The Sealaska land exchange is being touted as jobs bill. Indeed, Sealaska does provide local employment -- about 400 jobs by one estimate. Unfortunately, most of the jobs in the past have been in booms and busts related to logging. Villages like Kake and Hoonah were once primarily subsistence and fishing communities, now face epidemic unemployment following large-scale logging. Sealaska's objectives to maximize profits and to use net operating losses have contributed to this reality.
First, there were two problems beyond the corporations' control. There was a 10-year delay between when the corporations received their ANCSA cash settlements and when they received title to their lands. By the time logging operations were to commence much of the ANCSA cash was already distributed to shareholders or was otherwise unavailable for logging. Consequently, some corporations had to borrow. The second problem was that export markets in the Pacific Rim began to deteriorate soon after the initial timber sales were made. Between the borrowing and the poor markets little profit was made and losses were incurred.
Fortunately, federal tax laws allowed corporations to sell these losses to other businesses. These other businesses could then write them off against their taxable income and reduce their taxes. The losses from actual logging operations were called hard net operating losses (NOLs), but there was bigger money to be made from selling additional losses called soft NOLs. Soft NOLs are a loss in asset value such as standing timber, or a home values after the sub-prime crisis.
When the Native corporations first got title to their timber lands they had it appraised to determine the value of the standing timber. It was soon apparent that the appraised values were higher than what the revenues from actual timber sales would indicate. This difference became a starting point for the soft NOLs. Moreover, the Native corporations learned that these soft NOLs could be made even greater if they could convince IRS that Native timber was under-valued when the original appraisals were made.
And indeed, that is just what happened. The timber was reappraised and the resulting new standing timber values became higher. When the higher starting timber values were compared to current market values, an even greater soft loss was indicated.
The intent was to sell the soft NOLs, just like the hard NOLs. However, there was another hitch. The IRS would not accept just paper accounting losses to generate a saleable NOL. IRS required the Native corporations to sell their lands to incur an "actual" loss. Long story short, much of the village timber land was sold to Sealaska Timber Corp. and Koncor -- another timber company having joint ventures with Native corporations.
With former village lands under Sealaska ownership, Sealaska Corp. went back to Congress to amend ANCSA so that they could make further land selections within the village set-aside areas. This allowed Sealaska to consolidate a large timber base in areas like Hoonah. More importantly, the consolidated ownership allowed Sealaska Corp. to launch large-scale logging to maximize profits. Logging was accelerated and unfortunately the ANCSA provisions for sustainable logging and local processing were simply ignored. So what?
Sealaska now wants high-quality timber lands on Prince of Wales Island for the old-growth they have left behind in their ANCSA selection areas. Some corporate leaders admit to past mistakes and others make promises of better management, but no one seems to be willing to commit these new constraints to paper. New logs would still be exported. Simply stated, it is more of the same and we should just say no.
One last point, the Alaska Pulp Corporation offered to buy the cut and down Native logs that were not exportable. However, there was no interest. Why? Because it interfered with the NOLs.
Joe Mehrkens is a retired forest economist. He lives in Auke Bay.
By JOE MEHRKENS