[Senate Hearing 112-33] [From the U.S. Government Publishing Office] S. Hrg. 112-33 PROMISE FULFILLED: THE ROLE OF THE SBA 8(A) PROGRAM IN ENHANCING ECONOMIC DEVELOPMENT IN INDIAN COUNTRY ======================================================================= HEARING before the COMMITTEE ON INDIAN AFFAIRS UNITED STATES SENATE ONE HUNDRED TWELFTH CONGRESS FIRST SESSION __________ APRIL 7, 2011 __________ Printed for the use of the Committee on Indian Affairs
_____ U.S. GOVERNMENT PRINTING OFFICE 65-771 PDF WASHINGTON : 2011 ----------------------------------------------------------------------- For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC 20402-0001 COMMITTEE ON INDIAN AFFAIRS DANIEL K. AKAKA, Hawaii, Chairman JOHN BARRASSO, Wyoming, Vice Chairman DANIEL K. INOUYE, Hawaii JOHN McCAIN, Arizona KENT CONRAD, North Dakota LISA MURKOWSKI, Alaska TIM JOHNSON, South Dakota JOHN HOEVEN, North Dakota MARIA CANTWELL, Washington MIKE CRAPO, Idaho JON TESTER, Montana MIKE JOHANNS, Nebraska TOM UDALL, New Mexico AL FRANKEN, Minnesota Loretta A. Tuell, Majority Staff Director and Chief Counsel David A. Mullon Jr., Minority Staff Director and Chief Counsel C O N T E N T S ---------- Page Hearing held on April 7, 2011.................................... 1 Statement of Senator Akaka....................................... 1 Statement of Senator Barrasso.................................... 2 Statement of Senator Begich...................................... 7 Statement of Senator Crapo....................................... 57 Prepared statement........................................... 57 Statement of Senator Johanns..................................... 6 Statement of Senator McCain...................................... 21 Statement of Senator Murkowski................................... 3 Statement of Senator Tester...................................... 3 Statement of Senator Udall....................................... 5 Prepared statement........................................... 6 Witnesses Allan, Hon. Chief James, Chairman, Coeur d'Alene Tribe........... 58 Prepared statement........................................... 59 Hall, Larry, President/General Manager, S&K Electronics, Inc..... 83 Prepared statement........................................... 85 Johnson-Pata, Jackie, Executive Director, National Congress of American Indians............................................... 24 Prepared statement........................................... 26 Jordan, Joseph G., Associate Administrator for Government Contracting and Business Development, U.S. Small Business Administration................................................. 9 Prepared statement........................................... 10 Kitka, Julie E., President, Alaska Federation of Natives; Accompanied by Byron I. Mallott, Director, Sealaska Corporation 32 Prepared statement........................................... 34 Byron Mallot, prepared statement............................. 41 McClintock, Peter L. Deputy Inspector General, Office of the Inspector General, U.S. Small Business Administration.......... 13 Prepared statement........................................... 14 Morgan, Lance, Chairman, Native American Contractors Association; President/CEO, Ho-Chunk, Inc................................... 61 Prepared statement........................................... 64 Appendix Hall, Hon. Tex, Chairman, Mandan, Hidatsa and Arikara Nation, prepared statement............................................. 95 Inouye, Hon. Daniel K., U.S. Senator from Hawaii, prepared statement...................................................... 93 Johns, Ken, President/CEO, Ahtna, Inc., prepared statement....... 107 Klein, Christine E., A.A.E., Executive Vice President/Chief Operating Officer, Calista Corporation, prepared statement..... 126 Parnell, Hon. Sean, Governor, State of Alaska, prepared statement 104 Response to written questions submitted by Hon. Daniel K. Akaka to: Larry Hall................................................... 130 Julie E. Kitka............................................... 136 Peter McClintock............................................. 131 Lance Morgan................................................. 134 Response to written questions submitted by Hon. John Barrasso to: Larry Hall................................................... 130 Julie E. Kitka............................................... 139 Peter McClintock............................................. 132 Lance Morgan................................................. 135 Smith, Hon. Chad ``Corntassel'', Principal Chief, Cherokee Nation, prepared statement..................................... 94 Trevan, Eric S., President/CEO, National Center for American Indian Enterprise Development, prepared statement.............. 119 Ward, Virginia, Chairwoman, Board of Directors, Afognak Native Corporation, prepared statement................................ 105 PROMISE FULFILLED: THE ROLE OF THE SBA 8(A) PROGRAM IN ENHANCING ECONOMIC DEVELOPMENT IN INDIAN COUNTRY ---------- THURSDAY, APRIL 7, 2011 U.S. Senate, Committee on Indian Affairs, Washington, DC. The Committee met, pursuant to notice, at 2:28 p.m. in room 628, Dirksen Senate Office Building, Hon. Daniel K. Akaka, Chairman of the Committee, presiding. OPENING STATEMENT OF HON. DANIEL K. AKAKA, U.S. SENATOR FROM HAWAII The Chairman. I call this hearing of the Committee on Indian Affairs to order. Again, aloha and thank you for being with us today. Before we begin, I want to welcome Senator Begich who is joining my Indian Affairs colleagues on the dais. I want to thank all of my colleagues for taking time out of their schedules to be here with us as we discuss this very important topic. Today's hearing is called Promise Fulfilled: The Role of the SBA 8(a) Program in Enhancing Economic Development in Indian Country. We will examine the nexus between the Federal policy on self-determination and the trust responsibility to American Indians, Alaska Natives and Native Hawaiians and the role of SBA 8(a) Program in enhancing economic self- determination for these groups. For over 45 years, we have committed ourselves to the policy of self-determination and self-sufficiency for native communities. We have deliberately turned from the paternal policies of the past to ones that emphasize respect for native decision-making and partnerships between the American Indians, Alaska Natives, Native Hawaiians and the Federal Government. We have found that when we do business with the tribes and other native organizations, whether that be through 638 contracting or procurement of other goods and services, the Federal Government achieves two goals. We enhance our ability to do the people's business, the business of good government and promises kept, and we strengthen the ability of native communities to be self-sufficient. The SBA 8(a) Program has become an integral part of the way we advance these two goals with one program. This 8(a) Program has had successes, and of course, some challenges. I look forward to the discussion on how to build upon this program's ability to advance self-determination and self-sufficiency for native communities, while meeting the needs of the government customer. I want to extend a special mahalo or thank you to all of those who have traveled far, from Hawaii and Alaska and other places, to join us today. I appreciate your presence at these proceedings. Vice Chair Barrasso, would you like to comment? STATEMENT OF HON. JOHN BARRASSO, U.S. SENATOR FROM WYOMING Senator Barrasso. Well, I would, Mr. Chairman. I want to thank you for holding this important hearing today, and I want to welcome all of those who are going to be sharing their thoughts and their ideas with us. The Committee is quite familiar, as you said, Mr. Chairman, with the challenges of high unemployment and poverty rates in many of our Country's Indian communities. For decades, the Congress and the Executive Branch have sought to create sustainable economies and employment opportunities in Indian Country. I am afraid that we have achieved, as you said, only limited success, too limited. The 8(a) Program for small businesses represents one of the Federal initiatives to create economic development in Indian Country, and it is fair to say that the SBA program has worked in many cases. Though, to be sure, certainly as you said, Mr. Chairman, not in all cases. The fundamental purpose of this program is to assist small businesses to become self-sufficient and capable of competing effectively in the marketplace. In theory, that purpose fits quite well with the needs of Indian Country. Now, I understand that some of our witnesses today will illustrate the benefits of the 8(a) Program, what it can accomplish when it is done right. However, according to the Government Accountability Office and the Inspector General reports, there have been some problems in the oversight and implementation of the program. So I am hoping to hear some specifics about what steps have been taken by the Small Business Administration and the 8(a) community to deal with these specific problems. The Indian 8(a) contracting is only a small fraction of all the small business contracting, and an even smaller fraction of all Federal contracting. However, the program must fulfill its basic purposes, not simply operate as a way that benefits firms or individuals that the program is not intended to help. And it must be transparent and accountable to taxpayers and tribal members that the businesses support. So I look forward to the testimony, Mr. Chairman. And I would say that Senator McCain, I visited with him a little earlier today, he is unavoidably detained. I know he does have some questions for Mr. Jordan and Mr. McClintock, so I am hoping that they could stay and remain available, and hopefully Senator McCain's delay will not be too long. Thank you, Mr. Chairman. The Chairman. Thank you, Senator Barrasso, my partner here. Would any of the other Members of the Committee like to make any opening statement? Senator Tester? STATEMENT OF HON. JON TESTER, U.S. SENATOR FROM MONTANA Senator Tester. Yes, thank you, Mr. Chairman. First of all, the Native Hawaiian Recognition bill, congratulations on moving it forward. I think it is a bill that we need to continue fighting for. The Carcieri fix, as the Vice Chairman pointed out, is an important bill. And to you also, Mr. Chairman, we need to move that forward. Its time has long passed and we need to move it. I would just say just very briefly, the 8(a) Program is a very, very critically important program. In Indian Country, I hear about it whenever I go around Montana. And I think reports that there are some unscrupulous folks that may be taking advantage of the program, we need to get cleaned up and cleaned up as soon as possible. And I look forward to hearing from the witnesses in looking for solutions to move it forward. Unemployment in our neck of the woods is pretty doggone high in Indian Country and this is one of the programs that helps offset that unemployment problem. It could be a better program. Let's make it a better program and move forward in that direction. Thank you. The Chairman. Thank you very much, Senator Tester. Senator Murkowski? STATEMENT OF HON. LISA MURKOWSKI, U.S. SENATOR FROM ALASKA Senator Murkowski. Thank you, Mr. Chairman. And if I may ask the Committee's indulgence, I typically do not like to make much more than a minute opening statement, but if I may have just a few minutes this afternoon to speak. I have a lot of Alaskans here and, of course, a great deal of interest in this. I will try to go as quickly as possible. First, I want to thank you. I want to thank you and Vice Chairman Barrasso for convening this hearing to explore the role of the Small Business Administration's 8(a) Program in promoting economic development in our native communities. It was about a year and a half ago that several on this dais participated in a hearing before Senator McCaskill's Subcommittee to examine what was referred to as the Alaska Native Corporation 8(a) Program. In my opening remarks before that hearing, I pointed out that there is no such thing as an Alaska Native Corporation 8(a) Program. Rather, that there are specific contracting opportunities within the SBA's 8(a) Program that are available to Indian tribes, to Alaska Native corporations, and to Native Hawaiian organizations. And moreover, there are specific rules that apply to the participation of Indian-owned entities in the 8(a) Program, and these opportunities and rules are rooted in Federal Indian policy to address the unique challenges that face our Indian tribes, our Alaska Native corporations, and our Native Hawaiian organizations in developing viable businesses. So I welcome the decision of this Committee to examine the 8(a) Program through the lens of Federal Indian policy because we are uniquely positioned to undertake that task, uniquely positioned to inform our colleagues on the significant and unique handicaps that have historically made it difficult or impossible for tribes, Alaska Native corporations, and Native Hawaiian organizations to engage in sustainable business practices. And this Committee is best positioned to evaluate how ending or substantially restricting these special contracting opportunities would affect the future of our tribes, our native corporations and our Native Hawaiian organizations. I would like to take just a moment to mention a few of the difficulties that have faced the native people of Alaska as they entered the world of business. Participation in the business world didn't come naturally to the native people of Alaska. Alaska Native people were hunters. They are fishers. They are whalers. They are living off the land and marine resources. And we are not just talking about ancient times, past times. This reliance on subsistence for sustenance remains true today in more than 200 native villages of bush Alaska, most of which lack road connections to the remainder of the American continent. These are isolated, remote communities which have some of the highest poverty rates in the Nation. In some of these communities, multiple grades of elementary school are still taught within a single classroom. There is no broadband Internet access, very few year-round employment opportunities. And so in 1971, Congress settled the aboriginal lands claims of the native people of Alaska, which gave Alaska's native people title to some 44 million acres of land. But it also directed them to form businesses to help succeeding generations of native people bridge the gap between the subsistence lifestyle which was customary and traditional, and the challenge of surviving and succeeding in modern America. The businesses that were formed at the direction of Congress are called Alaska Native Corporations. And this year, we observed the 40th anniversary of the formation of the ANCs. And as we will hear today, the ANCs have enjoyed some remarkable successes, and these successes have occurred in spite of the substantial handicaps that those businesses have to overcome. Nearly all of the first generation of Alaska Native Corporation leaders lacked a college education and most had no prior experience in business. But many have earned a place in Alaska history among our State's most respected individuals for the way that they have grown their native corporations. And today, we have legions of young Alaska Native people who are graduating from school. Some are getting advanced degrees thanks in part to the scholarships from their corporations. Some have gone to work for their corporations and are employed in 8(a) businesses today. Others like Kristi Williams on my staff, an Athabascan Indian, she is cutting her teeth here in Washington, D.C. Some are working in native health, education, social services. And some choose to return to their villages and continue the traditional. All of these roads are good and culturally appropriate. In