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Missouri Sen. McCaskill proposes a crackdown on Alaska native corporation program

By Robert O'Harrow
Washington Post Staff Writer
Wednesday, November 17, 2010; 9:53 PM

Sen. Claire McCaskill proposed a legislative crackdown Wednesday on the government's multibillion-dollar Alaska native corporation program, saying that contracting "loopholes" intended to help the state's indigenous people have led to waste and abuses.

The legislation is the most direct attack yet on a program promoted by the late Sen. Ted Stevens (R-Alaska), who pushed an extraordinary set of rules through Congress giving the corporations' subsidiaries the right to receive federal contracts of any size without competition, as well as other benefits.

More than 200 of the corporations, known as ANCs, were created by Congress in 1971 to settle land claims and help improve life for tens of thousands of impoverished native people. Almost 300 more subsidiaries have been created to win federal contracts.

The Pentagon and other agencies have spent more than $29 billion over the past decade on deals with those subsidiaries, some of which had virtually no experience. Annual spending on ANC contracts soared from $506 million in 2000 to $5.5 billion last year.

Relatively little of the money from the contracting boom has gone into shareholder pockets, according to a Washington Post investigation. But the subcontractors and non-native executives of the subsidiaries, most of them based in the Washington region and across the lower 48 states, sometimes made millions. Some ANCs have been used to pass on work to established companies, according to audits and reports.

"We've seen that a very small portion of these companies' profits are reaching native Alaskans, so it's time to acknowledge the fact that this program is not effective for either native Alaskans or taxpayers," McCaskill (D-Mo.) said in a statement.

Under the legislation, which does not have a co-sponsor, the native corporations would no longer be able to receive contracts of any size without competition. Instead, they would face the same caps as other small and disadvantaged businesses, topping out at $5.5 million per deal.

The ANCs would also no longer automatically be considered small and disadvantaged under federal rules. Some top ANCs have joined the ranks of the government's top contractors, making hundreds of millions each year in federal revenue.

The firms also would have to be managed by native executives, eliminating an exemption that has led to the vast majority of the subsidiaries being almost entirely run by non-natives, some of them former executives of traditional government contractors.

McCaskill's proposals will not surprise Alaska native executives, who have been bracing themselves for reform efforts since Stevens left Congress early last year. In July 2009, McCaskill held a sharply critical hearing about the program.

She announced her intention to introduce legislation last month, after The Post's investigation, which showed huge disparities between the money that some native shareholders received and millions that went to non-native consultants, executives and subcontractors.

The Post articles also found that the federal government has long known about problems - including pass-through arrangements - but largely ignored them because ANCs were a convenient way to do business.

Some ANC executives said the premise of McCaskill's proposals are incorrect in some cases. Robin Kornfield, a spokeswoman for the NANA Corp., said that federal contracting revenues have helped her company to increasingly provide meaningful benefits to 12,500 shareholders, many of whom live in remote villages. Killing the program "would be extremely harmful."

"The profits that we earn continually enable us to improve the benefits," she said. "We're talking about something that has really made a difference."

ANCs rallied behind the election campaign of Sen. Lisa Murkowski, who has been one of the staunchest supporters of ANCs in Congress. Under new campaign contribution rules, the native corporations formed a "Super Pac" that reportedly donated more than $1.2 million to her independent campaign.

That support was key to her victory as the first write-in candidate elected in 50 years. Murkowski has said she favors reforms, but that McCaskill's proposals are untenable.

"I would oppose and fight any legislation that strips Alaska native corporations, Indian tribes and native Hawaiians of the contracting preferences afforded to them," she said last month. "We must reform the program to ensure it works the way it was intended."

Sen. Mark Begich (D-Alaska) has also said he opposes McCaskill's approach to reform, calling it "misguided" and "shortsighted."

"The participation by Alaska Native corporations in the 8)a) program creates hundreds of jobs for Alaskans and provides benefits to some of the most remote, high-cost communities in America," he said. "Trying to impose a Washington solution without bothering to talk to those affected is careless and irresponsible."

A small group of influential native corporations recently acknowledged the need for reforms and offered lawmakers their own proposals. But they also said McCaskill's proposals go too far.

In a statement, executives from those corporations - Cook Inlet Region Inc., Doyon Limited and Arctic Slope Regional Corp. - said McCaskill "appears to use individual incidents and a broad brush to sweep Alaska Native corporations and the positive impact they have on their shareholders under the rug."

"We've already proposed responsible reforms that will improve the program, and we stand ready to work with the SBA and Congress to implement them," the statement continued.

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