One Company, Two Worlds: the Case for Alaska Native Corporations

• Publication year: 2010

§ 27 Alaska L. Rev. 297. ONE COMPANY, TWO WORLDS: THE CASE FOR ALASKA NATIVE CORPORATIONS

Alaska Law Review
Volume 27, No. 2, December 2010
Cited: 27 Alaska L. Rev. 297

ONE COMPANY, TWO WORLDS: THE CASE FOR ALASKA NATIVE CORPORATIONS

TRAVIS G. BUCHANAN ^[*]

Abstract

In light of the recent uproar about participation by Alaska Native Corporations in the 8(a) Small Business Development Program, this Note examines the criticisms of such participation and identifies these criticisms' shortcomings, which the Note argues result from a narrow understanding of ANCs and the 8(a) program. Instead, the Note makes the case for a more holistic understanding of ANC participation in the 8(a) program. Thinking of ANCs in this broader way provides a more useful framework for analyzing and evaluating proposed reforms to the program.

I. Introduction

Lately, the inclusion of Alaska Native Corporations (ANCs) in the Small Business Administration's 8(a) Business Development Program has been subject to heavy criticism. ^[1] These criticisms have resulted both in numerous proposals for regulatory change and-perhaps most notably - close scrutiny at a recent Senate subcommittee hearing. Despite the fervor with which opponents attack ANCs, this Note makes the case for ANC participation in the 8(a) program by advocating for a better, more comprehensive framework through which to analyze such participation. Part II places ANCs in their historical context in terms of the Alaska Native Claims Settlement Act (ANCSA) and the Small Business Act. Part III reviews the current debate about ANC participation in the 8(a) program. Part IV then uses the recent Senate Subcommittee Report as a vehicle to examine the shortcomings in the current analysis of such participation. Part V advocates a better vantage point for such analysis. Finally, Part VI examines proposed regulations in light of this new perspective.

II. Alaska Native Corporations and the Small Business Act

A. The History of ANCs

The Alaska Native Corporations were established as a result of the Alaska Native Claims Settlement Act of 1971. ^[2] The Act was motivated in large part by a desire to allow the development and extraction of Alaska's oil reserves without the hassle of legal claims by Alaska's native peoples. ^[3] Under ANCSA, Alaska Natives agreed to extinguish all claims based upon any aboriginal rights. ^[4] In return, Alaska Natives received $462,500,000 from the U.S. Treasury and $500,000,000 in revenue sharing related to the extraction of oil, gas, and minerals. ^[5] As Julie Kitka, President of the Alaska Federation of Natives, points out, this transaction has provided enormous benefit to the United States:

The citizens of the United States and the federal government, received a bargain: . . . 16 billion barrels of domestic oil, directly attributable to the agreements that are made possible by ANCSA. The fields of Prudhoe Bay alone have delivered several hundred billions of dollars of goods, services and taxes to the federal government. ^[6]

As a general matter, ANCSA functions by dividing Alaska into twelve separate regions. ^[7] The regions were chosen so as to group Alaska Natives who "hav[e] a common heritage and shar[e] common interests." ^[8] Alaska Natives - defined as those who are "one-fourth degree or more Alaska Indian . . . Eskimo, or Aleut blood, or combination thereof" ^[9] -were then enrolled in their respective regions based upon where they lived. ^[10] ANCSA required each region and eligible village to create a corporation. ^[11] Each Alaska Native became a shareholder in the regional corporation and in any village corporation of which he or she was a member. ^[12] ANCSA also provided forty million acres of land in fee simple to the corporations. ^[13] These corporations (ANCs) would then serve as vehicles for providing the maximum economic, social, and cultural benefit for Alaska Natives. ^[14]

ANCSA was unique in that it sought to settle aboriginal claims to the land and yet to do so in a way that did not depend on a reservation system. ^[15] Alaska Natives were now, however, thrust into a situation for which many were not readily adapted. As Melissa Campbell noted in the Alaska Journal of Commerce:

A group of people, most of who[m] had survived on a subsistence lifestyle in roadless areas, was suddenly immersed in the Western-based corporate world, with the mandate of providing their shareholders with a for-profit company. They were also to provide nonprofit organizations, offering shareholders social and cultural services. It was sink or swim. ^[16]

At first, ANCSA did little to help Alaska Natives. ^[17] Instead, any improvements in the status of these peoples during the first thirteen years of ANCSA were more attributable to: the "oil-fueled expansion of the state economy;" Alaska's capital spending on housing, education, and health facilities; and on improvements to transportation and public utilities in rural Alaska. ^[18] The delays and costs that ANCs experienced in actually implementing ANCSA initially denied Alaska Natives many of the potential benefits of the Act. ^[19] Indeed, several regional corporations almost did not survive their first twenty years. ^[20] More than eighty percent of the original cash endowment was lost between 1973 and 1993. ^[21] Combined, the regional corporations averaged only a five percent return on book equity ^[22] despite the fact that "very substantial" natural resource sales took place during that time. ^[23]

In the early 1990s, two noteworthy amendments to ANCSA took effect. The first provided that ANCSA's initial restriction on the alienability of Alaska Natives' stock in their corporations would become permanent unless an ANC's shareholders voted to lift the restriction.(fn24)Then, in 1992, ANCSA was modified to include a provision that ANCs are deemed to be "economically disadvantaged" for all purposes of federal law. ^[25] This amendment was made with federal contracting programs specifically in mind:

Section 10 . . . clarif[ies] that Alaska Native corporations are minority and economically disadvantaged business enterprises for the purposes of implementing SBA [Small Business Administration] programs.

...

This section would further clarify that Alaska Native corporations and their subsidiary companies are minority and economically disadvantaged business enterprises for the purposes of qualifying for participation in Federal contracting and subcontracting programs, the largest of which include the SBA 8(a) program and the Department of Defense Small and Disadvantaged Business Program. These programs were established to increase the participation of certain segments of the population that have historically been denied access to Federal procurement opportunities. ^[26]

The provision has been criticized, but it was crucial for Alaska Natives because it recognized the distinction between ANCs and the Natives they represent. Even if an ANC as a company was economically healthy, the Alaska Natives that it provided for remained economically disadvantaged.

B. The Small Business Act and the 8(a) Business Development Program

The Small Business Act in its current form was enacted in 1958 to promote the development of small businesses. ^[27] It made the Small Business Administration (SBA) permanent in order to enact the policies laid out in the Act. ^[28] In 1978, the Act was amended to provide the SBA with statutory authority to administer a development program to benefit "socially and economically disadvantaged small business concerns."(fn29)This program is commonly known as the 8(a) program or the Business Development program. ^[30] The 8(a) program attempts to help small disadvantaged businesses compete in the U.S. economy. ^[31] An important but often underappreciated aspect of this program is the fact that it represents the intersection of two distinct federal objectives: promoting the advancement of small business and promoting the advancement of minorities. ^[32]

To be eligible for the 8(a) program, then, a business must qualify as socially and economically disadvantaged and must be small. In 1986, Indian tribes - defined as including ANCs-were added to the list of groups presumed to be socially disadvantaged. ^[33] Under the amendment to ANCSA mentioned above, ANCs are also presumed to be economically disadvantaged. ^[34] To be "small" a business cannot be "dominant in its field of operation." ^[35] When determining whether a particular ANC business meets the size limitations for the 8(a) program, however, the SBA considers the business independently-that is, without regard to the ANC parent or to other businesses affiliated with the ANC parent. ^[36] This provision does not apply, however, if the SBA determines that such a business has or would have a "substantial unfair competitive advantage" within an industry. ^[37] Finally, all companies are limited to nine years in the 8(a) program. ^[38]

In practice, when a federal government agency needs a particular good or service, the SBA will contract with the government agency and then arrange for a business in the 8(a) program to perform the contract.(fn39)The SBA cannot award a contract to a particular 8(a) business, however, if doing so would cause the agency to pay more than fair market price.(fn40)Government agencies are directed to set aside a certain percentage of their contracts for 8(a) participants. ^[41] The SBA may award a contract to a...