addition to the scholarships, native corporations are using the fruits of their 8(a) involvement in culturally appropriate ways, like funding special benefits for the traditional elders or investing in cultural preservation programs or ensuring that their aboriginal land base remains intact. And on top of that, many native corporations pay annual cash dividends to the shareholders. Some are paying these dividends for the first time in 40 years, and only because of the 8(a) business opportunity. But it must also be noted that on the road to success, many have stumbled, and even 40 years after the passage of the land claims settlement, it is apparent that some are still stumbling, but few have failed. And what is remarkable is that Alaska's native people simply don't give up, not even when they are talked about, the spotlight is put on them by The Washington Post, USA Today, and ProPublica. When they discover that they have made mistakes in the selection of business partners, they correct those mistakes, and they remember the lessons that they have learned. And when they discover that they have been ripped off by business partners, they don't sweep things under the rug and hope that nobody is going to notice. They go to court. They recover what is rightfully theirs, and they regain control of their businesses. In my view, our objective today should be to celebrate the resilience of our Indian businesses. But we must also look to how we can improve the 8(a) Program. And to improve, we must identify the lessons of failure and find ways to help Indian 8(a) businesses succeed going forward. If reforms are needed to ensure that the Indian 8(a) Program achieves its objectives, let's get them out on the table. And I want to commend the Small Business Administration for taking a stab at doing just that in the comprehensive regulations that they have recently released. If the SBA needs to be doing more as part of its educational and coaching mission to ensure that Indian 8(a) businesses don't fall into a trap, let's identify those resources needed to accomplish that. I thank you, Mr. Chairman, for the indulgence of some additional time, and again I so appreciate that you have brought this hearing forward. The Chairman. Thank you very much, Senator Murkowski. Senator Udall? STATEMENT OF HON. TOM UDALL, U.S. SENATOR FROM NEW MEXICO Senator Udall. Mr. Chairman, I would just ask unanimous consent to put my opening statement in the record and look forward to the hearing. The Chairman. It will be included in the record. [The prepared statement of Senator Udall follows:] Prepared Statement of Hon. Tom Udall, U.S. Senator from New Mexico As my colleagues before me, I'd like to thank you all for being here. We appreciate your taking the time to be with us here today and your perspectives on the impact and significance of the 8(a) program. New Mexico tribes and pueblos have contacted me expressing their support for the 8(a) program and for the participation of ANCs. And especially for how these preferences help fulfill our trust responsibilities to foster economic development opportunities. My interest in this issue then, is in how ANCs are working with other tribal and native entities across the country; in the partnerships and relationships they have built to promote economic development in Indian Country across the country. I believe that ANCs have worked to help other native and tribal entities develop their own economic development capacity and look for that to continue. I look forward to hearing your testimony. The Chairman. Senator Johanns? STATEMENT OF HON. MIKE JOHANNS, U.S. SENATOR FROM NEBRASKA Senator Johanns. Thank you, Mr. Chairman. I will be extremely brief. Let me also say to the SBA thank you. I think we are all convinced that there were some needed changes to bring some sunshine and better regulation to what was happening here, and you grabbed a hold of it and I applaud you for that. And I am anxious to hear your testimony as to how you feel that is going to improve the situation. But I do want to take just a brief moment to talk about a success story in this program. I am guessing each of our first witnesses will be familiar with this success story. Let me roll the clock back to the 1990s. One of our tribes in Nebraska, the Winnebago Tribe, literally was experiencing unemployment at a 70 percent rate. Everybody was unemployed. It was that difficult. But they decided they didn't want the world to be that way, and so they went to work. They rolled up their sleeves. They took advantage of the opportunities that were presented. And today, I am able to tell you that the unemployment rate on the reservation has fallen to less than 10 percent. That is because of an entity called Ho-Chunk, which now employs 1,400 people. Ho-Chunk provides a diverse range of industries, information technology, construction, professional services, office products, just to name a few. Ho-Chunk's profits have been used to provide scholarships, to expand the tribal college, and to develop a native workforce. The leader of Ho-Chunk was recently recognized as the regional Small Business Association minority small business person of the year, and he is sitting at the end here. Lance and I have known each other for a long time and worked together dating back to my time as Governor. It is just a remarkable success story. Now, just in the last few years, this kicked off during my time as Governor, he led efforts to develop a 40-acre Ho-Chunk village in Winnebago, Nebraska. I have driven through Winnebago many times on my way to other places. I have spent time on the reservation. To describe this as a miraculous turnaround just simply doesn't do it justice. This is truly a case where I think we have a model here for others to look at and ask the question: How did they do it? And can we learn from what they have done? Certainly, in any program, there is going to be some fits and some starts and some ebbs and some flows. And that is why I will end my comments where I started, and just say thank you to the SBA for not giving up on this program, for realizing how important it is, for recognizing that there are success stories out there like Ho-Chunk, and also recognizing that we just need to do things a bit better. And I think everybody is willing to do that. Mr. Chairman, thank you. The Chairman. Thank you very much, Senator Johanns. Senator Begich? Following Senator Begich, I will call on Senator Tester to make an introduction. STATEMENT OF HON. MARK BEGICH, U.S. SENATOR FROM ALASKA Senator Begich. Thank you, Mr. Chairman, and thank you for the ability to be here on the dais with you and the Members. I want to echo the comments of Senator Murkowski and Senator Johanns. These are great examples of why the program and the many members that I know within the 8(a) corporations are incredibly successful. In Alaska, as Senator Murkowski laid out, there were great challenges in the early days and we have come a long ways since the early days of Alaska Land Claims Settlement Act to what is now companies engaged in incredible opportunities for the Alaska Native people. Just to say a couple of things just to put it in perspective, when you think of Alaska and when you think of the situations that we deal with, especially in our Indian Country, and you think of gas prices at $10 a gallon; 46 communities still using the honey bucket; one-third of the rural communities haul water from a community source; 20 percent of Alaska Natives living in poverty, this is actually an improvement from what it was 40 years ago and where we are today. A big and sizable piece of that was 8(a) corporations and the establishment of them. There is no question that there have been challenges in years past on making sure the 8(a) corporations are successful. The SBA has stepped to the plate, as Senator Johanns, you have mentioned, and that is they have seen this program to be a success and want to make sure it is modified and make sure it works well. The rules and regulations they put forward, the 8(a) corporations have been asking for for more than 10 years-- asking for assistance to make sure they have the right oversight, the right accountability, so they can become even more successful and be a successful program for SBA. So in a lot of ways, the work that SBA has done with the tribal consultation has brought forward some rules and regulations that will not only enhance the efforts already, but really grow the opportunities not just in the few that have already done the SBA 8(a) program, but all across this country. And I think it is clearly one of the programs that when you think about it, is not one of these Federal programs that is a hand-out to anybody. It is really a step to help create opportunity, of self-sufficiency. And what I find always interesting when I hear about the SBA program and some of the critics on the 8(a) Program complaining it's an entitlement, well, to be very frank with you, it is not. It is an opportunity for people to create their own successes in their small and large communities. And many of these corporations pay taxes, lots of taxes to the Federal Government. I am not sure I know an entitlement program that pays taxes. This is clearly a program that has great success. As Senator Murkowski has said, there have been challenges, but we have achieved a great deal in Alaska, especially with the 8(a) corporations. So as we have seen in newspapers over the last year, taking information that I consider somewhat old and making them sound fresh, I think has been somewhat irresponsible. So today is maybe a chance to shed the full light on the success of 8(a) corporations. So I thank the Chairman and the Ranking Member for holding this hearing because I think it will really, clearly from Alaska's perspective, from the first people of the Country, for Native Hawaiians, this is an incredible program to advance not only this generation, but multiple generations in employment and self-sufficiency. So again, thank you, Mr. Chairman, for holding this and I look forward to the testimony. And my view is probably when we are done here, we will have more positive light on a great program that needed some tweaking, which has been done, and now we will see some additional success in the future. Thank you, Mr. Chairman. The Chairman. Thank you, Senator Begich. I want to thank the Members of the Committee for your statements which will be included in the record. We only have limited time to conduct the hearing and therefore had to limit the number of witnesses we invited. But as Chairman, it is my goal to ensure that we hear all who want to contribute to the discussion. So the hearing record is open for two weeks from today, and I encourage everyone to submit your comments through written testimony. I want to remind the witnesses to please limit your oral testimony to five minutes today. Before we begin with the witnesses, I would like to call on Senator Tester. Senator Tester. Thank you, Mr. Chairman. I appreciate the latitude. On the third panel, which I am not going to be able to be here for, I apologize for that ahead of time, a gentleman from Polson, Montana by the name of Larry Hall, who is sitting in the front row, will be testifying. Larry has just done an incredible job creating jobs and creating an economy in western Montana, particularly on the Salish-Kootenai Indian Reservation. And he has developed a company that is a jewel in western Montana and really benefits not only the folks in Indian Country, but the economy impacts people outside that reservation, too. Thank you for being here, Larry. The Chairman. Thank you. I want to welcome Joseph Jordan, the Associate Administrator for Government Contracting and Business Development with the SBA. And also from the SBA, we have Mr. Peter McClintock, Deputy Inspector General from the Office of the Inspector General. Welcome to both of you. Mr. Jordan, please proceed with your testimony. STATEMENT OF JOSEPH G. JORDAN, ASSOCIATE ADMINISTRATOR FOR GOVERNMENT CONTRACTING AND BUSINESS DEVELOPMENT, U.S. SMALL BUSINESS ADMINISTRATION Mr. Jordan. Thank you, Mr. Chairman. Chairman Akaka, Vice Chairman Barrasso and Members of the Committee, thank you for inviting the U.S. Small Business Administration to testify regarding the utilization of the SBA 8(a) Business Development Program in Indian Country. My name is Joseph Jordan and I am the Associate Administrator for SBA's Office of Government Contracting and Business Development. My office has primary responsibility for the 8(a) Program from both the policy and programmatic execution perspective. As you know, in response to Congressional findings that disadvantaged individuals did not play an integral role in America's free enterprise system, and did not share in the community redevelopment process, the 8(a) Business Development Program was created during the 1960s. Beginning in 1986, significant changes were made to the 8(a) Program when Congress enacted legislation that allowed Alaska Native corporations, Native Hawaiian organizations, community development corporations and tribally owned funds to participate in the 8(a) Program. This was intended to allow these organizations to benefit from the community development opportunities available through the 8(a) Program. The utilization of the program by these entities to improve community and economic development is consistent with tribal self-determination policies and strategies supported by the Administration. SBA's primary responsibility in regards to the 8(a) Program is to oversee and execute the program as intended by Congress. As it is currently operating, the 8(a) Program is simultaneously intended to provide business development opportunities to disadvantaged individuals, while also fostering regional or community economic development for firms owned by ANCs, tribes, and NHOs. In addition, the SBA has been working diligently to ensure that oversight of these programs is strong and that SBA programs are operating free of fraud, waste or abuse. Over the course of the last two years, the Administration has done extensive reviews on the program and has implemented comprehensive regulatory reforms. This regulatory overhaul is the first of its kind in the 8(a) Program in more than 10 years. The regulatory package has addressed many of the issues raised in previous years' Government Accountability Office and SBA Inspector General audits. During the formulation of the SBA regulatory package, we worked closely with the tribal community. SBA held six tribal consultations during the formulation and drafting of the new 8(a) regulations. Additionally, SBA has been proactive by engaging with the tribal community outside of formal consultations, including participating in the White House Tribal Nations Summit. Many of the SBA's recent regulatory changes were made to ensure that the program benefits flow to the intended recipients, and to help reduce the potential for fraud, waste and abuse. SBA works closely with the GAO and Inspector General to ensure that their recommendations are properly addressed. For example, in response to the I.G.'s July, 2009 report, SBA published these revised 8(a) regulations, is in the process of conducting a program review to evaluate the impact of the growth in ANC 8(a) obligations, and has updated the business development management information system to allow native subsidiaries to apply for the program and undergo portions of their annual review electronically. While we have been responsive to many of the points raised in various audits, we would also like to note the following. The I.G. report correctly points out that 8(a) contracting dollars to ANCs have increased, but neglects to also note that 8(a) dollars have increased to all program participants over that same period. Further, many of the concerns identified in these reports were not due to any wrongdoing by the 8(a) Program participants, but were in fact permitted under previous regulations. As