July 1, 1997

Bart Garber

Bart Garber, Tyonek Native Corp. chief executive officer, looks at Cook Inlet from the possible site of an iron ore plant near the village. (Anchorage Daily News photo by Erik Hill)

Tyonek goes for industry

Will tribes stop commerce? This tribe doesn't think so

By Tom Kizzia
Daily News reporter

TYONEK -- An international consortium plans a big industrial plant on the shores of Cook Inlet. The state and Kenai Peninsula Borough are discussing incentives for the project, which would bring tax revenues and jobs. Oil companies are negotiating to sell natural gas.

But one thing has the financiers hesitant: the project could be in Indian country.

The private consortium, Alyeska Alloys, wants to build a $170 million iron ore processing plant on the Inlet's western shore. The plant would take advantage of cheap natural gas to turn South American ore into iron carbide for further processing at high-tech Asian steel mills.

But the chosen site for the plant and deep-water dock, land owned by the Tyonek Native Corp., is barely one mile from the Dena'ina Indian village of Tyonek. The forested plain beneath snow-capped volcanoes appears likely to meet the new federal appeals court test for Indian country -- should the U.S. Supreme Court uphold it -- because the land was once part of a federal reserve for the village.

So can the state-funded Alaska Industrial Development and Export Authority finance the project's $50 million dock, given the uncertainty of future tribal taxes? For that matter, will the borough -- which pays school teacher salaries in Tyonek -- be able to levy property taxes on the new plant?

The business world presents some of the toughest legal questions around Indian country.

It was not, after all, a banishment decree or an out-of-season moose hunt that brought Indian country to the 9th U.S. Circuit Court of Appeals. It was a tribal tax on a contractor in the Interior village of Venetie.

''Hunting is a gut issue,'' said Larry Long, a South Dakota deputy attorney general who has litigated an array of state-tribal issues, ''but it's the taxation power that you ultimately get down to fighting over.''

Some businesses are fretting about the complexity of working in a state with 226 recognized tribes, each potentially capable of exerting its own governmental jurisdiction. They openly worry that tribal councils will be unfair.

Construction companies, for example, fear Alaska's village governments will be able to avoid open bidding procedures on public projects, shunting work to Native contractors or forcing the hiring of unqualified village residents, said Henry Springer, executive director of the Associated General Contractors.

''They can gear their tax structure to sock it to whoever is not part of that tribe,'' Springer said.

''Will a nontribal member get a fair trial in a breach-of-contract case in tribal court?'' asked Charlie Cole, the former Alaska attorney general now representing the Legislature in the state's Supreme Court appeal of the Venetie decision. ''Will he be subject to punitive damages? Who would want to subject themselves to that risk?''

Tribal sovereignty advocates respond that, far from bringing economic development to a halt, Indian country is likely to attract new economic activity to rural Alaska.

In Tyonek, Indian country will allow the Native corporation and tribal council to offer incentives for new industries, said Tom Harris, Tyonek Native Corp. director of business development.

''The crux is that if Alaska Native communities were finding their needs (for economic development) met in the state government, we wouldn't be having this discussion,'' Harris said.

Contracts that waive a tribe's immunity from lawsuits and specify whether disputes will go to tribal court are common on Lower 48 reservations and have proven effective in Alaska, Native rights lawyers say. They point to the Southeast community of Metlakatla, Alaska's only Indian reservation, which operates a large sawmill under lease to Ketchikan Pulp Co.

''Tribal governments want local commerce,'' said Anchorage lawyer Lloyd Miller. ''If tribal governments need tax revenue, just as the state does, they want modest taxes that do not discourage local economic development.''

One businessman who isn't discouraged by Indian country is Robert Braddock, the Colorado-based project director for Alyeska Alloys.

''Indian country is not a problem unless you go into it and don't have everything laid out in black and white,'' Braddock said. ''The scare aspect is a big part of the problem. It's not the sovereignty, it's the uncertainty.''

Multitude of questions

Uncertainty lies ahead in an impressive array of business concerns if the Venetie decision stands and Indian country is recognized across Alaska:

In the Lower 48, new issues are constantly evolving.

In January, for instance, the 9th Circuit ruled in favor of the Crow Indian reservation in Montana, requiring Burlington Northern Railroad to post a $250 million bond in a tribal court judgment for a fatal grade-crossing accident. Burlington Northern is trying to win federal court review of the case, which the railroad contends was handled unfairly by the tribe.

But the appeals court said Burlington Northern must first exhaust its tribal appeals, which includes posting the bond. A dissenting judge -- Andrew Kleinfeld of Fairbanks, who issued a ruling favorable to the state in the Venetie tax case while still a U.S. district judge -- argued that the tribe could disburse the money irretrievably before a federal court gets around to deciding the case.

