of the nearly 200 ANCs are required to report financial data, but what is available shows widespread disparities in financial performance that have little to do with size, location or natural resources available to an ANC. Rather, historical events, an ANC’s ability to gather seed money for investment and connections to Washington were critical to success.

“I don’t think there are any easy or straightforward explanations for a lot of these differences,” said Steve Colt, an economist at the University of Alaska Anchorage who has studied the ANCs for decades. “It seems to me it depends on having the right idea, getting with the right partner and being in the right place at the right time.”

From Ruin to Riches

When Congress passed the law creating ANCs in 1971, the village of Chenega didn’t exist. Seven years earlier on Good Friday, the largest earthquake ever measured in North America shook Alaska, triggering a tsunami that wiped the village clean but for the schoolhouse on a hill. About two dozen people, nearly half of them children, were washed away.

The U.S. government resettled the survivors in another village before allowing them to form their own community on Evans Island in 1984. Five years later, another disaster struck, this time a man-made one. The Exxon Valdez tanker spilled more than 11 million gallons of oil into Prince William Sound, coating Chenega’s beaches and killing the fish and wildlife residents relied on to survive.

By then Chenega Corp. had formed and was the largest private landowner to suffer damage from the spill, according to the sound’s advisory council. In a settlement, the corporation sold its contaminated land to the U.S. government for $34 million. It used the money in 1998 to invest in its first contracting subsidiary, which specialized in information technology.

The company entered the SBA 8(a) program, designed to give small minority-owned firms a temporary boost until they gain sophistication and grow big enough to compete on their own. Unlike other firms, however, ANCs can participate indefinitely and obtain contracts of unlimited size.

As it built its business, Chenega turned to people with connections to Alaska’s congressional delegation. In 2002, the corporation hired the prominent Alaska lobbying firm of Birch Horton Bittner & Cherot, which employs William Bittner, the brother-in-law of the late Sen. Ted Stevens, long the senior Republican on the powerful appropriations committee. The firm also employs several former top aides to Stevens and to Alaska Republicans Rep. Don Young and Sen. Lisa Murkowski.

On at least one occasion, the delegation intervened on a contract on Chenega’s behalf, according to e-mails released in 2006 by the House Committee on Government Reform. Rep. Henry Waxman, D-Calif., issued a report finding that Murkowski, Stevens and Young had pressured the Transportation Security Administration to meet privately with Chenega officials before opening bids for a multimillion-dollar contract to maintain airport security equipment.

At a hearing before the panel, Chenega CEO Charles Totemoff said he didn’t recall the contract but tells all his managers to “do things above board and always do the right thing.” Chenega did not get the contract.

Since 2008, Chenega has spent $2.7 million to lobby Congress—more than any other ANC and a fourth of all ANC lobbying expenditures—on issues mostly related to the SBA’s 8(a) program, according to federal lobbying filings. Chenega spokesman Gregory L. Vistica said the company is correcting its lobbying forms, which will cut expenditures in half for the past three years. If that happens, Chenega would be No. 2 in lobbying.

Now the corporation is one of five ANCs that regularly bring in close to $1 billion or more in revenues, according to the Alaska Business Monthly rankings. Much else about the corporation’s finances is hidden, however, because ANCs supporting fewer than 500 natives are not required to file public financial reports. Its profits, dividends and other financials have remained a closely guarded secret.

Chenega Corp. declined multiple interview requests during the past six months. But in comments to the SBA last year, a company lobbyist wrote that “the native preferences it enjoyed were the catalyst for our growth,” allowing it to fulfill the dream of “achieving financial and social self-sufficiency and determination.”

Chenega’s small shareholder base translates into dividends and benefits that are at the top of ANCs. Although they declined to provide details on the company’s finances for this story, Chenega officials have said that shareholders receive about $30,000 a year in dividends. The median income in 2009 for Native American households in Alaska was about $45,000.

A Pickup in Every Driveway

About 100 miles south of Anchorage, Chenega Bay is hidden among an isolated chain of islands. It is an area rich with natural beauty—jagged black peaks crusted with snow, speckled with azure lakes, a thick fog that hangs low over the hemlocks.

At the tip of one cove is the tiny village, eerily silent save for the persistent drizzle and the rare crunch of boots on the unpaved road. It is essentially two roads lined with 22 white and blue prefabricated homes. Though every home is within a quarter mile, a pickup or SUV is parked in every driveway.