I noted, SBA has attempted to eliminate any of these perceived loopholes in our new regulations. As with any program, there are bad actors who will attempt to gain entry. The agency takes seriously any actions that negatively affect the integrity of the 8(a) Business Development Program. We appreciate the I.G.'s recommendations to curb abuses and we welcome the opportunity to work further with them to fully ensure that the benefits of the program flow only to its intended beneficiaries. Despite the actions of a small number of program participants, the agency has seen the benefits of the 8(a) Program to many entity-owned participants in the development of both their businesses and their respective communities in the forms of dividends, jobs, scholarships and community pride, just to name a few. These benefits have been fully authorized by the current statutory provisions and provide economic and community development opportunities for some of the most under- represented populations in the United States. Thank you for allowing me to share SBA's views with you today and I will be happy to answer any questions you may have. [The prepared statement of Mr. Jordan follows:] Prepared Statement of Joseph G. Jordan, Associate Administrator for Government Contracting and Business Development, U.S. Small Business Administration Chairman Akaka, Vice Chairman Barrasso, and Members of the Committee, thank you for inviting the U.S. Small Business Administration (SBA) to testify regarding the utilization of the SBA 8(a) Business Development (BD) Program in Indian Country. My name is Joseph Jordan, and I am the Associate Administrator for the SBA's Office of Government Contracting and Business Development. My office has primary responsibility for the 8(a) BD program from both a policy and programmatic execution perspective. In response to Congressional findings that disadvantaged individuals did not play an integral role in America's free enterprise system and did not share in the community redevelopment process, the 8(a) BD program was created administratively during the 1960s to help eligible small businesses compete in the American economy. Congress provided statutory authority for the program in 1978, and shifted the program's focus to business development. The Small Business Act authorized the SBA to develop business ownership among underserved groups that own and control little productive capital. Beginning in 1986, significant changes were made to the 8(a) program when Congress enacted legislation that allowed Alaska Native Corporations (ANCs), Native Hawaiian Organizations (NHOs), Community Development Corporations (CDCs), and tribally-owned firms to participate in the 8(a) BD program. \1\ Participating in the 8(a) BD program would allow these organizations to benefit from the community economic development opportunities available through the 8(a) BD program. --------------------------------------------------------------------------- \1\ P.L. 99-272, Sec. 18015 added ANCs and tribes; P.L. 100-656, Sec. 207 added NHOs; and P.L. 97-35, Sec. 626(a)(2) added CDCs. --------------------------------------------------------------------------- A primary difference between ``entity-owned'' participants and traditional 8(a) participants owned by one or more disadvantaged individuals is the motive for participation. On one hand, individual socially and economically disadvantaged small business owners participate in the program to receive individual business development assistance and to increase their firm's success for themselves and their dependents. On the other hand, it is assumed that entity-owned participants utilize the business development opportunities for economic and community development purposes. In other words, entities are beholden not to one or two business owners and their families, but to their entire shareholder base, tribal base, and community. The utilization of the 8(a) BD program by entities to improve community and economic development is consistent with tribal self determination policies and strategies supported by the Administration. As a result of this distinction, firms participating in the 8(a) BD program that are owned by tribes, ANCs, and NHOs are not subject to the same rules as individually-owned companies participating in the program. First, a firm applying to, or participating in, the 8(a) BD program that is owned by a tribe, ANC or NHO may qualify as a small business without being considered affiliated with the tribe, ANC, NHO or any other business owned by the tribe, ANC or NHO. In other words, in determining size, the Agency qualifies each xcxentity-owned applicant or 8(a) participant individually, without aggregating the employees or revenues of that firm with the employees or revenues of any other firm owned by the tribe, ANC or NHO. For individually-owned firms applying to, or participating in, the 8(a) BD program, the size of a firm would include the revenues or employees of all entities with common ownership. Second, a tribe, ANC or NHO may own and control more than one firm that participates in the 8(a) BD program at the same time. In contrast, an individual who qualifies one firm to participate in the 8(a) BD program may not participate again in the program as a disadvantaged individual. Thus, such an individual may not own more than one firm that participates in the 8(a) BD program. Third, firms owned by tribes, ANCs or NHOs that participate in the 8(a) BD program generally are not subject to the sole source contract limitations as those 8(a) firms owned by individuals. Under the Small Business Act, an individually-owned 8(a) participant cannot receive a sole source 8(a) contract in an amount exceeding $6,500,000 for contracts assigned manufacturing NAICS codes and $4,000,000 for all other contracts. As a result of legislation enacted in 1988, there is no cap on the value of an 8(a) contract that may be awarded to an 8(a) participant owned by a tribe or ANC. This means that these companies are able to receive an 8(a) contract in any amount without competition. Similarly, in 2003, Congress authorized NHOs to receive 8(a) contracts above the competitive threshold amounts for Department of Defense procurements. Lastly, companies owned by tribes, ANCs, NHOs and CDCs do not have the same requirements pertaining to control by non-disadvantaged individuals as do firms owned by one or more disadvantaged individuals. For individually-owned 8(a) firms, one or more individuals claiming social and economic disadvantage must control both the long term strategic policy setting and the day-to-day management and administration of the company. In contrast, firms owned by ANCs and NHOs need not have any disadvantaged managers in order to be eligible to participate in the 8(a) BD program. Although a firm owned by a tribe must generally be managed by one or more members of a tribe, non- disadvantaged individuals may manage such a firm, provided a written management development plan exist. This plan must show how tribal members will develop managerial skills sufficient to manage the concern or similar tribally-owned concerns in the future. SBA's primary responsibility in regards to the 8(a) program is to oversee and execute the program as intended by Congress. As it is currently operating, the 8(a) BD program is simultaneously intended to provide business development opportunities to disadvantaged individuals while also fostering regional or community economic development for firms owned by ANCs, tribes and NHOs. In addition, the SBA has been working diligently to ensure that oversight of these programs is strong and that SBA programs are operating free of waste, fraud and abuse, within their statutory designs. Over the course of the last two years, the Administration has done extensive reviews on the program and has implemented comprehensive regulatory reforms. This regulatory overhaul is the first of its kind in the 8(a) BD program in over 10 years. The regulatory package has addressed many of the issues raised in previous years' Government Accountability Office (GAO) and SBA Inspector General (IG) audits. During the formulation of the SBA regulatory package, we worked closely with the tribal community. Under President Obama's directive to engage in regular and meaningful consultation with tribal governments whenever the Federal Government intends to implement policies that have tribal implications, the SBA held 6 tribal consultations during the formulation and drafting of the 8(a) BD regulations. Additionally, SBA has been proactive by engaging with the tribal community outside of formal consultations, including participating in the White House Tribal Nations Summit at which Deputy Administrator Johns heard concerns voiced by tribal leaders on topics related to economic and community development and the role of small business in Indian Country. Many of SBA's recent regulatory changes were made to ensure that the program benefits flow to the intended recipients and to help reduce potential fraud, waste and abuse. For example, SBA's regulations previously allowed a large, non-disadvantaged mentor to unduly benefit from the 8(a) program by allowing such a firm to perform the majority of work on an 8(a) contract through a joint venture with a small 8(a) protege firm. The new regulations require an 8(a) firm to perform at least 40 percent of all work done by a joint venture and generally prohibit the joint venture from subcontracting additional work back to any non-8(a) joint venture partner. Additional changes were also made to the provisions affecting firms owned by tribes, ANCs and NHOs. Specifically, SBA amended the rules pertaining to tribal, ANC-owned, and NHO firms to add a provision that a firm owned by a tribe, ANC or NHO may not receive a sole source 8(a) contract that is a follow-on contract to an 8(a) contract performed immediately previously by another participant (or former participant) owned by the same tribe, ANC or NHO. In response to audits of the 8(a) BD program conducted by GAO and SBA's OIG, SBA added a provision to the regulations requiring each participant owned by a tribe, ANC, NHO or CDC to submit information demonstrating how 8(a) participation has benefited the tribal or native members and/or the tribal, native or other community as part of its annual review submission. The regulation requires that each firm submit information relating to how the tribe, ANC or NHO has provided funding for cultural programs, employment assistance, jobs, scholarships, internships, subsistence activities, and other services to the affected community. After receiving extensive public comment on this provision, SBA has delayed the implementation of this reporting requirement for six months. SBA seeks to strike a balance between its responsibility to monitor and oversee the 8(a) program and the concerns raised by entity- owned 8(a) participants regarding their ability to generate meaningful information. This delay will allow further discussions with the tribal/ ANC/NHO community through consultation and dialogue to determine how best to implement this rule. SBA works closely with the GAO and IG to ensure that their recommendations are properly addressed. For example, in response to the IG's July 2009 report, SBA published the revised 8(a) BD regulations, is in the process of conducting a program review to evaluate the impact of the growth in ANC 8(a) obligations, and has updated BDMIS to allow ANC subsidiaries to apply for the 8(a) BD program and undergo annual review electronically. While we have been responsive to many of the points raised in various audits, we would also like to note the following. The IG report correctly points out that 8(a) contracting dollars to ANCs have increased, but neglects to note that total 8(a) dollars have also increased to all participants. Further, many of the concerns identified in the reports were not due to any wrong-doing by 8(a) program participants, but were permitted under the previous regulations. As previously noted, SBA has attempted to eliminate many of the perceived loopholes in its new regulations. As with any program there is the potential for bad actors to gain entry. The Agency takes seriously any actions that negatively affect the integrity of the 8(a) BD program. We appreciate the IG's recommendations to curb abuses and welcome the opportunity to work further with the IG to more fully ensure that the benefits of the 8(a) BD program flow to its intended beneficiaries. Despite the actions of a very small number of program participants, the Agency has seen the benefits of the 8(a) program to entity-owned participants in the form of increased business development of these firms, and to their respective communities in the forms of dividends, jobs, scholarships, and community pride, just to name a few. These benefits have been fully authorized by current statutory provisions, and provide economic and community development opportunities for some of the most underrepresented populations in the United States. Thank you for allowing me to share the SBA's views with you today, and I will be happy to answer any questions you may have. The Chairman. Thank you very much, Mr. Jordan, for your testimony. Mr. McClintock, will you please proceed with your testimony? STATEMENT OF PETER L. MCCLINTOCK, DEPUTY INSPECTOR GENERAL, OFFICE OF THE INSPECTOR GENERAL, U.S. SMALL BUSINESS ADMINISTRATION Mr. McClintock. Chairman Akaka, Vice Chairman Barrasso and distinguished Members of the Committee, thank you for this opportunity to testify. I was asked to discuss two audit reports my office issued several years ago concerning Alaska Native Corporations and the 8(a) Program. One report concerned non-native managers securing millions of dollars from ANC 8(a) firms through unapproved agreements. And the other report identified ANC contracting trends related to economic benefits for Alaska Natives and SBA's limited monitoring of ANC compliance with program rules. We reported that ANC participation in the 8(a) Program resulted in a number of benefits, to include paying dividends to ANC's shareholders, funding cultural programs, employment assistance, jobs, scholarships, internships and other services. However, dollar for dollar, these benefits were not directly traceable to participation in the 8(a) Program. In audit report 8-14, we found that non-native managers of several ANC firms obtained millions of dollars through management and other agreements that had not been adequately disclosed to or approved by SBA, raising questions, among other things, over who else was benefitting from the program. We are therefore encouraged that SBA recently published a regulation requiring ANCs, tribes and NHOs to report annually to SBA on how 8(a) participation is benefitting tribal members. We are concerned, however, that SBA delayed its implementation for at least six months and we urge SBA to implement this requirement as soon as possible. In report 9-15, we found that 8(a) contract obligations awarded to ANCs more than tripled from $1.1 billion in fiscal year 2004, or about 13 percent of the total 8(a) contract dollars that year, to $3.9 billion in fiscal year 2008, or about 26 percent of 8(a) dollars. Also in fiscal year 2008, ANC firms which had received this 26 percent of the total 8(a) obligations, constituted just 2 percent of 8(a) companies. Further, in 2007, just 11 ANC firms received half of the contract obligations to all ANC participants. Of note, one of these firms had only 750 shareholders or less than 1 percent of all Alaska Natives, but accounted for nearly 20 percent of the 8(a) obligations made to active ANC firms. Also, the top four ANC firms accounted for less than 4 percent of the more than 100,000 ANC shareholders. We also reported that most ANC 8(a) contracts were obtained on a sole-source basis. These top 11 ANC-owned firms received 82 percent of their 8(a) obligations through sole-source awards, which do not always