Web posted Thursday, September 1, 2011

13th corp seeks land as way out of insolvency

By Andrew Jensen
Alaska Journal of Commerce


     

Insolvent and in no position to help itself, the 13th Regional Corp. is looking to Congress and its fellow Alaska Native regional corporations for a solution that would allow it to participate in revenue sharing by receiving a land allocation of as much as 1.2 million acres.

The land could come from areas already withdrawn from federal lands for earlier rounds of selections by Native corporations but not chosen for various reasons.

The 13th Regional was created for Alaska Natives no longer living in the state after the passage of the 1971 Alaska Native Claims Settlement Act, or ANCSA, which created Native regional and village corporations and put 44 million acres of Alaska lands into private ownership.

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The 13th regional corporation was incorporated in 1975 with about 4,200 shareholders. It received $54 million of the $962 million payment through ANCSA, but was not given any land conveyed to the other 12 regional and 200 village corporations.

Because it did not receive land, the 13th could not participate in the revenue sharing among Native corporations provided for in section 7(i) of ANCSA. Section 7(i) requires regional corporations with minerals, timber or oil and gas production to share 70 percent of the revenue with other Native corporations, except the 13th regional corporation.

Now, 36 years later and with an estimated 5,000 shareholders to serve, a series of bad business deals and poor management has left the company near ruin. It hasn't had an annual meeting since 2007 or provided audited financial statements since 2006.

The company website went dark in 2009 and the last four lots in a Spokane, Wash., subdivision owned by 13th subsidiary Alindeska Development Services LLC were foreclosed on earlier this year.

Without a proper shareholder election in years, the current board of directors, including President Mike Rawley, serves on a volunteer basis thanks to the forbearance of the Alaska Banking and Securities Division, which has held off on declaring the 13th out of compliance with corporate governance regulations as it attempts to reorganize.

The 13th, with the backing of the Alaska Federation of Natives, is seeking help from the Bureau of Indian Affairs, a part of the U.S. Department of the Interior. Rawley said the company doesn't have the money to hire an auditor, hold an annual meeting or conduct elections.

"We'll do an audit when we can pay for it," Rawley said. "That's the state of affairs there. We have no other accounting available, and we have no revenues or operations."

Rawley, originally from Ketchikan, is also CEO of the National Tribal Development Association, which works on economic development with Lower 48 Native American tribes.

In a letter to BIA Director Larry Echo Hawk, AFN President Julie Kitka urged the Interior Department to consider the request to provide funding for a reorganization, "within their (BIA's) trust responsibility to look out for the Alaska Natives who are so disenfranchised. Please use everything within your power to help."

While not speaking to the merits of the 13th corporation's land proposal, Kitka said the reasoning behind a lack of land conveyance to the 13th Regional needs to be revisited.

"The policy reasons for doing that (denying the corporation land selection rights) are no longer valid," Kitka said. "The Congress and committees assumed they'd never want to have ties to Alaska. There's been a great in-migration of Alaska Natives back into Alaska. People move back and forth. It was a faulty assumption they wouldn't want to move back to Alaska."

Many 13th shareholders also live in Washington state, and Rawley said the number makes them the largest Native American tribe in that state.

The shareholder records are secure, housed at the 13th Heritage Foundation office in Seattle. The 13th Heritage Foundation is the nonprofit subsidiary of the corporation.

Rawley became president of 13th Regional in 2006, when former President Norman Ream resigned along with the rest of the board of directors following a $2 million unauthorized investment, allegations of self-dealing and a resulting $10 million liability on the books of the 13th.

In a letter to shareholders in 2008 — the last formal communication from the 13th Regional — the new board wrote that the damage done to the company finances by the previous officers and board prevented it from securing construction jobs and Small Business Administration 8(a) federal contracts that have been a boon to Alaska Native corporations.

The letter also cited the devaluation of real estate prices for its losses at the Talon Ridge subdivision in Spokane. A series of default judgments in favor of contractors and suppliers were declared against Alindeska in 2008 related to work at Talon Ridge, and AmericanWest Bank of Spokane foreclosed on the development earlier this year.

Rawley said all revenue from lot sales went toward servicing the Talon Ridge loan and no profits flowed through to the 13th. He also said Aug. 30 that AmericanWest Bank is not pursuing any further claims against Alindeska.

The 2008 letter to shareholders further blamed the plight of the 13th on poor corporate management that resulted in unfavorable terms for SBA 8(a) contracts, as well as its inability to share in 7(i) revenue derived from resource development by other Alaska Native corporations.

The pursuit of a land allocation that would allow for 7(i) revenue sharing for the 13th Regional led Alaska U.S. Rep. Don Young, along with Washington U.S. Rep. Norm Dix, to introduce legislation in 2008 that would have allowed selection of up to 1.16 million acres subject to approval of the state, or regional and village corporations that may have a priority claim.

Rawley said he's had recent discussion with staff in Sen. Lisa Murkowski's office about the idea of a land conveyance to the 13th, and said he hopes to speak with her in person when he visits Washington, D.C., in mid-September.

Rather than the 13th Regional selecting and managing the lands as was proposed in Young's legislation, the company is now proposing that the 12 regional corporations select and manage the lands. That would give an incentive for the regional corporations to maximize the 7(i) benefit for all, as well as bring to bear their wealth of management expertise and more mature, transparent corporate governance.

"It's our recommendation that (management of any lands selected by the 13th corporation) not occur. It will only slow down generation of 7(i) revenue from that land if we have to build that (land) knowledge from scratch, and build a management team," said 13th Regional board member Tom Harris, who is also serving on the volunteer board.

Harris is the former CEO for Tyonek Native Corp. and Alaska Village Initiatives, a nonprofit that works with Native village corporations.

"Our preference is to meet with the 12 and have them choose where the land should be," Harris said. "They will know better and will put forward their best opportunity and say, 'this should be selected.' As a combined group with a 70 percent interest (through revenue sharing) they'd make the best decision."

Rawley said the resource departments of the various regional corporations could manage the lands in exchange for a fee from the 13th, and that the 7(i) revenue could have a "big impact" for all Alaska Native corporations.

The economic value of the unselected lands could be substantial. "The number could definitely raise some eyebrows," Rawley said.

Naturally there may be challenges in getting established Alaska Native corporations to aid the 13th in getting back on its feet.

"The 13th doesn't want to harm our relatives," who also are Alaska Native shareholders of the corporations within Alaska, Harris said. "There are legitimate concerns of someone living up here, one of the original 12. They don't want the 13th coming up here, into their region, selecting lands in competition with them and setting up businesses that are not complementary and making their life more difficult. We don't want to do that either.

"At the same time, we believe there is a solution, and it is this," he said.

Rawley said the 13th proposal could be a "win-win" for the state and fellow Native corporations, and especially for the shareholders whose last remaining ties as Alaska Natives are linked to the 13th Regional.

"They motivate us to keep doing it," Rawley said.

Andrew Jensen can be reached at

andrew.jensen@alaskajournal.com.