In Arizona, however, the 9th Circuit ruled against the Navajo Nation, which wanted its Navajo-hire law to prevail over a power company's anti-nepotism rules. The court decided the power company's lease expressly waived the tribe's right to regulate employment. Even so, it took nine years for the case to grind its way through the tribal and federal courts.

In South Dakota, where a patchwork of Indian reservations and private land make for complicated jurisdictions, the state and tribal governments have worked out more than 100 co-management agreements for everything from hunting rules to sales-tax collection, said state deputy attorney general Long.

For instance, the state and tribes have agreed to levy similar sales taxes. That way Indians can't escape tribal taxes by shopping off the reservation, and non-Indians can't shop the reservations for tax breaks, he said.

''But the tribes can't take us to court, and we can't take them to court,'' Long said. ''It's a little like the U.S. making a deal with the Russians. You only have a deal as long as it's in everybody's interest to abide by the rules.''

One important question has been answered for Alaska. In a little-noted ruling that accompanied the Venetie decision, the 9th Circuit rejected an Indian country claim over the trans-Alaska oil pipeline by the Copper Center tribe of Kluti Kaah.

The court said the pipeline corridor was withdrawn by the federal government before lands were opened for selection under the Alaska Native Claims Settlement Act. Since Native corporation lands form the basis for Indian country claims, the corridor was not subject to the tribe's taxation, the court ruled.

Clearly, though, the ''blizzard of litigation'' predicted for Alaska by a 9th Circuit judge in the Venetie decision will concern not just which tribes have Indian country but what powers they are able to assert, particularly in the field of commerce.

''Sorting all this out in the courts will be a time-consuming, financially exhausting and socially divisive endeavor for all concerned,'' the state said in its petition appealing the Venetie ruling to the U.S. Supreme Court.

Tyonek and taxes

The Tyonek project helps bring the taxation questions into focus.

The state's development financing agency, AIDEA, is concerned because tribal jurisdiction changes the rules by which long-range profits are normally projected, said AIDEA executive director Randy Simmons.

AIDEA projects are exempt from taxation by municipalities but not tribes. AIDEA has to be sure of a predictable level of future taxation to move ahead, Simmons said.

''The question is, do we really know what the impacts might be?'' Simmons said. ''We're not panicking. But these are issues we're going to have to resolve before we finance a project in Indian country.''

Tribal taxation powers differ from municipal powers in other ways. Tribes are not subject to state-imposed caps on property tax mill rates, for example. They have broader power to grant tax exemptions and are not required to spend their funds for ''public purposes,'' according to Alaska Attorney General Bruce Botelho.

Tribes also can impose taxes not allowed under state law. In Venetie, for example, the landmark court ruling involved a 5 percent ''gross receipts tax'' on a builder with a state contract to build a $3.2 million school for the village. The tax -- which still hasn't been collected, pending final appeals -- would bring the village $160,000.

Such a tax can be imposed in some states, but has never been approved by the Alaska Legislature, Botelho said.

Critics say the state should have a uniform code regarding what types of taxes can be imposed. A tax like Venetie's would increase the cost of state-funded projects and erode support for rural aid, they said.

Tribal leaders in other villages appear split over the usefulness of such a tax.

In Akiachak, a Yup'ik village on the Kuskokwim River, leaders say they are considering such a tax as a way to raise revenues from outside contractors. But in Kipnuk, on the Bering Sea coast, leaders say they don't want to raise the cost of local construction, preferring to tax the economic activity generated by new development projects.

That shows a healthy debate over economic development among tribes, Miller said.

Tyonek council president Peter Merryman declined to comment on the tribe's plans regarding the iron ore plant, saying the council is still assessing its plans for Indian country.

But Alyeska Alloys' Braddock said Tyonek's village council and corporation appear eager to work out acceptable contracts covering taxation.

''Our bankers are far more suspect of events that might occur on the political front even than AIDEA,'' said Braddock, who notes that some of his European investors have developed projects in volatile places like post-Soviet Russia and remote provinces of China.

What can be taxed?

Tribal taxation is only half the issue. Of broader public interest may be the question of tax exemption in Indian country.

The Kenai Peninsula Borough says the Tyonek project could mean more than $2 million in property taxes every year. But will industry in Indian country be taxable by state and local governments? Borough officials say they don't know the answer.

Republicans in the Legislature have raised warning flags. A majority white paper on Indian country in March said lands and activities in Indian country cannot be taxed by state and local governments.