provide the government with the best value. Three firms had received sole-source contracts in excess of $100 million over a two-year period and one firm received about $422 million in sole-source awards. The Small Business Act limits sole-source manufacturing contracts to $6.5 million and other sole-source contracts to $4 million. However, ANCs and tribes are not subject to these limitations. They are also exempt from a $100 million cap on cumulative sole-source awards that apply to other 8(a) participants. ANC firms have other advantages as well. Because ANC firms are conditionally exempt from size affiliation rules, they often enjoy access to capital resources and management expertise not available to other 8(a) firms. In reality, ANC firms are large businesses with significant competitive advantages over other 8(a) firms. Despite this growth, SBA had not determined whether it had adversely affected other 8(a) participants. Under the Small Business Act, the exemption from the size affiliation rule is allowed unless SBA determines that it results in a substantial unfair competitive advantage. SBA had not done much analysis of this issue. Lastly, SBA had not dedicated sufficient resources to oversee the often complex ANC corporate and ownership structures, and ANC partnerships with other firms to include mentor protege and joint venture arrangements. SBA has taken some recent steps to improve oversight, but it is too soon to assess their effectiveness. This concludes my statement. I am happy to answer any questions. [The prepared statement of Mr. McClintock follows:] Prepared Statement of Peter L. McClintock, Deputy Inspector General, Office of the Inspector General, U.S. Small Business Administration Chairman Akaka, Vice Chairman Barrasso, and distinguished members of the Committee, thank you for this opportunity to testify. As the Deputy Inspector General for the Small Business Administration (SBA), I oversee an independent office that was established to deter and detect waste, fraud, abuse and inefficiencies in SBA programs and operations. My testimony today focuses on several audits the SBA Office of Inspector General (OIG) conducted regarding on the issue of Alaska Native Corporation (ANC) participation in the SBA 8(a) Business Development Program (the ``8(a) Program''). The 8(a) Program is designed to help small, minority-owned businesses gain access to Federal contracts and to obtain other business development assistance so that they can successfully compete in the economy. Under the program, 8(a) firms owned by ANCs, American Indian Tribes, and Native Hawaiian Organizations (NHOs) enjoy special procurement advantages beyond those afforded most 8(a) businesses. These advantages were intended to provide economic development opportunities for Alaska natives and other tribal members. Our audits were initiated based on complaints about ANC-owned firms and issues identified by a prior Government Accountability Office (GAO) audit related to SBA's oversight of ANC 8(a) activity. As an initial matter, I want to emphasize that the OIG is not taking a position on the issue of whether ANCs, Tribes or NHOs should be able to participate in the 8(a) Program. That is a policy determination for Congress to make. There is also no question, as stated in our audit report, that Alaskan natives have benefitted from ANC participation in the 8(a) Program. However, our audit report numbered 9-15, Participation in the 8(a) Program by Firms Owned by Alaska Native Corporations, did raise several questions about ANC participation in the 8(a) Program:
Is the large percentage of 8(a) contracts obtained by a relatively small number of ANC-owned firms consistent with Congress' objectives for the program? Are the revenues from ANC participation in the 8(a) Program going to a broad array of ANC firms or concentrated among only a few ANC-owned companies? Are non-disadvantaged individuals inappropriately benefitting from ANC participation in the program and to what extent are benefits from program participation effectively reaching tribal populations? 8(A) Advantages for Firms Owned by ANCS, Tribes and NHOS ANCs, Tribes, and NHOs enjoy special procurement advantages over most other 8(a) Program participants. Arguably, the most significant of these advantages is their ability to obtain unlimited sole-source awards. Under SBA's recent revisions to the program regulations, 8(a) firms are not entitled to obtain contracts on a sole source basis if the contract exceeds $6.5 million for manufacturing contracts or $4 million for other contracts. However, companies owned by ANCs or Tribes are exempt from this requirement, and firms owned by NHOs are exempt for contracts awarded by the Department of Defense. Additionally, 8(a) firms that receive $100 million in 8(a) awards (awarded on a sole source and/or competitive basis) are not eligible for additional 8(a) sole source awards under SBA regulations. Participants owned by ANCs, Tribes and NHOs, however, are not subject to this cap. These exemptions have allowed certain ANC-owned firms to obtain hundreds of millions of dollars of non-competitive awards. Another advantage enjoyed by firms owned by ANCs, Tribes and NHOs is that the determination of whether they are considered to be small under SBA regulations is made without regard to the size of their parent company or any other firm owned by the parent company. These entities can own multiple 8(a) companies as long as each business is in a different primary industry, and SBA has determined that the firm does not have or is not likely to have a substantive unfair competitive advantage within an industry. Our 2009 audit confirmed that this advantage has allowed ANC firms that are really large businesses through affiliation with their parent corporations, and which have access to the capital and credit of their parents, to compete against truly small disadvantaged firms. Thus, Congress may want to consider whether the goal of the 8(a) Program--to help small-disadvantaged firms compete in the American economy--is impeded by allowing larger ANC companies participate in order to provide benefits to native populations. Benefits ANCS Derive From These Advantages Although ANC firms enjoy substantial advantages over other 8(a) firms, such advantages were intended to help ANCs fulfill a mission that is broader than the bottom line of the corporations; namely to help Alaska Natives achieve economic self-sufficiency. Understandably, ANC firms have attempted to maximize the opportunities afforded them under the 8(a) Program. We visited eleven ANC parent corporations, eight of which told us that they derived at least 50 percent or more of their revenues from the 8(a) Program. Two of the eight relied on the program for 90 percent or more of their revenues. Unlike other 8(a) businesses whose profits generally go to one or more socially and economically disadvantaged persons, profits from ANC- owned firms go to hundreds, and sometimes thousands, of Native shareholders. ANCs have used profits to pay shareholder dividends, fund cultural programs, and provide employment assistance, jobs, scholarships, internships, subsistence activities, and numerous other services to native communities. Dollar for dollar, however, there has been no way to trace exactly how much ANC participation in the 8(a) Program has benefited their members. In audit report 8-14, we found that non-native managers of several ANCs were able to obtain millions of dollars through management and other agreements that had not been disclosed to, or approved by, SBA. A similar arrangement was highlighted in the articles that appeared in the Washington Post last Fall. This raises a question as to whether more of the money that is derived from 8(a) participation could be going back to the native members. In the past, ANCs have not been required to report to SBA--or to any other government agency as far as we could tell--how they use the 8(a) share of their profits to support Alaska Natives. We are encouraged that SBA has included in its new regulations for the 8(a) Program a requirement that ANCs, Tribes and NHOs must submit annual reports to SBA discussing how their program participation has benefitted the tribal members. This requirement will shed light on the benefits going to tribal members and help SBA--and Congress--make more informed decisions about ANC, Tribal and NHO participation in the 8(a) Program. The SBA OIG believes that this transparency in the 8(a) Program is long overdue. We are troubled, therefore, that SBA has decided to delay implementation of this reporting requirement for six months, and that the Agency has stated in its regulatory preamble that there is a possibility that it will delay implementation even further if ``delay is necessary.'' We recommend that SBA not extend this implementation date any further. Growth of ANC Activity Within the 8(A) Program Long-term 8(a) contracting trends show a continued and significant increase in obligations to ANC-owned participants, both in value and as a percentage of total obligations to 8(a) firms. Our audit found that from FY 2000 to FY 2008 obligations to ANC-owned participants increased by 1,386 percent, and more than tripled from $1.1 billion in FY 2004 to $3.9 billion in FY 2008. Although the amount of Federal contracting as a whole increased significantly during this time, what stood out from our review was the growth in the percentage of 8(a) contracting dollars going to ANC-owned companies as compared to other participants in the program. Between FYs 2004 and 2008, the percentage of 8(a) obligations to ANC firms doubled. In FY 2008, ANC firms received approximately 26 percent of total 8(a) obligations--even though they constituted just 2 percent of companies performing these 8(a) contracts. These trends suggest that ANC-owned firms may be receiving a disproportionate share of obligations to 8(a) firms. An additional noteworthy finding from our audit was that a significant portion of the 8(a) obligations made to ANC-owned firms went to a small percentage of the ANC participants. In fact, 50 percent of 8(a) obligations to current ANC participants in FY 2007 went to just 11 (or 6 percent) of the ANC firms reported by SBA to Congress that year. One of these firms accounted for nearly 20 percent of the 8(a) obligations made to active ANC firms, but had only 750 shareholders, or less than 1 percent of the total population of ANC shareholders. The top four firms, which received collectively about $600 million in FY 2007, accounted for less than 4 percent of the 105,344 Alaska native shareholders represented by all of the ANC participant firms. Thus, revenues earned from ANC participation in the 8(a) Program may not be evenly distributed to the ANC population. Finally, of note is that sole-source contracts were the major contracting mechanism used by procuring agencies when obligating 8(a) funds to ANC participants. We found that in FY 2007 the top 11 firms received 82 percent of their 8(a) obligations through solesource awards. As I have mentioned, ANC participants, like other tribally- owned firms, are exempt from SBA's cap on total sole-source awards. Generally, 8(a) firms that receive $100 million in total 8(a) awards are ineligible for additional sole-source contracts. Of the top 11 firms, 3 had received contracts in excess of $100 million over just a 2-year period. One firm received approximately $527 million, $422 million of which was sole sourced. As reported by GAO and others, Federal agencies often made sole- source awards to ANC participants because it is a quick, easy, and legal method of meeting their small business goals. While sole-sourcing contracts to ANC firms may provide an expedient means of meeting small business goals, due to the lack of competitive bidding, such awards often do not result in the best value for the government. Reports by OIGs and GAO have shown that noncompetitive contracts have been misused, resulting in wasted taxpayer resources, poor contractor performance, and inadequate accountability for results. In March 2009, the President issued a memorandum discouraging the use of sole source awards unless their use can be fully justified and safeguards put in place to protect taxpayers. Recently, the Federal Acquisition Regulations were amended to put into place special rules for contracts awarded on a sole source basis that exceed $20 million. It is unclear what effect the President's memorandum or this $20 million threshold will have on the scope of sole source awards obtained by ANC participants in the 8(a) Program. SBA'S Management and Oversight of ANC Participant Activity Despite the growth in ANC participation in the 8(a) Program, SBA has not performed a review to determine whether such growth is adversely affecting other 8(a) participants. For example, in FY 2008, ANC-owned participants received 66 percent of the 8(a) obligations made under the ``facilities support services'' industry code, which was the second largest industry code for 8(a) purchasing that year. However, SBA has not assessed the impact this has had on non-ANC-owned program participants. Neither has it determined whether procuring agencies are meeting their small-disadvantaged business procurement goals primarily through sole-source awards to ANC firms that essentially are large through affiliation with their parent and other affiliated companies. Further, although SBA officials recognize that ANCs typically enter into more complex business relationships than other 8(a) participants, it has not tailored its policies and oversight practices to account for ANCs' unique status and growth in the program. Audits issued by GAO in 2006 and by our office in 2008 and 2009 identified shortcomings in SBA's oversight of ANC 8(a) activity. These involve monitoring the issues discussed below. Secondary lines of business for multiple 8(a) participants owned by a single ANC. GAO reported that SBA did not track the business industries in which ANC subsidiaries had 8(a) contracts to ensure that ANCs did not have more than one subsidiary obtaining its primary revenue under the same industry code. GAO recommended that SBA collect information on ANC-owned participants as part of its 8(a) monitoring, to include tracking the primary sources of revenue. In July 2008, SBA began development of a system to collect primary revenue generators for ANC participants, and, in February of this year, we were advised that this system became operational. Neither GAO nor my office has yet had a chance to evaluate this system. Changes in ownership of ANC participants and review of financial statements for firms owned by ANCs. SBA regulations require that ANC participants be majority-owned or wholly owned by an ANC, and that ANCs must seek SBA's approval before making ownership changes. However, SBA has had difficulty managing the large volume of ownership change requests requiring approval. Our audit report 8-14 identified an instance where an ANC was in violation of SBA's ownership rules and had not reported the ownership change to SBA. Our audit report 9-15 disclosed that approving ownership change requests had dominated the workload of the Alaska District Office, leaving little time for monitoring other aspects of ANC compliance with 8(a) rules or for identifying where ANC-owned firms had not reported ownership changes. In Report 8-14, we also reported weaknesses in SBA's review of financial information reported annually by ANC participants. Because of these weaknesses, SBA had failed to identify that non-native managers of two 8(a) ANC-owned firms had secured millions of dollars of 8(a) revenue for companies they owned through management agreements that SBA had not approved, as discussed above. These reports questioned whether SBA's Alaska District Office, which oversees the majority of the ANC participants, was adequately staffed. At the time, the office had only two full-time and one-part time employees to oversee 