Driving through the village in his forest-green Ford Explorer, paid for with ANC dividends, Darrell Totemoff, who is a cousin of the CEO, pointed out visible benefits from Chenega Corp.’s 8(a) profits. A new Russian Orthodox church with a royal blue cupola. A barrier to protect the graveyard where the snowplow has at times snapped the wooden patriarchal crosses.

Michael Grabell/ProPublica Chenega Corp. built the village a new Russian Orthodox Church with a royal blue cupola. People in Chenega Bay say they can turn to their native corporation whenever they need anything. “Any and all shareholders have the opportunity to go anywhere where there’s a job if you have the training,” said Chenega Bay resident Rich Kompkoff. “If you don’t have the training, they’ll train you.”

The teachers, who are not native, said the school seems a lot better off than in other villages where they’ve taught. When the astronaut Rex Walheim toured Alaska speaking to students in 2004, Chenega Corp. paid for him to fly to the village. About 20 students, from preschool to 12th grade, attend the village school.

On top of Chenega’s healthy dividend, many residents also benefit from shares in Chugach Alaska Corp., which since 2000 has received more federal contracting money than any other ANC—$5.8 billion—according to government data from USASpending.gov.

There are 13 regional corporations in Alaska, including Chugach and Calista. Chenega and Napaskiak Inc. are among nearly 200 village corporations, many of which just run the local general store. When ANCs were created, natives received 100 shares in their regional corporation and another 100 in their village corporation. The federal contract benefits afforded to ANCs make no distinction between a regional corporation, representing thousands of natives, and a village corporation, representing only a few hundred.

Some natives, like Darrell Totemoff, have received additional shares through inheritance. But others in Chenega Bay hold shares in the Tatitlek and Eyak corporations, which, while growing, have not provided dividends as generous as Chenega’s.

As he continued the village tour, Totemoff fumed about efforts by Sen. Claire McCaskill, D-Mo., who has been leading the charge to limit the contracting privileges given to ANCs. His sentences often started, “Here’s another benefit of the 8(a) program …” or, “Here’s another thing Claire McCaskill doesn’t understand …”

“My little cousin wanted a playhouse, and I got that for her, and it’s like $4,000 not just to buy it but to get it out here,” he said. “Senator McCaskill—she has no clue of how much 8(a) helps individual villagers. It’s just amazing because it not only gives us a lot of money; we’re able to save it, able to donate, able to buy things.”

In addition to his Ford Explorer, Totemoff bought a Honda four-wheeler, a Polaris Ranger utility vehicle and an 18-foot Trophy sports boat named “Johnny T” after his father.

For Calista, a Rocky Start

Few villagers in the Calista region have cars or trucks, let alone driveways, although many use all-terrain vehicles. No roads connect the 56 villages of the region. In winter, residents along the Kuskokwim travel the frozen river in snow machines.

The people are Yup’ik and Cup’ik Eskimos and Athabascan Indians, many of whom still practice traditional ways of life, including fishing and hunting for food and clothing. The hub of the area is Bethel, a town of about 6,500, accessible only by boat or plane and the place where many villagers get supplies or medical treatment.

Early financial mishaps compounded the challenges Calista faced in serving one of the largest ANC shareholder bases. In 1980, the company began building a 15-story Sheraton Hotel in downtown Anchorage with the hope of providing jobs for shareholders. But economic problems in the 1980s and inflated construction costs “halted the visions and goals” of the project, the company said in a statement. Calista narrowly avoided a foreclosure sale when a Korean firm bought the hotel for a reported $25 million loss.

Calista later acquired a newspaper chain that lost money for years until securing an 8(a) contract to do a promotional campaign for the Army National Guard. Calista also bolstered its finances in 2001 when it got the bulk of the proceeds from a land trade in which it and three village corporations sold their rights to 220,000 acres of land to the U.S. Fish and Wildlife for $39 million.

According to Calista, after payments for the deal reached $20 million it was required to share the revenue with other regional corporations under a provision in the 1971 land settlement. Calista also has benefited from the revenue-sharing requirement over the years, but the provision doesn’t apply to income from federal contracts, and the sharing hasn’t been enough to make up for the disparity in benefits.

Eyeing the success of other ANCs, Calista started exploring government contracting. Its first such venture was through a subsidiary, Yulista Management Services. YMS became certified as an SBA 8(a) firm in 1996 and in 2002 was awarded six contracts, including a $1.1 billion joint venture with a Maryland company to do aerospace engineering and development for the U.S. Army. To lead the project, it hired a CEO who had worked for a successful 8(a) firm.