The paper, ''What Does Indian Country Really Mean for Alaska?'' speculated that tribal claims could pre-empt the state's right to tax oil fields on state land around Prudhoe Bay. That prospect is remote, the paper conceded, given that the unexpected 9th Circuit ruling only extends Indian country to some village corporation holdings. Nonetheless, some legislators were prompted to warn that tribal sovereignty ''could threaten the state's revenue base.''

In the Lower 48, tribal property is generally tax-exempt, but most non-Indian property on reservations is taxable by states and counties, according to a guide on Indian country issues published by the National Conference of State Legislatures. In Alaska, the state's taxation powers may be even broader: Native corporation land can be taxed once it is developed, according to tax provisions in the Alaska Native Claims Settlement Act.

Braddock said he expects Alyeska Alloys to pay property taxes to the borough as well as to Tyonek. But Bart Garber, the Tyonek corporation's chief executive officer, is not ready to yield on the property tax question.

''Borough tax in Indian country is an issue that will have to be dealt with in the future,'' Garber said.

Last year, the state sparred with the Southeast village of Klawock over an attempt to create a haven from state fish taxes.

To provide effective tax shields, some tribal governments might assume ownership of the corporation land or form joint ventures with developers, said Miller, a Native rights attorney. In addition, he said, the federal government offers accelerated depreciation breaks for investments in Indian country and tax credits for hiring Natives.

In such ways, Indian country can prove to be a boon to business and rural villages alike, Miller told the Alaska Federation of Natives in February.

''The only way you can attract business is if you can provide a reason for business to locate there,'' Miller said.

But Cole, who was another member of the AFN panel, shot back that it's misleading to suggest remote villages will become magnets for industry.

''Chalkytsik is never going to be a tax haven in the state of Alaska,'' Cole said, referring to the tiny Athabaskan settlement of 80 people in the Yukon Flats.

Tribe vs. corporation

Perhaps the sharpest business dispute that Indian country may bring is internal to the Native community.

Native corporations established under the Alaska Native Claims Settlement Act may suddenly find themselves subject to the laws and taxes of tribal officials -- some of whom have loudly proclaimed ANCSA a failure.

The potential corporation-tribe conflict was etched clearly last September, when Shee Atika, the village corporation for Sitka, filed an amicus brief with the 9th Circuit opposing recognition of Indian country in the Kluti Kaah case.

Shee Atika, which has extensive timber holdings in Southeast Alaska, said Indian country would make the company's logging operations subject to regulation by a Sitka tribal government potentially hostile to clear-cutting.

''The scope of these provisions is of grave concern to Shee Atika,'' the corporation said. ''The very harvest of the timber on those lands could be called into question.''

But open opposition like Shee Atika's remains the exception. Some Native corporations with a big stake in Indian country issues have been silent.

One of these, Arctic Slope Regional Corp., owns subsurface rights to promising oil prospects on the Arctic coastal plain. The land, near the village of Kaktovik, might meet the requirements of Indian country.

ASRC vice president Brenda Itta-Lee said the corporation is studying the potential impacts of Indian country. But she noted that corporate and municipal alternatives to tribal governments have helped North Slope residents to prosper.

''When the land claims act passed, clearly the Alaska Native people lobbying at the time said that we did not want reservation status and the tribal forms of government of the Lower 48,'' Itta-Lee said.

Other Native corporations have been supportive. The AFN, which in recent years has added more village voices, promised to support Venetie before the Supreme Court.

In a newspaper opinion piece that caused a stir in February, the two top executives of Cook Inlet Region Inc., the state's third biggest regional Native corporation in terms of revenues, endorsed tribal government as ''a powerful tool for self-determination.''

CIRI chairman Roy Huhndorf and president Carl Marrs singled out justice, health care and social welfare as areas of special emphasis for tribes. Significantly, they said Congress may need to modify the geographic extent and specific powers of tribes. This may be significant -- CIRI, after all, owns oil and gas rights on Tyonek's land, and coal fields claimed by the activist tribal government of Chickaloon. But their overall thrust was that tribal governments and Native corporations can coexist.

Tyonek corporation head Garber said tribes and Native corporations won't necessarily find themselves at odds. In fact, he said, a corporation may find a friendlier operating climate in Indian country than it does under state jurisdiction.

In Tyonek, officials for the Native corporation and tribal council say they meet regularly and agree on the economic development plans, despite past disputes between village factions. The iron carbide plant is part of an ambitious larger plan for bringing economic development to Tyonek while preserving part of the former reserve in its natural state, Garber said.

''The corporation has never challenged the council's status or its right to govern the former reserve,'' said Garber, a former attorney for the village council. ''I have been telling the tribe they've got to be competitive with other areas. Other communities tax and provide services. There's no reason we shouldn't.''

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