166 ANC participants. Since then, SBA has advised that it has hired two more employees for this office. We have not had an opportunity to determine whether the additional staff is sufficient to manage the current ANC participant level. Whether ANC-owned firms have a substantial unfair competitive advantage within an industry. The Small Business Act provides that the size of a tribally owned firm will be determined without regard to its affiliation with the tribe or any other businesses owned by the tribe unless the SBA Administrator determines that one or more of the tribally-owned businesses may have or may obtain a substantial unfair competitive advantage within an industry. GAO reported that SBA was not making these determinations and had no policy or procedures in place to make them. It recommended that SBA clearly articulate in regulation how it would comply with existing law. SBA reported that it had adopted a different approach involving training of its Business Development Specialists and Federal agencies to ensure that a previous procurement history is provided to facilitate such determinations, which did not appear to adequately address GAO's recommendation. Recently, SBA advised the OIG that it was undertaking a study, with a target completion date of December 31, 2012. Whether partnerships between ANC participants and large firms are functioning as intended. GAO reported that SBA's oversight of ANC partnerships with other firms and mentor-protege arrangements was not adequate. When entering into joint ventures, ANC firms must manage the joint venture and receive at least 51 percent of venture profits. However, GAO identified instances either where mentors abandoned ANC participants after the contracts were not won or where mentor firms exploited the ANC partner for its 8(a) status. SBA has acknowledged that 8(a) joint ventures between mentors and their ANC proteges may be inappropriate for sole-source contracts above competitive thresholds. In response to our 2009 audit, we were advised that SBA headquarters was collecting information to identify the number of joint ventures involving ANC firms. We are currently conducting an audit to determine whether SBA's information collection and monitoring efforts are adequate. We also are pleased that SBA's new 8(a) regulations contain strengthened requirements for mentor protege and joint venture agreements and limit certain subcontracting by joint ventures in an effort to limit abuse in the program. However, it is too early to tell whether these provisions will effectively address problems arising from some joint venture arrangements in the 8(a) Program. Conclusion In conclusion, ANC participation in the 8(a) Program has undeniably benefitted Alaska natives. However, long-term 8(a) contracting trends showed a continued and significant increase in obligations to ANC-owned participants, which may be limiting the ability of firms that are not owned by ANCs, Tribes or NHOs to obtain 8(a) contracts. Further, our audit found that a very small number of ANC participants received a disproportionate share of the 8(a) obligations, and the procurement advantages that ANCowned firms enjoy, including the relationship between these firms and their parent and other affiliated companies, may be working to the disadvantage of other 8(a) participants. Our audit report presented several matters for congressional consideration and a number of recommendations to SBA, many of which have now been implemented. SBA has not, however, taken effective action in response to the audit recommendation that the Agency determine whether ANCs have obtained a substantially unfair competitive advantage over other 8(a) participants in particular industry codes. This concludes my prepared statement. I would be happy to answer any questions you may have. The Chairman. Thank you very much, Mr. McClintock. I would like to ask for any questions that we may have for our witnesses. Senator Murkowski? Senator Murkowski. Thank you, Mr. Chairman. And gentlemen, thank you for your testimony here this afternoon. Mr. Jordan, I want to start with you. Thank you for all your activity within the SBA. Included in the final 8(a) program regulations that were published in February, it is stated that, ``The tribal and Alaska Native Corporation component of the program serves a valuable economic and community development purpose, in addition to its business development purpose.'' Now, as you know, Senator McCaskill has introduced some legislation which would eliminate the opportunity for ANCs to participate in the 8(a) Business Development Program. So I guess a two-fold question to you. First of all, you have this language within the report that SBA clearly has identified that there is valuable economic and community development purpose. Is it justifiable, in your mind, to single out ANC corporations that represent a single group of America's first people to say that you are no longer eligible. You are no longer eligible to participate in this program, while Lower 48 tribes would be able to continue to participate under the current rules. Given the statement that has come out of the SBA regs, do you think that this proposed legislation is reasonable that specifically singles out the ANCs? Mr. Jordan. Well, I can't comment on the proposed legislation. But what I will say is, two things. One, we do view the 8(a) Program as having two distinct groups: one, the individual owners who are in the program for the nine-year period to develop their own skills and their business; and then the community development component in which we look at ANCs, Native Hawaiian organizations, community development corporations and tribes in much the same way. They have many shareholders. They have a different set of goals and outcomes and definitions of success. And we want to be cognizant that we need to serve both of those communities and have them both be successful. To your point about us recognizing the benefits that this program has delivered to many of the folks on the community development side of the house, that is why we added in the regulatory requirement that those groups report to us on some of those benefits. Now, the Inspector General referred to the six-month period between when the regulations went final and when that one component of them becomes or is implemented. The reason for that is because we need to work collaboratively with the community to figure out how to do that. We have clearly articulated that we need to do that reporting, but we want to make sure that, one, the government gets the best data, that we get the most pertinent, highest-quality data from these firms. But we also don't want to over-burden these firms, which are by definition socially and economically disadvantaged, by just going forward without their input and consultation. So that is the conversation that we are entering into now and we are excited for the results. One other point is that we are not looking at SBA to make any pejorative judgments on what is a positive benefit or not. We are not going to say scholarships and burial services are in one category and language preservation and health care is in another. We just want to have a fact-based conversation and that is why we put that in there. Senator Murkowski. Then recognizing the comments that came from the I.G.'s report, do you think that what you have laid out with the new regulations there, do you think that these adequately address the criticisms that have been expressed by not only the Inspector General, but the media as well? We have all read these reports that are out there. And then a further question to that is if you feel that we have addressed that, shouldn't we allow these regulations an opportunity to work, to go into effect, to play out? Mr. Jordan. We are very proud of the regulations from both a fraud, waste and abuse prevention standpoint and ensuring that the program's benefits are maximized for the intended recipients. We are doing an analysis at the I.G.'s recommendation of what the growth in ANC 8(a) awards means for other participants. But as yet, we have seen no data that would say it disadvantages other program participants. From 2007 to 2010, for example, every single category of 8(a) participant saw their 8(a) awards increase by at least 50 percent. So at this point, it is a very tricky analysis both because of data quality and because of the nuance that we are looking at. So we are doing the analysis, but as yet we have seen no evidence of that. Senator Murkowski. Mr. McClintock, let me ask you a question. Do you believe that or does your office believe that the Indian 8(a) Program as it is currently structured should be eliminated or changed legislatively? And I will ask you the same question that I asked Mr. Jordan, which was do you see any justification for singling out all of the Alaska Native corporations for effective elimination within the program? Mr. McClintock. Like Mr. Jordan, I am not that familiar with the legislation, and I really don't have a---- Senator Murkowski. I am not asking you to comment about the legislation specifically, but do you see that there would be any reason that you would specifically and purposely exclude ANCs from within the Indian 8(a) Program? Mr. McClintock. No. Senator Murkowski. And you don't think that it should be eliminated, then, or legislatively changed? Mr. McClintock. Our report did have some considerations for Congress to amend the program. So again, perhaps there is room for changes. I guess the question is--certainly I am not familiar with anybody trying to exclude ANCs 100 percent from the program. I am just not aware of that as being ever on the table. Our office has never taken a position that ANCs should not participate. Senator Murkowski. Let me ask you one final question, then. In your testimony, written and what you have stated here, you have identified that there have been certain difficulties that your office encountered in determining how the 8(a) Program actually benefits the native people. The query for you today is in reaching this conclusion that this has been a tough job, I am wondering what level of expertise your office has in assessing a question like this? Do you have staff that are experienced in Federal Indian policy? Have you worked extensively within reservations or within Alaska Native villages? Did you travel to some of these significant meetings like NCAI--we have Jackie Johnson will be testifying later--or AFN? I am just trying to understand exactly how you reached the conclusions that you did. Mr. McClintock. We reached the conclusions by trying to track the money flow. In other words, some ANC corporations have significant numbers of 8(a) participants who are owned by holding companies. And as we were trying to trace the money flow and the profits that came out of 8(a) contracts through that extremely complex set of organizations, it loses its identity. Cash is fungible. So I think in order to actually be able to demonstrate the benefits, there is going to be a need to actually separately account for the money, the profits from 8(a), and show how it directly is either included in dividends or used to fund some of these other programs. Senator Murkowski. So I take it from your answer, then, you stayed back here in Washington. You didn't have the consultation with either AFN or NCAI? Mr. McClintock. We didn't consult, but we did have our auditors go to Alaska and they did meet with people in some of the corporations. Senator Murkowski. We will follow up on this later. I have extended my time, Mr. Chairman. Thank you. The Chairman. Thank you very much, Senator Murkowski. Because it eliminates time, I will send my questions in for the record. Senator Begich, do you have a question? Senator Begich. I just want to follow up on what Senator Murkowski just asked. I like the way you did that, Mr. Chairman. I will have other questions for the record. But let me understand this. So you want to track the profits of the 8(a) Alaska Native corporations and how they utilize those profits. Do you think we should be doing the same thing with the individual 8(a) companies that are owned by individuals, too? Do you follow my question here? Mr. McClintock. Well, there are rules for the individual 8(a) companies that limit how much money they can use personally. There are limits on how much money they can take out of their company. There are limits on their salaries. There are limits on their net worth, personal net worth and their total assets. So they actually may argue that they have stricter limits than the tribal 8(a) companies. Senator Begich. If I can just say one more half of a question to the question, do you recognize there is a clear difference between the individual 8(a)'s and these larger organizations like the ANC 8(a)'s that ensure that the distribution of their profits, which may end up in a larger corporation, which then benefits through scholarships, burials, many other things? Do you recognize there is a huge difference there? Mr. McClintock. Yes. Senator Begich. Okay. I will end there, Mr. Chairman. I will have questions for the record. Senator Akaka. Thank you very much, Senator Begich. Senator Johanns? Senator Johanns. I thank both of you. Mr. McClintock, in a previous life, as you probably know, I worked with an Inspector General, and sometimes we would agree, sometimes I guess we wouldn't agree, but I have a good respect to the services of the Inspector General. The impression I get as I look at what you have done is that very definitely this was a program that needed some review, digging in to seeing what was going on here, and you folks did that; made some recommendations. But it is equally my impression that no one is testifying today, either you or Mr. Jordan, that the program should be thrown out. Because I think we all agree that the goals of the program have a lot of merit. And if we can clean up the abuse, we are headed in the right direction. Is that fair to say? Mr. McClintock. Yes. Senator Johanns. Great. That is all I have. Thanks. The Chairman. Thank you. Senator McCain? STATEMENT OF HON. JOHN McCAIN, U.S. SENATOR FROM ARIZONA Senator McCain. Thank you, Mr. Chairman. Mr. Jordan, is it true that in fiscal year 2009, the Federal Government spent about $18 billion on contracts with 8(a) firms and ANCs received about $3.9 billion? Is that pretty accurate? Mr. Jordan. Total contracting to all 8(a) firms in 2009 was about $26 billion or $27 billion. Of that, ANCs received about $3.8 billion. Senator McCain. And ANCs represent 100,000 Alaska Natives and there are 300 million people. Does SBA have any discretion in establishing whether an ANC is in fact ``economically disadvantaged'' compared to establishing that an Indian tribe or NHO is economically disadvantaged? Mr. Jordan. No. ANCs are statutorily deemed economically disadvantaged. Senator McCain. No matter where they are or what their composition are, they are economically disadvantaged? Mr. Jordan. Yes, sir. Senator McCain. Do you believe that some ANCs are more economically disadvantaged than an Indian tribe in all cases? Mr. Jordan. I will leave the presumption of economic disadvantage to Congress. Senator McCain. Under the new SBA regulations, ANCs will have to report how native shareholders are benefitting from the contract. The deadline was extended by six months. Why did you need to extend the deadline? It seems to me it is pretty straightforward. Mr. Jordan. The issue in extending is we wanted to work out collaboratively with the tribal communities how to implement this. We wanted to ensure that SBA gets the highest quality and most pertinent data without overburdening these socially and economically disadvantaged firms. Senator McCain. Do you have a firm date now? Mr. Jordan. Yes, we said that we will implement this part of the regulation in September of this year. We went to 10 different cities to hold a listening tour; held two tribal consultations; received 