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For many with stake in Alaska native corporations, promise of better life remains unfulfilled

NANA has provided assistance to villages across the region, and its dividends have been rising. It has also lobbied state and federal agencies to improve infrastructure, work that is beyond the mandate of ANCs. But NANA spokeswoman Robin Kornfield said there is still much to do.

"I don't believe ourselves to be successful yet," she said. "We've got a long way to go."

One success story is Lucy Boyd, a 24-year-old who went from Buckland to an accounting degree at the University of Alaska at Fairbanks and on to a career in land development with NANA in Colorado. NANA provided $20,000 in scholarship money and care packages along the way.

"Buckland is struggling," she said. But with NANA's support, "we're leaps and bounds ahead of where we would be otherwise."

The Alaska natives, in Nome and elsewhere in the state, continue to lag far behind the rest of the country in measurements of their overall health. Growing numbers suffer from heart problems, obesity and diabetes. They commit suicide at almost four times the national rate, and one study found that alcohol played a role in two-thirds of those deaths.

Last year, researchers at the University of Alaska's Institute of Social and Economic Research found that rapid improvements in the 1970s were fueled by oil exploration and federal spending. The number of natives in poverty dropped from one-half to one-quarter. But things have plateaued, with household incomes remaining flat. Although far more homes have indoor plumbing than two decades ago, the proportion of Alaska natives without toilets as of 2007 is 32 times greater than in the rest of the nation.

Unemployment has hovered officially at three times the national average in recent years, but it's actually "closer to 60 percent," said Stephanie Martin, one of the authors of the study.

"They keep waiting for the jobs," she said. "But the jobs never seem to come."

Unique privileges

The corporations were created under the Alaska Native Claims Settlement Act of 1971. The idea was to help Alaska natives begin "walking in two worlds," as one traditional saying goes, enabling them to create businesses in Alaska while preserving their autonomy and culture.

The law, shaped with input from Republican Sen. Ted Stevens, formally settled native land claims not long after oil was discovered on the state's North Slope.

Instead of setting aside land for reservations as in the lower 48 states, the law launched 13 regional corporations and more than 200 village corporations, giving them almost $1รข??billion in cash and claim to 44 million acres of land in Alaska. The corporations were given responsibility for using their share of the cash to build business. Corporations on land blessed with more natural resources had to share some of their revenue with the others.

Things went wrong almost immediately. Some of the fledgling corporations fell prey to inexperience, outsiders and mismanagement. They made bad investments in tourism, paid too much for consultants and went through vast stands of timber and other natural resources, putting some near financial ruin.

After those corporations had lost hundreds of millions, Stevens stepped in again.

In the late 1980s, he pressed for rules allowing ANC subsidiary firms to participate in the SBA's long-standing 8(a) program, through which the government offers "set-aside" federal contracting work for small, disadvantaged and minority businesses.

About the same time, Stevens used his considerable seniority and power in Congress to go even further for the subsidiaries, winning them privileges unique in the federal procurement system.

Congress exempted them from caps - now up to $5.5 million on individual contracts - that other small, minority and disadvantaged businesses have on the size of contracts they could obtain without competition. ANCs could receive contracts of any size, even into the billions. They also are not bound by the $100 million limit on the total amount they can make.

They were also exempted from federal rules requiring "disadvantaged" businesses to be run by executives from the disadvantaged groups. The Alaska subsidiaries do not have to be run by natives or operate in Alaska. They could be run by anybody, anywhere.

Under the new rules, the native corporations could also create an unlimited number of subsidiaries to get government business, as long as the ANCs retained ultimate control, effectively exempting them from rules that restrict small businesses from getting set-aside contracts for more than nine years.

"There is little doubt that we would not have been able to compete if not for some of these provisions," Chris E. McNeil Jr., chief executive officer of Sealaska, a regional corporation in southeastern Alaska, recently told a trade publication.

The emergence of ANCs took place amid sweeping changes that loosened oversight of federal contracts across the government. Clinton-era reforms cut the Pentagon contracting workforce in half, from 461,000 to 231,000, with the idea of saving money and streamlining operations after the Cold War. Then, in the flood of spending after the Sept. 11, 2001, attacks, the Bush administration also pushed a policy to outsource functions to the private sector.

"The government has cut the number of trained, experienced contracting personnel," said Charles Tiefer, a procurement specialist at the University of Baltimore School of Law. "It has lost their expertise at setting up rigorous competitions and checking the fairness of prices."

