Ancsa Section 7(i): $40 Million Per Word and Counting

• Publication year: 2016

§ 33 Alaska L. Rev. 229. ANCSA SECTION 7(I): $40 MILLION PER WORD AND COUNTING

Alaska Law Review
Volume 33, No. 2, December 2016
Cited: 33 Alaska L. Rev. 229

ANCSA SECTION 7(I): $40 MILLION PER WORD AND COUNTING

AARON M. Schutt ^[*]

INTRODUCTION

"Alaska is often the exception, not the rule." ^[1] And so it is with both the Alaska Native Claims Settlement Act of 1971 ^[2] (ANCSA or the "Act") and the unique revenue sharing provision contained at Section 7(i) of the Act. ^[3] When the United States Congress passed ANCSA, it made a dramatic change in the policy of the United States government related to aboriginal land claims. Instead of setting lands aside for reservations for Alaska's Native people, ^[4] Congress directed the creation of twelve for-profit regional corporations and more than 200 village corporations; ^[5] allowed them to select forty million acres of land that the United States would convey in fee simple to the corporations; ^[6] and provided $962.5 million in compensation to the corporations. ^[7]

The resource revenue-sharing provision contained in Section 7(i) is an important and unique element of ANCSA. ^[8] The two sentences that comprise the original Section 7(i) facilitated the passage of the Act, ^[9] dominated the early interactions amongst and between regional and village corporations, ^[10] and have had enormous economic impact on Alaska Native corporations in the decades since passage of the Act. ^[11] Section 7(i) still has important consequences for Alaska Native corporations and their resource development partners more than forty years after the passage of ANCSA. As highlighted by the title of this article, the amount shared between Alaska Native corporations pursuant to Section 7(i) is enormous, well in excess of $2 billion. ^[12]

This article will review the history of Section 7(i), compare ANCSA's structure to other aboriginal land settlement structures worldwide-with a focus on revenue-sharing mechanisms (or lack thereof)-, and review the years of litigation focused on Section 7(i) that followed the passage of ANCSA. The article will then review the Settlement Agreement reached between the twelve Alaska Native regional corporations regarding Section 7(i) and the various consequences and outcomes of that Agreement since its signing in 1982. The article ends with a discussion of the interesting tax and bankruptcy issues associated with Section 7(i), as well as several current, unresolved issues regarding Section 7(i) and the Settlement Agreement.

HISTORY OF SECTION 7(I)

The history of Section 7(i) must be read in context with the overall history of ANCSA. ANCSA was an ambitious attempt to rapidly settle the land claims of multiple ethnic Native groups in Alaska over an immense land area and was complicated by the specific land histories in different areas of the state. ^[13]

The Alaska Federation of Natives (AFN) was the statewide organization formed in 1966 primarily to represent Alaska Native interests with regard to land claims. ^[14] One issue that arose among AFN's members was the knowledge that natural resources were not equally distributed across the various regions of the state. ^[15] It was also well known that certain groups across Alaska needed and used more land than others within their traditional areas due to concentrations of fish and game, cultural practices, population densities, and geographic features. ^[16]

As land claims settlement ideas progressed, the so-called "land-loss formula" emerged as a remedy to the unequal land usage issue. Under the formula, Native groups that historically used greater land areas and were therefore giving up more territory under the land claims settlement received more entitlement under ANCSA. ^[17] The "land loss" formula was one half of "the foundation for a settlement acceptable to Native regions having mineral potential and those without, and those having large populations and those only lightly populated;" the other half was revenue sharing from natural resource development. ^[18]

Origins of the Revenue Sharing Idea

The first time a Section 7(i)-like provision arose was in the 1968 Senate version of a bill titled the Alaska Native Claims Settlement Act. ^[19] In that bill, the largest proportion of resource revenue was still retained by the local Native group at seventy-five percent, with the next largest amount to the area regional corporation at twenty percent; but, importantly, five percent was to be paid to a statewide corporation to be organized and charged with a mission of economic development. ^[20] In the legislation preceding ANCSA, this was a first attempt to require sharing of resource revenue derived from one region with other Alaska Natives statewide.