2,500 public comments which we read and responded to every single one. And the issue around the benefits reporting that we heard when I personally led tribal consultations in Seattle, in New Mexico and rural Alaska, was that it wasn't a complaint with instituting this. It was how we do it. And we wanted to work, make it a workable regulation. Senator McCain. But you expect to finalize those regulations soon? Mr. Jordan. Yes, sir, in September of this year. Senator McCain. September. Mr. McClintock, dollar for dollar, how does the SBA trace how much ANC or tribal participation benefits its members? Mr. McClintock. Dollar for dollar, as I said, we are not able to. We did visit with organizations. They gave us examples. We were able to trace money from 8(a) participants into other subsidiaries or to the parent organization, but at that point its loses its identity. Senator McCain. Mr. Jordan, does it concern you that only about 5 percent of ANC contract jobs actually went to Alaska Natives? Mr. Jordan. That is not something that we track. No other 8(a) participant or government contractor, as far as I am aware, has a restriction on what geography they can pull their employees from. Senator McCain. I wasn't talking about restriction. I thought the intent of SBA loans was to go to the recipients that needed it. Apparently, only 5 percent of the contract jobs actually went to Alaska Natives. Do you dispute that number? Mr. Jordan. I would have to look and get back to you. I am not aware of that number. Senator McCain. You absolutely should be, Mr. Jordan, and I am astonished you don't. This is not a new issue. In 2009, Eyak ANC joined with a large government contract GTSI and secured a $409 million in Federal contracts. Of that amount, Eyak received only $18 million for its operations and their native shareholders got direct dividend payments totaling about $109,000. I am sure you are aware of all of these things. If you are not, you should be. A non-native ANC consulted in Washington, D.C. and made $500,000 a year helping secure $500 million in defense contractor with large foreign-owned corporate partners. Less than 1 percent of that returned to Alaska Native shareholders. Now, if you dispute these figures, facts, I would very much like to hear the rebuttal. If you don't dispute these facts, then there is something obviously fundamentally wrong. That is not the intent of SBA for a lobbyist to get $500,000 a year. That certainly didn't benefit any Alaska Native that I know of. Mr. Jordan. I agree, Senator, that there have been abuses of this program. That is why we are very proud of the regulatory changes that we made. We are also proud of the enforcement actions that we have taken. Senator McCain. Are you proud of what has happened? Mr. Jordan. I am proud of where the program is headed. Senator McCain. Are you proud of what has happened was my question. Mr. Jordan. More specifically, which part of what---- Senator McCain. That a lobbyist would get $500,000 a year, a non-native. Are you proud of that? Mr. Jordan. No. And that is why in the regulations that finalized on March 14th, we clearly articulate that agents and representatives cannot get a gross of any contracts; that that is going forward a prohibited practice. Senator McCain. In its series, The Washington Post reported that even some ANC executives agree the system is flawed: ``We have seen things that show some organizations have broken the law,'' said Aaron Schutt, Chief Operating Officer of Doyan, Limited, a native-owned company that is the largest landowner in Alaska with more than 12 million acres in the heart of the State. Well, I could go on and on here, but I guess, Mr. McClintock, I am sure you realize that part of your obligation is to track this, and somebody in your shop hasn't been. So I hope you will start doing your job a little more assiduously because what has been going on is obviously an unacceptable use of my taxpayers' dollars in the State of Arizona. I would be glad to hear your response to that. Mr. McClintock. Well, I do think that we were responsible for uncovering some of the issues that you just referred to, and while I can't go into any details, we are looking at some of these issues. Senator McCain. I hope so, and I will look forward to hearing your report. This is fundamentally at the end of the day most unfair to the people who were supposed to be the recipients of this. This is most unfair, wouldn't you agree, to Native Alaskans who instead of getting the $500,000 a year that was given to a non-native consultant, they should have gotten the money. Would you agree that the most unfair aspect of this is to the people that it was most intended to help? Mr. McClintock. I would agree. Senator McCain. Thank you, Mr. Chairman. Senator Akaka. Thank you very much, Senator McCain. I want to thank our witnesses. There may be other questions that we will submit and move on here to our other witnesses. Thank you very much for your responses. I would like to invite the second panel to the witness table. Today, we have Jackie Johnson-Pata, the Executive Director of the National Congress of American Indians, and Julie Kitka, President of the Alaska Federation of Natives. Welcome to both of you to this Committee hearing. Ms. Johnson-Pata, will you please proceed with your testimony? Welcome. STATEMENT OF JACKIE JOHNSON-PATA, EXECUTIVE DIRECTOR, NATIONAL CONGRESS OF AMERICAN INDIANS Ms. Johnson-Pata. Thank you, Chairman Akaka and Members of the Committee on Indian Affairs. I want to thank you for this opportunity to be able to testify today. Before I get started, I also want to thank you for the actions that you took earlier in your business meeting. The Carcieri bill, of course, is Indian Country's number one priority, and we look forward to your continued support in getting that to passage. NCAI has a long history of supporting the Native Hawaiian bill and we look forward to continuing to supporting you in those efforts. As you know, my testimony is quite detailed and so I am going to do something quite different from that and just talk a little bit about the benefits of the program. This is a Committee that I don't need to spend any time talking about the social and economic demographics of Indian Country. You are all really well aware of that. And so I want to call upon the Committee to consider today the context of the Small Business Administration's native 8(a) Program as it operates as an important tool in fostering economic development and growth within our tribal and native communities across the Nation. Many Members of this Committee can recall past Federal policies that sought to attract businesses and industries to our remote rural areas, and most of those were where most of our native communities are located. And many of those initiatives failed in Indian Country. And during that same time, Congress began to turn away from the Indian reservation template that had long been the foundation of Federal Indian policy towards a new business model when it enacted and authorized the native corporations to manage the native lands and resources on behalf of native people in Alaska. And I know that Julie's testimony, Alaska Federation of Natives, provides more background on the formidable conditions under which this new policy experiment had to take root before it could grow. We all know that in order to attract businesses and industry to remote rural areas, we need to have a climate that is conducive to business development: modern infrastructure, access to transportation, and commercial corridors. Just as important are those community-based resources including business acumen, managerial strength, tight fiscal controls, a skilled workforce, and a stable government and corporate institutional capacities. In fact, building these community-based assets were the focus of an Alaska Native Claims Settlement Act and the Alaska Natives Corporations Act. Indian Self-Determination Act helped tribes to develop the fiscal management and the accounting systems, but it wasn't based upon the business model. And it wasn't until tribal governments were able to participate in the Native Small Business 8(a) Program that tribes were able to come into contact with experienced business mentors and joint venture partners who could assist them in developing the necessary core competencies or community-based assets to succeed in the world of commerce and Federal contracting systems which serve the needs of a global economy. So it is with that context that our member tribes and native organizations firmly believe that the Native 8(a) Program is working. They see the evidence on a daily basis on just how the Native 8(a) Program is building capacities within their communities among their people. And that is why long after revenues have been realized and expended for greater good, the sustained legacy of the Native 8(a) Program is the creation of a workforce of native professionals, highly skilled native-trained managers, business development specialists, creative entrepreneurs, skilled laborers, accountants and fiscal managers. The perception that the Native 8(a) Program is working is reflected in every single report issued by the Federal agencies and instrumentalities. It works because 8(a) firms are turning in quality work and transparency, accountability and executing government contracts with cost-effective and timely performance. No contracting officer would be expected to be retained in this Federal government if each and every one of those thresholds were not met by the native 8(a) firms. As our testimony suggests, the Federal procurement marketplace is global and in the marketplace, although traditionally dominated by large corporate concerns, there is plenty of room for tribal, Alaska Native, and Native Hawaiians and all minority businesses to make meaningful contributions. Fostering the development of successful small business contractors advances the government's interest in broadening and diversifying our industrial base of service providers and suppliers. More competition in that marketplace will increase the value of the products and services and drive prices down. While the new rules promise greater accountability and transparency, Congress in its oversight role should ensure that the regulations are implemented and enforced in a manner that sets new standards for program participants without distracting from the program's intent or detering contractors from using the program. We want to thank you for giving us the opportunity to address the importance of the 8(a) Business Development Program to tribal communities. We look forward to your continued support and your efforts to be able to help us use this effective economic development tool to make a difference in our tribal communities. [The prepared statement of Ms. Johnson-Pata follows:] Prepared Statement of Jackie Johnson-Pata, Executive Director, National Congress of American Indians Introduction The National Congress of American Indians (NCAI) is the intergovernmental body representing American Indian and Alaska Native tribal governments. For more than 60 years, tribal governments have come together as a representative congress through NCAI to deliberate issues of critical importance to tribal governments and endorse consensus policy positions. NCAI is honored to participate in the Senate Committee on Indian Affairs hearing to discuss the history, structure, and benefits of the Native 8(a) Business Development program that our membership has deemed critical to growing tribal economies and creating career paths for Native people where few existed before. The Native 8(a) program demonstrates Congress' commitment to promoting tribal selfdetermination and self-sufficiency. This business development program reflects the unique character of Native communities and their responsibility to provide governmental services and other benefits to their members. To promote economic development for American Indian tribes and Alaska Native Regional and Village Corporations (ANCs), Congress authorized their participation in the Small Business Act's Section 8(a) Business Development program. When certified as an eligible 8(a) participant, American Indian tribes or ANCs may contract with the Federal Government under unique terms, which permit a federal agency to award a contract not subject to the competitive threshold that applies to individually-owned 8(a) companies and allows tribes and ANCs to operate multiple 8(a) firms. Congress purposefully created these distinctions to further its federal trust obligation to American Indian and Alaska Native tribes, and to provide tools to combat escalating poverty in tribal communities and to remedy the low level of American Indian and Alaska Native participation in the government contracting industry. Due to the recent public and Congressional attention on sole-source contracting, a number of investigations and press coverage unfortunately have cast an unfair and harsh light on tribal and ANC sole source contracting. The U.S. Government Accountability Office's (GAO) 2006 report of Alaska Native Corporation's (GAO-06-399) participation in the 8(a) Program recommended that the Small Business Administration (SBA) and contracting agencies exert greater oversight and monitoring of ANC sole source contracting. It did not recommend legislative changes that would effectively disband the program and reverse all of its positive contributions to advancing American Indian and Alaska Native policy. American Indian tribes and Alaska Native Corporations unique 8(a) provisions are consistent with other Congressional policies that advance Indian self-determination and economic development. The 8(a) Business Development program has demonstrated that it brings revenue growth, employment, profits, and social investment to tribal communities. Indian Country is a world of economic extremes. There are a few high profile examples of tribes and ANCs who have prospered economically. These examples of tribes and ANCs with some wealth receive public attention. However, there are several hundreds more who remain nearly invisible, who are struggling economically to preserve their lands and community. The social and economic conditions in many Native communities are comparable to those in developing nations around the world. Generational poverty among American Indians and Alaska Natives remains a serious challenge. American Indians and Alaska Natives are among the most economically distressed populations in the United States. Nationwide, this population experiences a poverty rate of 25.7 percent, exceeding that of all other racial categories and more than double the national average of 12.4 percent. Indians living on reservations face poverty rates more than three times the national average. \1\ Reservation poverty is so pronounced it can be clearly seen on national maps, with hot spots of poverty in the northern plains, eastern Arizona, southeastern Utah, and western New Mexico, which overlap directly with Indian reservations. Real per-capita income of American Indians living on reservations is still less than half of the national average. In 2000, American Indian and Alaska Native unemployment stood at twice the national average and was more than three times as high on Indian reservations. --------------------------------------------------------------------------- \1\ Jonathan Taylor, ``Native American Section 8(a) Contracting,'' p. 6 (October 2007). --------------------------------------------------------------------------- In addition, tribal governments have a severely limited tax base. Tribes cannot impose property taxes on trust land, and an income tax on impoverished people is not feasible. Recent U.S. Supreme Court cases have compounded this problem by permitting state taxation on Indian land while at the same time limiting the ability of tribes to tax non- members. In addition, tribes are hamstrung in their ability to access other