Like Chenega, Calista has hired lobbyists, including Steven Silver, the former chief of staff for Sen. Stevens. Silver is credited with securing millions in earmarks for the Alaskan city of Wasilla when Sarah Palin was mayor. But Calista’s lobbying amounts to only a fraction of Chenega’s.

By 2009, Calista reported about $200 million in revenue and $18 million in profit. In the last two years, 80 percent of its income was from government contracts. Calista now has about 1,500 employees and multiple subsidiaries. Contracts include facility management at Hickam Air Force Base in Hawaii, precision measurement services for the Department of Defense in Guam and maintenance at the Barry M. Goldwater military testing range in Arizona.

Calista’s minimal dividends stand in contrast to payouts to former CEO Matthew Nicolai, who received a $400,000 bonus in 2009 that brought his compensation to $730,000, according to company documents. Nicolai was the third-highest paid CEO at an Alaska native regional corporation that year.

Nicolai, who became president in 1994 and had worked at the company since 1975, was terminated last October after a former employee sued him for sexual harassment. The company’s general counsel, Andrew Guy, replaced him as CEO. Nicolai has not filed a response to the harassment allegations in state superior court in Anchorage, and company officials declined to comment.

In a statement to ProPublica, Guy said that even though the company sees 8(a) as a successful program, it is diversifying its business for long-term stability. In 2010, for example, Calista purchased two Alaskan construction companies.

Life of Bare Necessities

Many Calista natives still try to live off the land and water. In summer, blueberries, blackberries and raspberries are plentiful on the tundra. And villagers catch a variety of salmon from the Kuskokwim River, curing them in smokehouses for the harsh winter months.

In fall, before the first snows, locals hunt moose. Just one animal can produce 400 to 700 pounds of meat, and the hide can be used to make shoes and clothing. But today, with limits on hunting and fishing, living completely off the land is difficult. So, some natives take on jobs when projects come or find work in the local village stores.

For many shareholders, there is little awareness of the company’s activities. Most know they’ve received a few hundred dollars in dividends in recent years and, for years before that, nothing. ANCs contend that the lives of villagers have improved over time. But many of those improvements have come from federal or state programs, not ANCs.

“If you measure the resources that have gone into the development of rural Alaska,” said economist Colt, “the numbers would quickly show you that it’s been the government that has provided the vast, overwhelming majority of new resources.”

One recent milestone for Napaskiak: a flush toilet in every household. The village of 400 marked the occasion with a festival that included relay races carrying the “honey buckets” they had used to dispose of waste. The upgrade was paid for by the state and federal government through a project to improve rural sanitation in Alaska. One in four rural homes throughout the state still lacks running water and toilets.

In Akiak, a village of 300 upriver from Napaskiak, a new clinic paid for by federal funds provides basic medical services to the village.

As he maneuvered his ATV along a rutted, muddy road, village administrator Ivan Ivan pointed to a building resembling a large metal Quonset hut—a new school named after his great-grandfather, Arlicaq, and paid for with mostly state funds.

“Losing Our People”

ANCs say their benefits extend beyond merely paying dividends.

In recent years, Chenega Corp. paid for students to visit a vocational center and bought the school a large touch-screen computer. Chenega’s educational nonprofit gave $320,000 in scholarships to 45 people in 2008. The following year, Calista Corp. provided $283,000 in scholarships for 226 people.

Both corporations say they promote native culture in their communities. Chenega has produced compact discs of the endangered Sugcestun language and runs classes on how to make sea otter purses. Calista funds programs for elders to teach village youth how to make mukluks, the traditional footwear.

Even when they don’t pay out profits, ANCs say they are building shareholder equity—reinvesting profits in the company to build a firmer foundation. Unlike publicly traded stocks, ANC shares can’t be sold. To tap into equity, natives are dependent on the corporation to pay dividends or provide other benefits.

In the native Yup’ik language, Calista means “one who works.” Yet unemployment remains a chronic problem among its shareholders and for other Alaska natives.

Most ANCs do not make their hiring data public. But in 2009, McCaskill’s Senate contracting subcommittee surveyed 19 ANCs and found that only 5 percent of their 45,000 employees were shareholders or relatives.

Calista Corp., which employs about 1,500 in and out of Alaska, claims to have one of the highest shareholder hire rates among ANCs. The company didn’t provide a shareholder rate for all employees but said 23 of the 54 workers at its corporate office in Anchorage are shareholders. Chenega Corp. has more than 5,000 employees in and out of Alaska, including 52 who are shareholders, according to the Senate survey.

In the villages, jobs are fleeting as public works projects come and go.

