The Business of Alaska Native Corporations

[imgbelt img=c-church-600.jpeg]Congress created the system of Alaska Native Corporations with the promise of bringing prosperity to a scattered indigenous population stuck in poverty. Decades later, there is a wide gap in the benefits the ANCs provide.



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.

ProPublica, a non-profit investigative reporting organization.