Tim Bradner: Alaska Natives help put state on path to prosperity

EconomyOctober 19, 2013 

The Alaska Federation of Natives will meet in Fairbanks on Oct. 24 for its annual convention. The gathering is typically a time of celebration of the accomplishments of Alaska's first people as well for introspection about the challenges that remain.

All Alaskans have reason to join them in celebrating those accomplishments, which include the development of Native-owned regional and village corporations, many which are prosperous and thriving.

Let's remember some history. We need to give credit to the Alaska Native Land Claims Settlement of 1971 and those early Native leaders for creating our state as it is today. Without the push by Native people for the land claims settlement with Congress, there would be no trans-Alaska oil pipeline, no Alaska Permanent Fund, PFD dividends, state budget surpluses or big state capital budgets.

State development corporations like the Alaska Industrial Development and Export Authority and the Alaska Housing Finance Corp. would not have their endowments of oil money, which enable them to do their work.

The connection between land claims and the pipeline in 1970 was that the oil companies needed clear title to a land corridor for the pipeline and Congress needed to settle the land claims to do that. In a partnership, industry teamed with Native groups to pass the needed legislation in late 1971.

Two years later, Native leaders returned the favor when they helped lobby for an act of Congress to clear the way for the pipeline through a thicket of environmental lawsuits. That bill cleared the U.S. Senate by one vote.

A lot has happened in the 40-plus years since then. Today the Alaska Native corporations that were formed with the cash and land settlement are major Alaska employers that bring profits home from business activities out of state.

This year, eight of the top 10 Alaska firms listed by 2012 gross revenues in Alaska Business Monthly's Top 49 list are Native corporations. Arctic Slope Regional Corp. of Barrow led the pack with $2.6 billion in revenues in 2012. The top four firms on the list were regionals Arctic Slope, Bristol Bay Native Corp. and NANA Regional Corp. along with village-based Chenega Corp., all with revenues of more than $1 billion.

With this growth, the dividends being paid by Native corporations to their shareholders, most of whom live in Alaska, have become substantial.

The most current source of information on dividends comes from a U.S. General Accounting Office study of the corporations released this year and that tallied dividends paid in 2010. The total was $167.24 million.

Like Permanent Fund dividends, the dividends paid by Native corporations are mainly spent in-state and ripple through the economy. There can be bad years too, just like with PFDs, so nothing can be taken for granted.

Interestingly, about half of the total dividends paid in 2010 were from one high-performing corporation, Arctic Slope, which paid $73.6 million in dividends that year to its shareholders, according to the GAO.

Arctic Slope paid 45 percent of its net income of $164.4 million in dividends. Gross revenues were $2.33 billion that year.

NANA Regional Corp. paid $21.72 million in dividends to its shareholders in 2010, or 53 percent of net revenues of $41.1 million, GAO said. NANA's revenues were $1.59 billion that year.

Bristol Bay Native Corp., the third top-paying corporation, paid $7.3 million in dividends on $43 million in net income. Gross revenues were $1.66 billion. BBNC paid out 17 percent of its net income in dividends in 2010, the GAO said.

Business people astute with numbers will look at figures like these and be surprised at what seems like relatively low net income out of the gross revenues, but what should be pointed out is that one business activity many Native corporations engage in, government contracting, has very low profit margins.

Many of the corporations are more diversified, of course, owning businesses in oil field services, drilling, construction and real estate, where margins are higher, but the government service business tends to overshadow this in terms of revenues.

Astute business people will also note, however, the high percentage of net income paid out in dividends by some corporations, Arctic Slope being one example.

Whether this is healthy for the business in the long run is a matter for the shareholders (most corporations try to reinvest most of their earnings back into their businesses), but it also reflects the tensions unique to Native corporations: Shares in these corporations cannot be bought or sold, unlike ordinary corporate shares, and because of that they cannot appreciate in value, which is a typical benefit of stock ownership.

If share price can't appreciate, the only way management can extend benefits to shareholders is through higher dividends, which we see illustrated in the GAO study. So far, shareholder pressure on management to pay dividends appears not to have impeded the growth of these corporations, but it could someday.

Another challenge the corporations face is dilution of shareholdings over time as the original blocks of 100 shares, issued in 1971, are fragmented as shares are willed or given to children. A shareholder with 5 shares may be less interested in the corporation than one with 100 shares.

These issues loom, but they're down the road a bit. They are internal matters for these private corporations. However, because of the importance of Native corporations to the entire state economy, non-Native Alaskans should at least be sensitive to the problems the corporations face and that might manifest themselves from time to time in shareholder revolts and leadership squabbles.

In ordinary corporations dissatisfied shareholders can just sell their shares. Not so with Alaska Native corporations.

Still, let's celebrate success, for now and the benefits these corporations bring to our state.


Tim Bradner is an Alaska business writer who lives in Anchorage. His column appears once a month in the Daily News.

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