George Eleshansky, 37, earned his sociology degree from the University of Alaska Fairbanks in 2007. Chugach Alaska paid for his tuition. He’d like to do social work or research but can’t get a job unless he leaves the village, where he grew up and has a home. So, for now, Eleshansky, a Chugach shareholder, passes the time babysitting his young nieces and playing video games.

A couple of Chenega Bay residents work at the health clinic, and several others have jobs with the tribal council. Last summer, a federally funded project to upgrade the water treatment plant employed two residents.

The unemployment in rural villages contributes to high levels of alcohol and drug abuse—historic problems in Alaska. In Akiak, the windows in many buildings are covered with plywood to keep teenagers from breaking in when they are high or drunk. A poster in the Chenega Bay health clinic warned of the dangers of methamphetamine with a poem titled, “I Am Meth.” About 75 percent of residents in local survey said that substance abuse threatened their quality of life.

“We’re a proud strong people from the past,” Akiak village administrator Ivan said. “But now we’re losing our people to suicide, alcohol and drugs.”

Critics of the SBA program argue that chronic poverty and social problems in the villages show that ANCs aren’t doing enough. Supporters say the problems justify the need for more contracts. In February, following congressional criticism, the SBA released new rules requiring ANCs participating in the 8(a) program to report on the benefits they provide, including employment, scholarships and cultural programs.

Mike Williams, a tribal advocate and Calista shareholder, said the shift from a “hunter-gatherer society” to reliance on corporations has had some negative effects.

Overall, the federal contracting has been “good for Alaska,” he said, “but we haven’t seen it in rural areas. We need to see and make sure the villages and their shareholders receive the maximum benefits as promised.”

Jennifer LaFleur and Michael Grabell are reporters for ProPublica, a non-profit investigative reporting organization. 

 

Comments

Balance Regarding Native Corporations and Perspective

Readers of the Yonder have already had a chance to read about one Native American corporation that has worked quite well. You can review the comment at http://www.dailyyonder.com/indian-health-care-making-it-ours/2010/07/27/...

Southcentral Foundation is Native and a Corporation and it took over care for 200,000 people in practice locations long forgotten (or perhaps never remembered).

What is most outstanding is that Southcentral works despite the US designs that impair health care. In Alaska it is costing about a million more dollars a year or about $2 per person more a year for Alaska to find and attempt to keep primary care workforce (SORRAS II) for locations in most need of workforce. This makes the efforts of Southcentral all the more outstanding. And by description the Southcentral care is focused on people, family, and community - something that US health care is not really about. Saving 60% for hospital and subspecialty health care is unusual in decades of recent health care delivery.

On January 28, 2011 I sent information to Michael Grabell, one of the authors of this article. I was responding to a request for information about Native Corporations. I noted "Much damage can be done to some good efforts if not careful." I listed the positive information about Southcentral. A more balanced article would have listed positive and negative examples.

Any number of government programs can be turned into fiefdoms. What is unusual is rural fiefdoms as the money for federal programs, federal disaster recovery, and so many other categories tends to go urban. I can see why ProPublica is interested, but I am not quite sure why thousands of other common situations involving billions of dollars are yet to be investigated.

According to AMA estimates regarding the economic impact of physicians and distributed according to office based physicians that are distributed best, the impact is over $10,000 per person on health care for zip codes with 200 or more physicians (about 1% of the land area and 11% of the population), about $5000 per person for zips with 75 - 199 including a very few rural zip codes. All other urban and rural locations are left out with less than $2000 per person with the most underserved areas receiving less than $1000 per person. We talk about "bailouts" but the US health care design has been bailing out a relatively select populations for decades. Economic impact, jobs, and tax revenues are only a part of the impact.

The entire US economy has been stagnant except for health care and in many ways because of increasing health care costs. And we have not added better health care, we have just added more health care and more people that do not deliver health care that divert health care dollars to their pockets.

But we have to be careful. Those that get hundreds of billions of dollars each year can divert even a small proportion of this funding to shape elections, stall investigations, create Politifact lies of the year such as government control of health care, or send trillions a year in future debt to drug companies through Part D Medicare. And health insurance is happy taking 15 - 30% of 1 - 2 trillion a year and making all of our lives more complicated - particularly those delivering health care. If control of health care is the issue - follow the money to see who shapes the directions.

Abuses of government programs have become too common. But abuse of most Americans by the very designs of health care and education are intolerable. About 70% of rural Americans and 60% of urban Americans fall behind in the designs.

Robert C. Bowman, M.D.  www.basichealthaccess.org