traditional governmental revenue streams, such as tax exempt bond financing, in order to raise revenue for governmental services and are limited to what can be developed from tribal businesses. \2\ In sum, tribal citizens often have greater service needs than their non-Native counterparts, and at the same time, tribal governments have fewer resources with which to fulfill their governmental responsibilities to their citizens. Meaningful economic development is sorely needed. --------------------------------------------------------------------------- \2\ Matthew Fletcher, ``In Pursuit of Tribal Economic Development as a Substitute for Reservation Tax Revenue,'' 80 North Dakota Law Review 759 (2004). --------------------------------------------------------------------------- Economic growth in our nation's tribal communities remains a substantial challenge, and until this improves significantly, the unique 8(a) contracting benefits extended to tribes and ANCs should be part of the Federal Government's arsenal of policies, promoting economic development and working to alleviate dire poverty. The 8(a) program provides tribes and ANCs with critical tools needed to compete in the federal marketplace and enhances market-based competitive capabilities. Federal Indian Policy The U.S. Constitution and many statutes establish rights for American Indian and Alaska Native tribes based on their trust relationship with the Federal Government. In exchange for Native peoples ceding over 500 million acres of land, the United States entered into a trust relationship with American Indians and Alaska Natives. Treaties, the supreme law of our land, were originally the primary way that this trust relationship was expressed. Today, the trust relationship is carried out through the U.S. Constitution and the many statutes enacted by Congress, including the Alaska Native Claims Settlement Act (ANCSA) and the Native 8(a) business development provisions. The Federal Government's unique relationship with American Indian and Alaska Native tribal governments derives from the U.S. Constitution's grant of power to Congress ``to regulate Commerce. with the Indian Tribes.'' \3\ This Constitutional provision, and its interpretation in landmark Supreme Court decisions, gave rise to the Federal Government's special political relationship and trust responsibilities to American Indians and Alaska Natives. --------------------------------------------------------------------------- \3\ Article I, Sec. 8, 3. --------------------------------------------------------------------------- The Federal Government has enacted numerous policies that are aimed at reducing poverty and creating economic opportunities for Indian tribes and Alaska Natives. Congress was even more specific about strategies to realize these goals when articulating, in the Alaska Native Claims Settlement Act (ANCSA), the Federal Government's relationship with Alaska Natives. \4\ This law required compensation to settle land claims, and Congress mandated that for-profit corporations be used to implement the settlement. In ANCSA, Congress declared: --------------------------------------------------------------------------- \4\ See 43 U.S.C Sec. 1601, et seq. (a) there is an immediate need for a fair and just settlement of all claims. . . based on aboriginal land claims; and (b) the settlement should be accomplished rapidly, with certainty, in conformity with the real economic and social needs of Natives, without litigation, with maximum participation by Natives in decisions affecting their rights and property . . . \5\ --------------------------------------------------------------------------- \5\ See Id. at Sec. 1601. Furthermore, in ANCSA, Congress confirmed that federal procurement programs for tribes and Alaska Native Corporations are enacted under the authority of the Commerce Clause, Article I, Section 8 of the U.S. Constitution. \6\ Among the most successful of these laws are the special provisions implementing Section 8(a) of the Small Business Act. These rules have helped tribal and ANC businesses overcome economic barriers. Competitive businesses have been created in both the private and federal markets. New business opportunities and career paths have been created in remote rural communities that are far removed from major markets, and profits, when earned, are invested to ensure future sustainability or returned as benefits to their communities. --------------------------------------------------------------------------- \6\ 43 U.S.C. Sec. 1629(e)(4)(A). --------------------------------------------------------------------------- Community Benefits Because of the high unemployment rates in tribal communities, capacity building for Native people is often the key goal of tribal governments and ANCs. In its 2006 Report, the GAO found that one-third of the ANCs interviewed had management training programs in place that encourage the recruitment, training, and development of Native employees. \7\ Tribes and ANCs use internships, scholarships, on the job training, and subcontracting opportunities to build their own talent. This process can be slow and arduous as multi-generational poverty has taken its toll on worker preparedness, but success can be significant when it is achieved. --------------------------------------------------------------------------- \7\ US GAO, (GAO-06-09) 2006, 81. --------------------------------------------------------------------------- For example, the General Manager of Sealaska Environmental Services and a shareholder of Sealaska Corporation earned a bachelor and graduate degree with Sealaska Corporation. He interned at the company and eventually started a new 8(a) subsidiary of Sealaska, which is a certified environmental remediation firm, providing a number of support services to federal facilities. Former scholarship recipients also have earned positions at Sealaska as: Vice President and Financial Officer; Vice President, Corporate Secretary, and Human Resources; Vice President and Chief Investment Officer; and Vice President and General Counsel. Sealaska Corporation has provided scholarships to 3,000 tribal shareholder recipients since the inception of its scholarship program, and from 2000-2008, it provided $5.7 million in scholarships. Since the inception of its internship program in 1981, Sealaska has provided 200 internships, with 23 of these interns currently employed by Sealaska. Benefits derived from the government contracting program go beyond developing local Native capacity through scholarships, internships, and employment. Other benefits, which are just as important, have begun to take hold and advance self-determination, ensure cultural preservation, and ameliorate dire social conditions. For example: One Alaska Native Corporation has aligned its cultural values with its dividend payments. A special dividend program has been developed to provide additional support for elders, who hold a highly respected position in Native communities. When elder shareholders reach age 65, they are offered a special dividend along with additional shares,that provide a larger dividend payment in the future. Community-based non-profit organizations, supported through 8(a) business revenues, are carrying forward cultural values through such wide-ranging activities as youth camps, leadership trainings, curriculum development, and language preservation. Cultural values and practices are reinforced through social and community programs funded by tribal and ANC 8(a) businesses, such as learning a traditional dance or language. These practices focus on preserving cultural values and traditions for Native communities, with an emphasis on providing youth with positive environments and influences. Native people serve as role models for fellow tribal members and are valued for their contribution to community. Tribal and ANC 8(a)s provide an opportunity for American Indians and Alaska Natives to see one of their own go to college, get a job, or work toward a career. These positive role models can increase community and individuals' hope for the future as well as provide inspiration. Business capacity is developed in the local community when tribal members and shareholders gain transferable business skills, such as financial literacy, strategic planning, and management. These skills are necessary for all aspects of economic and community development. Native community members may choose to utilize their skills in variety of ways: to start a local business as a supplier or provide a service that has been lacking in the community. Leadership capacity is developed when Native boards and tribal councils gain experience in making decisions that will directly affect the lives of their family, neighbors, and communities. Important investment and sustainability decisions are made in each tribal community: hiring, budgeting, dividend allocation, meeting community needs, and business and cultural sustainability. This needed business development program has enabled tribal communities to participate in the mainstream economy as intended, and the capacity building component has reaped real rewards as infrastructure and human capital have been built in local communities. As Congress monitors measures, both legislative and administrative, to bring more transparency and accountability to the 8(a) Business Development program, it also needs consider the legal, policy, and economic context for the special 8(a) provisions while gauging their effectiveness as regulatory policies are implemented. Native 8(a) Contracting History Since World War II, the Federal Government has adopted policies to increase the diversity of suppliers to the Federal Government. The intention is to assist businesses that have substantial barriers to capital formation and allow them to effectively compete in a highly concentrated market. The Small Business Act's Section 8(a) Business Development program directs the government to purchase from small businesses. In 1987 and 1988, the Senate Indian Affairs Committee held hearings to determine why so few Native American-owned firms participated in government contracting and why a Presidential Commission on Indian Reservation Economies found that existing procurement policies created substantial obstacles to Indian reservation economic development. As a result of these Congressional inquiries, changes to federal laws were made to ensure that American Indian and Alaska Native tribes could more effectively compete in the federal market place in a manner that reflects the unique federal obligations and different legal frameworks that apply in Indian Country. Except in a few important ways, the rules and regulations that are applicable to all 8(a) companies owned by individuals, women, and minorities apply to American Indian tribal enterprises and to Alaska Native Corporations. Congress altered this legal framework to take into account the unique ownership structures of enterprises owned by tribal governments and by Alaska Native Corporations created under the Alaska Native Claims Settlement Act. These ownership structures distinguish them from all minority-owned businesses and other types of private sector firms. Thus, tribal and ANC contracting differs from private 8(a) contracting. Tribal enterprises are owned by tribal governments. Tribal citizens determine who governs them and ultimately how their government will carry out economic activities through a tribally-owned business. The authority to create a tribal enterprise is typically governed by a tribe's constitution or governing authorities. A tribal governing council usually determines the officers of a tribal enterprise and hires a manager to oversee the day-to-day operations of the business. Usually, the tribal governing body will retain overall strategic direction of the enterprise, have the authority to acquire or distribute assets, and reinvest or distribute profits for the benefit of its tribal membership. Often, the sole shareholder of tribal enterprise is the tribal governing body itself. The corporate structures created under ANCSA represented a new approach to settling land claims between the United States and Alaska Natives. ANCSA established a framework in which village and regional corporations would manage the assets, land, and natural resources that Alaska Natives received under the settlement. Under ANCSA, shareholders may not sell their shares to non-Natives. Congress explicitly intended the use of corporate structures to give Alaska Natives greater control of their economic destiny--to achieve self-sufficiency as well as self-governance. In fact, in furtherance of this economic settlement, the opportunity to participate in federal procurement programs, including the 8(a) program, was embedded in ANCSA by amendments passed by Congress making it clear that ANC participation in these programs business development opportunities would be an integral part of the ANCSA settlement and contribute to the development a sustainable economy. \8\ --------------------------------------------------------------------------- \8\ In 1988, Congress passed amendments to the Alaska Native Claims Settlement Act, P.L. 100-241, which granted presumptive minority status to ANCs, as defined in 43 U.S.C. Sec. 1626(e)(2). The intent was to grant qualifying ANCSA corporations or ANCSA corporation-owned firms the status of ``a minority owned and controlled corporation for purposes of federal law.'' In 1992, the Alaska Land Status Technical Corrections Act, Public Law 102-415, amended Sec. Sec. 1626(e)(1) and (2) by granting ANCSA corporations or ANCSA corporation-owned firms ``economically disadvantaged'' status. --------------------------------------------------------------------------- The ownership structures of both tribally-owned enterprises and ANCs create a much broader mandate to address a wider range of interests than other minority-owned 8(a)s; tribal and ANC firms must operate and provide benefits that go far beyond the bottom-line of profitability. The special provisions which apply to tribal and ANC 8(a) contracting were tailored to take into account these differences and to take into account the federal Indian policy of promoting selfdetermination and economic self-sufficiency. The special provisions include different criteria which govern the admission of tribal and ANCs into the 8(a) program, and they exempt tribal and ANCs from lower \9\ competitive threshold that applies to individually-owned firms \10\ and also establish different affiliation rules, which permits tribal governments and ANCs to have multiple 8(a) companies. However, many of the other rules that apply to all 8(a) firms apply equally to tribes and ANCs. For example, all 8(a) firms have a maximum 9-year participation term in the 8(a) Program. Likewise, all 8(a) firms must be small to receive an 8(a) contract. When an ANC 8(a) firm grows out of its applicable size standard, it graduates out of the program, just like other 8(a) firms. Tribes and ANCs are permitted to form new 8(a) firms in different industries because of their responsibility to improve the livelihood of hundreds or thousands of community members. Accordingly, tribes and ANCs can operate multiple 8(a) firms and do not have a limit on the size of contract that can be awarded to them on a sole source basis. These provisions were intended to prepare tribal enterprises and ANCs to compete with others in their industry, particularly large contractors who have established relationships with government customers and possess capital and proposal capability sufficient to dominate the federal procurement market. --------------------------------------------------------------------------- \9\ Justification and Authorization needed for all contracts over $20 million as passed in the National Defense Authorization Act of 2010, Section 811, P.L. 111-84 [H.R. 2647] \10\ Section 602 of the Business Opportunity Development Reform Act of 1988, P.L. 