alaska natives and the “new harpoon”: economic performance of the ancsa regional corporations...

Alaska Natives and the “New Harpoon”:

Economic Performance of the ANCSA Regional Corporations 1976-1993

Steve ColtInstitute of Social and Economic Research

University of Alaska Anchoragesteve_colt@uaa.alaska.edu

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

10

1968: North Slope Oil, Prudhoe Bay

11

Land Settlement

• 22 million acres to village corps• 18+ million acres to regional corps• ------------• 40 million acres total

– Larger than New England– 3 times the acreage under Nature

Conservancy protection

12

Disposition of Alaska Lands

104

44

152

736

State

ANCSA

Conservation

Other Fed

Other Private

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))

retained

30%

shared

with all

village/ at

large

35%

shared

with all

regional

corps

35%

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 EquityGross Revenues, Assets, Book Equity

All Regional Corporations

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

mill

ion

s o

f cu

rren

t $

Assets

book equity

Revenue

21

Per Capita Cumulative Dividends 1974-93

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000K

onia

g

Cal

ista

Ber

ing

St

Ale

ut

Chu

gach

Bris

tol B

ay

Doy

on

Aht

na

NA

NA

AS

RC

Sea

lask

a

Coo

k In

let

Ove

rall

(wei

ghte

dav

erag

e)(3

)

22

Sources & Uses of Wealth, 1974-93

440

273

596

243

1066

0

200

400

600

800

1,000

1,200

1,400

mill

ions

of

dolla

rs

Sources Uses

Equity

Dividends

Net I ncome

Other Capital

ANCSA Cash

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

(20)

-

20

40

60

80

100

120

140

160

180

$ Millions

1984 1985 1986 1987 1988 1989 1990 1991 1992 1993

Total NOL SalesThrough 1993:$408 million

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 1976-93

0

10

20

30

40

50

60

70

80

mill

ions

of

dol

lars

197

6

197

7

197

8

197

9

198

0

198

1

198

2

198

3

198

4

198

5

198

6

198

7

198

8

198

9

199

0

199

1

199

2

199

3

Total $480 million

28

Passive Investment Income

•Many corps had stock and bond portfolios.

29

Components of Income 1974-93

-400

-200

0

200

400

600

800$

mill

ion

gene

rate

d

nol sa

les

reso

urce

sale

s

pass

ive

over

head

bus

ines

s

components

components

shared

reported

30

Return on Equity

-40%

-30%

-20%

-10%

0%

10%

20%

30%

1974

1977

1980

1983

1986

1989

1992

Reported

Business

31

Variation in Average Rate of Return across Regions

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

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

• Passive Investments– Stocks and Bonds

39

Asset Allocation Fractions

0%

20%

40%

60%

80%

100%

% o

f to

tal a

ss

ets

1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992

Asset Allocation to Sectors

pubworks

local

statewide

oil

passive

40

Hedonic Regression Equation

Overall Rate of Return (ROR) = PASSIVE

+ 1it OIL+ 2it STATEWIDE+ 3it LOCAL+ 4it PUBWORKS+ it

N = 12, T = 17, nobs = 204

41

Asset Allocation Results

7%

0%

-20%

22%

59%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

Avg Annual Rate of Return

passive

oil

statewide

local

pubworks

42

Management Effects:Statewide Sector Returns to Each Corp

-200%

-150%

-100%

-50%

0%

50%C

ook

Inle

t

Bris

tol B

ay

Aht

na

Nan

a

Sea

lask

a

Ale

ut

Cal

ista

Chu

gach

Ave

rage

Kon

iag

Doy

on

Ber

ing

Str

aits

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

0

500

1,000

1,500

2,000

2,500

3,000

Aht

na

Ale

ut

Arc

tic

Slo

pe

Ber

ing

Str

aits

Bri

stol

Bay

Cal

ista

Chu

gach

Coo

k In

let

Doy

on

Kon

iag

NA

NA

Sea

lask

a

45

Statewide Sector Returns, with Payroll Income

-200%-180%-160%-140%-120%-100%-80%-60%-40%-20%

0%20%

Cook

Inl

et

Bri

stol

Bay

Aht

na

Nan

a

Doy

on

Sea

lask

a

Ale

ut

Chug

ach

Ave

rage

Calis

ta

Kon

iag

Ber

ing

Str

aits

AS

RC

Profits

Profits + Payroll

46

Profits ROE vs. Jobs ROE

0%

10%

20%

30%

40%

50%

60%

-140% -120% -100% -80% -60% -40% -20% 0% 20%

profits return on equity

qu

asi

ren

ts r

etu

rn o

n e

qu

ity

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

0

5

10

15

20

25

30

35

40

$ B

illio

ns

Oil ANCSA lands

Market Value of Resources from ANCSA Lands and North Slope Oil Cumulative extraction circa 1991

53

The Future for ANCSA Corps

• Global integration• Contracting (using DBE

preferences)