Alaska Natives and the “New Harpoon”: Economic Performance of the ANCSA Regional Corporations Steve Colt Institute of Social and Economic Research University of Alaska Anchorage Rev. 04 June 2003

2 Alaska Myth – the “Great Land”

3 Reality includes People ANCSA aimed at “real social and economic needs” of Alaska Natives

4 Reality is about Poverty

5 Rapid Integration into Cash Economy

6 For Some, ANCSA was engine of resource extraction

7 Context Alaska Native Claims Settlement Act ANCSA Corporations –Overall Economic Performance –Variation in Performance –Jobs vs. Profits? ANCSA as Policy –Economic Policy –Environmental Policy –Social Policy

8 Context Alaska Native Claims Settlement Act ANCSA Corporations –Overall Economic Performance –Variation in Performance –Jobs vs. Profits? ANCSA as Policy –Economic Policy –Environmental Policy –Social Policy

9 Context Alaska Native Claims Settlement Act ANCSA Corporations –Overall Economic Performance –Variation in Performance –Jobs vs. Profits? ANCSA as Policy –Economic Policy –Environmental Policy –Social Policy

: North Slope Oil, Prudhoe Bay

11 Land Settlement 22 million acres to village corps 18+ million acres to regional corps million acres total –Larger than New England –3 times the acreage under Nature Conservancy protection

12 Disposition of Alaska Lands Total 375 million acres

13 ANCSA – Money Settlement $440 million to 12 regional corps –[only!] $6,000 per person $440 million to ~200 village corps $82.5 million to individuals $962.5 million total

14 Net Resource Revenues must be Shared (section 7(i))

15 How Should one measure corporation success? Business success, growth, dividends? Provide jobs? resource extraction? Maintaining traditional use and occupancy? political forces?

16 Context Alaska Native Claims Settlement Act ANCSA Regional Corporations –Overall Economic Performance –Variation in Performance –Jobs vs. Profits? ANCSA as Policy –Economic Policy –Environmental Policy –Social Policy

17 What did they Do?

18 What did they Do? - Nana

19 What did they do? – CIRI

20 Revenue, Assets, and Equity

21 Per Capita Cumulative Dividends

22 Sources & Uses of Wealth,

23 Adjustments to Reported Income Windfall Tax loss sales Windfall Natural Resource Sales Passive Investment Income “Social Overhead Cost” of Being ANCSA corp.

24 Adjustments – Tax Loss Sales Sever interest in asset that you didn’t pay for, generate loss for tax purposes, sell loss to profitable company for cash

25 Tax Loss Sales

26 Adjustments – Resource Sales NR sales are one-time windfall, not sustainable income –NR Assets not carried on books –No Depletion taken as expense ANCSA required resource revenue sharing among regions

27 Resource Asset Sales Total $480 million

28 Passive Investment Income Many corps had stock and bond portfolios.

29 Components of Income

30 Return on Equity

31 Variation in Average Rate of Return across Regions

32 Explaining the Variation Idea #1: Profitability depends on WHAT SECTOR the assets are invested in.

33 Simple Example: –You buy only Home Depot stock, you earn 20% –I buy only Amazon.com, I lose 50% –Conclude, return on Cisco is 20% while return on Amazon is –50% Have computer play this game with real data

34 Oil Sector –Direct connection to North Slope fields

35 Statewide Sector –Construction, Fish Processing, Hotels, Tourism, Real Estate, Manufacturing

36 Local Sector Serves local market Food, fuel, retail

37 Public Works Sector –Arctic Slope Corporation only –North Slope Borough tax $$

38 Passive Investments –Stocks and Bonds

39 Asset Allocation Fractions

40 Hedonic Regression Equation Overall Rate of Return (ROR) =  PASSIVE +  1 it OIL +  2 it STATEWIDE +  3 it LOCAL +  4 it PUBWORKS +  it N = 12, T = 17, nobs = 204

41 Asset Allocation Results

42 Management Effects: Statewide Sector Returns to Each Corp

43 What about JOBS? Idea #2: “Efficient Tradeoff” idea – –Lose some money as a business, but –Provide needed employment –Develop “human capital”

44 Average Annual Payroll per Shareholder

45 Statewide Sector Returns, with Payroll Income

46 Profits ROE vs. Jobs ROE

47 ANCSA as Economic Policy Inefficient -- Corps lost a lot of money Equitable?

48 Fairness Issues -- NOLs Resource revenues were shared but Tax loss sales resulting from resource extraction were NOT shared

49 Fairness Issues – Wages vs Dividends Average wages: $25,000 / yr Average mgmt salary: $60,000+ / yr Average SH dividends: $170 / yr

50 Economic Needs are Great Alaska Natives have legitimate need to convert ANCSA corporate assets to cash But, Individuals can’t sell stock!

51 are Natives “locked in” to Capitalism? –It would have been “ludicrous” not to cut the trees (Sealaska CEO) –The land can be sold (by the Board), but the stock cannot. –"we hire shareholders, but we don't overburden ourselves. If we fail in business we are worthless." (former CIRI President Hundorf)

52 ANCSA was a Reaction to Oil

53 The Future for ANCSA Corps Global integration Contracting (using DBE preferences)