Over the past decade, as total government spending on contracts rose almost threefold, to more than $550 billion, spending on the Alaska contracts soared tenfold, reaching $5.5 billion last year. The number of subsidiaries grew from 26 to more than 300. Government contracting now provides almost half of the revenue for Alaska native corporations, according to a congressional survey.

At great expense

The drumbeat of warnings began early in the rise of ANCs.

In 2004, the Los Angeles Times and The Washington Post published stories raising questions about multi-hundred-million-dollar contracts given without competition to Alaska native corporations.

In 2006, the Government Accountability Office found "almost no evidence" that agencies were tracking whether ANCs were following the rules and doing the required amount of work. "In effect, the contracts become a convenient vehicle for circumventing open competition requirements at great expense to the taxpayer," Rep. Henry A. Waxman (D-Calif.) said at the time.

Despite the questions about oversight, Stevens and the rest of the Alaska delegation remained steadfast supporters: "I do argue with the interpretation that because that oversight didn't exist, that I was wrong in the first place, or that it was a fiasco on my part," Stevens said. Rep. Don Young (R) called the criticism a "thinly disguised attack on Native Alaskan people" by jealous competitors.

As chairman of the appropriations committee, Stevens had enormous power to punish those who disagreed with him. "No one was willing to speak up and expose the abuses," Sen. Claire McCaskill (D-Mo.) told The Post this year.

In 2008, Stevens successfully fought off an attempt to restrict the program in the Pentagon budget bill. "I am relieved we have once again been successful in defending it," Stevens said at the time. He died in the crash of a small plane Aug. 9 during a fishing excursion and was not interviewed for this story.

In July 2009, the SBA's inspector general's office found that the agency had done little to keep track of the Alaska firms despite the early warnings and suggested that Congress might want to determine whether they had "a substantial unfair competitive advantage" over other small businesses.

That month, McCaskill led a hearing on the program before the Senate subcommittee on contracting, listening to testimony that the native firms were prone to waste and fraud, with exorbitant pay to some nonnative executives.

"From the taxpayer perspective, it's hard to see why the Alaska native corporations should be able to receive enormous contracts with no competition," she said at the time.

Yet the money continued to flow, a record $5.5 billion last year alone.

'Unintended consequences'

Oversight of the Alaska corporations begins with the Small Business Administration, an agency whose mission is both to boost businesses and look out for taxpayers. Repeated audits show that during the past decade, the SBA faltered in its roles, in part because its budget and staff were slashed at a time when the contracts soared to record levels.

Four years ago, auditors criticized the agency for failing to monitor the contracts and for relying on paper records because of insufficient technology. The agency promised to upgrade and do an electronic review.

But The Post found that the SBA still relies largely on paper records maintained in metal file cabinets in Anchorage. Because of cutbacks in the Bush years, the Anchorage office has had on average only three employees devoted to the Alaska native contracting program over the past decade. No electronic reviews have been done.

The SBA initially certifies each new subsidiary but generally does not review their activities or continuing eligibility, relying on an honor system. "Unless we have reason to believe otherwise, we take them at their word," said Anchorage district office director Karen Forsland.

In an interview with The Post, associate SBA administrator Joseph Jordan said that the agency had been working to upgrade its technology and that it had added two employees in Anchorage and trained a third in San Francisco to help monitor the program.

"We came in and recognized right away there was a need for more personnel," said Jordan, who joined the agency last year. "A lot of what we do in the government is done with the best of intentions. But there are unintended consequences."

The task of protecting Alaska native shareholders, including monitoring corporate finances and board elections, fell to the Alaska division of banking and securities, which has struggled with that mandate.

A decade ago, an Alaska state audit found that shareholders had difficulty understanding the annual reports, a problem that persists, said Stephen Colt, an associate professor of economics who studies ANCs at the University of Alaska.

The audit also found that state oversight was "weak," in part because the division had only one person assigned to the task and relied on archaic technology. A recent visit to the office found that there was still only one examiner and that financial records were still being maintained on paper, in a 10-by-12 room.

Jill Farrell, the examiner, said that she and her colleagues were working hard to computerize records but that she had little time to investigate shareholder complaints and allegations of abuses.

"It's just patently ridiculous," Farrell said. "I'm just swimming upstream all the time. We're overwhelmed."

oharrowr@washpost.com

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