AFN board members first discussed the idea of revenue sharing from mineral development at a three-day board meeting from May 15 to 18, 1969. The board directed that mineral revenue resource sharing be included in the drafts of AFN's positions with the following distribution: "25% village, 25% regional, [and] 50% statewide to all regions on [a] population basis." ^[21]

A month later, on June 20, 1969, AFN published a position paper which included the first documented mention of the revenue-sharing principle that became Section 7(i):

All mineral interests should be granted to the regional corporation in whose area the minerals are found, and any revenues received by a regional corporation from those interests should be divided in the following ratio: 50% to the regional corporation in whose area the mineral is found, and 50% to be divided among all of the other regional corporations on a population basis. ^[22]

Later in 1969, the idea of revenue sharing was introduced to Alaska Native land claims legislation, first in amendments to Senate Bill 1830:

Each regional corporation shall be entitled to fifty per cent of the net proceeds derived from the sale, lease, permit, development, use or other disposition of lands, interests in lands, and minerals to which it acquires a patent under subsection 12(b)(3) and (4) of this Act. The remaining 50 per centum of such net proceeds shall be distributed among all the other regional corporations in direct proportion to the Native population of such other regions . . . . ^[23]

The bill's use of fifty percent to be shared among other regions became one of the more consistent sharing proportions in legislative proposals to follow.

Two bills addressing Alaska Native land claims, known as the Alaska Federation of Natives (AFN) bills, were introduced in the new Congress of 1971. ^[24] Introduced by Senators Fred Harris (Oklahoma) and Ted Kennedy (Massachusetts) and Representative Lloyd Meeds (Washington), these bills featured "full title to 60 million acres of land, an initial payment of $500 million, perpetual sharing in minerals from lands given up, and the establishment of regional corporations." ^[25]

The House bill required that revenue derived from timber and subsurface resources be distributed on a population basis to all Alaska Natives: "In order that all Natives may benefit equally from any minerals discovered within a particular region, each corporation must share its mineral revenues with the other 11 corporations on the basis of the relative number of stockholders in each region." ^[26]

The Senate bill, in contrast, had a structure that required fifty percent of the revenues from timber and subsurface resources be shared with the other regional corporations. ^[27] Ultimately, "[t]he Conference Committee of both houses of Congress adopted a compromise provision requiring the resource-owning Corporation to share 70% of its timber and subsurface resource revenue among all of the Corporations." ^[28] This became the language of Section 7(i).

Section 7(i) and Amendments

The original text of Section 7(i) was only two sentences:

Seventy per centum of all revenues received by each Regional Corporation from the timber resources and subsurface estate patented to it pursuant to this Act shall be divided annually by the Regional Corporation among all twelve Regional Corporations organized pursuant to this section according to the number of Natives enrolled in each region pursuant to Section 5. The provisions of this subsection shall not apply to the Thirteenth Regional Corporation if organized pursuant to subsection (c) hereof. ^[29]

These two sentences were a significant part of the political compromise in the Alaska Native community relating to ANCSA that facilitated both the passage of the Act and its implementation in Alaska. Without the sharing of the revenues from timber and mineral development with Natives statewide, there would have been a gross disparity between the "have not" regional corporations and the "haves." ^[30] Through Section 7(i), Congress:

intended to achieve a rough equality in assets among all the Natives. . . . (The section) insures that all of the Natives will benefit in roughly equal proportions from these assets. . . . Congress required that 70 percent of all revenues from the development of timber and subsurface resources be distributed among the Regional Corporations. ^[31]

Congress has amended Section 7(i) twice since 1971 to address specific issues as they arose. In 1995, Congress amended Section 7(i) to make clear that net operating loss sales, and other federal tax benefits, are not shareable revenues. ^[32] This...