100-656 [H.R. 1807], November 15, 1988. --------------------------------------------------------------------------- In order to compete effectively, Congress provided tribes and ANCs flexibility to hire experienced staff and management and the ability to use partnerships and subcontracting tools that are available to other contractors. Tribes must present a plan for Native managers to assume operations, while Alaska Native participants have the flexibility of hiring both Native and non- Native managers. However, the direction of the company and the management of assets and distribution of profits are ultimately determined by a tribal governing council or Alaska Native Board of Directors. The governing council or board of directors is elected by tribal members or by Alaska Native shareholders. Top managers are tasked with the responsibility of improving the assets and profitability of the company, while at the same time carrying out cultural and broader social goals of the Native community. Additionally, tribes and ANCs, like other individually-owned 8(a) companies, have the ability to form partnerships or subcontract in order to complete jobs and make profits. SBA regulations permit all 8(a) contractors to subcontract a portion of the work under certain conditions. This can create benefits for local businesses where a contract is awarded by permitting tribes and ANCs to work with local companies while still fulfilling its own goals of self-sufficiency. Similarly, tribes and ANCs can form joint ventures with large companies in the same manner available to all 8(a) firms. All 8(a) firms can form joint ventures under SBA's Mentor-Protege Program. The use of teams and joint ventures are encouraged by the Federal Government as a means to stimulate growth, forge new business relationships, and develop expertise. For example, Mandaree Enterprise Corporation faced bankruptcy in 1994. The tribal government owners, the Mandan, Hidatsa, and Arikara Nations of the Ft. Berthold Reservation in North Dakota, hired a CEO to develop a turn-around strategy. Mandaree Enterprise became certified in the 8(a) Business development program and grew rapidly as it expanded into government contracting. Part of its success was due to its participation in U.S. Department of Defense's Mentor-Protege Program, which encourages major defense prime contractors to work in tandem with small disadvantaged businesses to develop their business and enhance their technical capabilities. The ultimate goal is to enhance the potential contributions of proteges, like Mandaree Enterprise Corporation, thus allowing them to more effectively compete for defenserelated work. Through this program, Mandaree Enterprise Corporation developed a relationship with Northrop Grumman, which contributed to their capabilities in manufacturing cables, wire harnesses, and circuit boards. During two separate occasions, the Mandaree Enterprise Corporation and Northrop Grumman received special recognition from the U.S. Department of Defense by winning the Nunn- Perry award. The criticism about tribal and ANC contracting success from some in the small business community is misplaced and misguided. It distracts from the many issues that all small contractors have in common. While the federal contracting market has increased substantially, many small businesses believe they have been shut out of the market. The size of the market has increased; however, the Federal Government's statutory goals, which are intended to ensure small business participation, have remained stagnant, not keeping pace with the potential for greater small business participation. Additionally, the overall small business share has declined due to a number of reasons, such as bundling, the consolidation of contracts beyond the reach of many small business capabilities. The federal procurement market is huge, and there is plenty of room for tribal and ANC and all minority businesses to participate. NCAI has worked with other small business organizations, such as the Minority Business Roundtable and Women Impacting Public Policy, to urge Congress to increase opportunities for all small businesses by increasing agency contracting goals and size standards, as well as increasing the thresholds for individually owned 8(a) companies. The Administration has acted to increase size standards for some industries and is undertaking an effort to unbundle contracts, last least in the information technology arena. All are positive steps for all 8(a) participants. Fostering the development of successful small business contractors advances the government's interests by broadening and diversifying its industrial base of service providers and suppliers. More competition can result by combating the consolidation of the government contracting industry into a few dominant large businesses. By providing different contracting provisions to qualified tribal enterprises and ANCs, Congress increased the likelihood of sustaining business opportunities, ownership, and revenues for American Indians and Alaska Natives. These provisions are helping to alleviate poverty, provide economic growth, and increase the business capacity of tribes and ANCs. Recommendations for Program Improvement We feel it is important for this Committee and Congress to know that these tools created to promote economic self-sufficiency in Native communities are working as the Federal Government intended. The 8(a) program is still a long way from universally building local tribal economies and offering hope to tribal citizens. However, even its infancy, it has already proved to be an effective tool for those tribes and ANCs who have the ability and tenacity to compete and profit in the federal market place. Our member tribes, ANCs, and Native communities have all given us input on this issue, and their message has been simple and clear: Keep the program in place. It is working. While a handful of tribes and ANCs have achieved significant success in government contracting, the vast majority of tribes and ANCs remain in desperate need of meaningful, diversified economic development opportunities. Tribal communities face many obstacles to economic development, including lack of access to capital, inadequate infrastructure, remote locations, complicated legal and regulatory status, and insufficient access to training and technical assistance, among others. In fact, given its proven success in a limited number of communities, we should all be working towards ways to strengthen the 8(a) program so more communities can benefit from the purchasing power of the Federal Government. With this directive from our member tribes, ANCs, and Native communities, NCAI set out to evaluate the program, listen to those who had concerns, and try to correct misperceptions. During a national summit held jointly with the U.S. Department of the Interior, NCAI heard from tribal leaders about these economic challenges and opportunities. In addition, a joint working group was formed with NCAI, the Native American Contractors Association, and the National Center for American Indian Enterprise Development to ensure that we were speaking with a unified voice and representing the issues and concerns of all American Indian and Alaska Native entities. NCAI evaluated concerns about the program by carefully reviewing the April 2006 GAO report on Alaska Native Corporation 8(a) contracting (GAO-06-399). The GAO recommendations centered on the need for greater oversight activities by the Small Business Administration (SBA) and federal agencies. In response, we held a series of government- togovernment tribal consultations with the SBA Administrator to discuss the GAO and other SBA Inspector General (IG) recommendations and to identify potential solutions to address these concerns. Through this process, we developed two comprehensive sets of administrative recommendations to improve oversight in response to the recommendations made in the GAO report (GAO-06-399) and other 8(a) SBA IG reports. We submitted these reports as part of the administrative record for the tribal consultation process that the SBA undertook as part of its 8(a) rulemaking on the SBA mentor/protege program. Additionally, we have urged Congress to increase funding for the SBA to provide additional staff resources and to conduct an SBA assessment on re-engineering the Native 8(a) program with the goal of providing more transparency, accountability, and training. This effort was undertaken to ensure that this program remains one of the critical tools available more broadly in Indian Country as a way to generate revenue and build business capacity. These recommendations were developed to strengthen reporting systems and provide improved transparency and accountability for many of the concerns that have been raised. Since these recommendations were developed, both Congress and the Administration acted to address a number of concerns regarding how Native and all other firms participate in the SBA 8(a) program. Congress, through the National Defense Authorization Act for Fiscal Year 2010, enacted legislation that directly and disproportionately impacts Native 8(a) firms. The Act requires all federal agencies to justify and approve all contract awards over $20 million. The Office of Management and Budget, through the Federal Acquisitions Regulatory (FAR) Council hosted consultations before releasing the regulations that will guide the level of justification and approval. The Far Council should be commended for hosting its first tribal government consultation and for drafting regulations that adhere to those specifically included in the legislation. These regulations are not intended to cap sole source contracting to a $20 million limit, but should add a layer of tax payer protection for all large contracts. The Administration, through the SBA, released regulations earlier in 2011 that will add additional oversight and accountability. The SBA held a number of consultations with tribal governments before the regulations were drafted and is promising to conduct further consultations to give guidance on the new rules and discuss a delayed regulation governing benefits reporting. The regulations answer concerns raised over the years by NCAI and our partner organizations, participants, administrative officials, and Congress. Among other things, the new rules add accountability by clarifying mentor-protege, joint venture, and sub-contracting relationships. The rules also provide new guidelines for NAICS codes and size standards and provide greater transparency for excessive or executive compensation. While all of these new rules promise greater accountability and transparency, Congress, in its oversight role, should ensure the regulations are implemented and enforced in a manner that sets new standards for program participants without detracting from the programs' intent or deter contractors from using the program. Additionally, Congress should ensure that the benefits reporting regulations being developed are done so in a way that reflects current federal Indian policy. Tribes and ANC's, by nature of their governing systems, are already responsive their respective citizen and shareholder interests and for the well-being of their communities and culture. The reporting mechanisms should not favor certain expenditures or limit the use of revenues to what may be acceptable to external interests. We want to thank you for giving us the opportunity to address the importance of the 8(a) Business Development program to tribal communities. We look forward to your continued support of tribal self- determination efforts and our use of effective economic tools. The Chairman. Thank you very much, Ms. Johnson-Pata. Ms. Kitka, please proceed with your testimony. STATEMENT OF JULIE E. KITKA, PRESIDENT, ALASKA FEDERATION OF NATIVES; ACCOMPANIED BY BYRON I. MALLOTT, DIRECTOR, SEALASKA CORPORATION Ms. Kitka. Thank you, Mr. Chairman and Members of the Committee. It is wonderful to be here. On my right is one of our most respected native leaders, Byron Mallott, who was Founder of the Alaska Federation of Natives, as well as a President of one of our native corporations, a former CEO with a lot of experience. I have asked him to join me to share my opening remarks time and also to be available for questions as far as early background or any questions that you have on that. We will try to keep our comments very short. Thank you for taking my written statement into the record. We are more than happy to respond to any and all questions that the Committee may have. The 8(a) Program from our experience is one of the most successful programs we have ever seen this Congress enact. It allows us to build capacity. It is not an entitlement program and a handout. It builds capacity for the long term. I cannot underestimate what that means to us. If you are required to have tight financial and accounting systems, if you are required to deliver services on time, under budget, whatever, the skills that that develops with your people and your managers are transferrable to every type of business that you are involved in. So you should be very proud of the program and the success. And we want to build on that. We see aspects that could be surrounded around the program that wouldn't necessarily be in the 8(a) Program, but other areas that could support the capacity-building of native people, support the reduction of poverty and elimination of marginalization of our people, and that includes such areas as the investment climate in our home communities and reservations. Unless our investment climate is favorable to business development, many of the business opportunities will be outside of our communities, so we have to pay attention to investment climate. We have to pay attention to tax policy and tax incentives and tax credits. That will directly influence and encourage more opportunities on our reservation and in our villages, and is just essential. The idea of patient capital, some of our communities are land-rich, but cash-poor. If they are to succeed in business enterprises, if you are to see local results on that, we need patient capital that people can use to build up their capacity, especially in the smaller areas. Again, they don't really fit into the 8(a) thing, but in the big picture, they will have just as important a benefit for our people. And again, they are not hand-outs. They are not entitlements. They are investing in the native community building their enterprises and improving the standard of living. I also wanted to share one critically important result of the experience in Alaska with our native corporations and our land claims. I bring this to your attention because I think it has application for many of your considerations you deal with in the Congress. One of the most important aspects of our experience with corporations is the ability to organize separately for political purposes and separately for business and economics. It is that ability to organize economically to engage in economic activities with other businesses which is critically important. And I think our participation in the 8(a) proves that that separation of organization and purpose on that is just a keystone of our success and our participation. And I bring that to your attention because I do think that that has application to decisions you make in nation-building in countries like Afghanistan, Iraq, even the Middle East and things like this. Taking a look at building communities and building stability and the capacity of people who are in poverty and they are marginalized, that ability to organize separately economically versus just political organization is an important lesson that we contribute, that the Congress and the United States should be very proud of. And we would be glad to work with you on being able to showcase that. But I can't underestimate how timely and relevant our experience in the 8(a) government contract has in these other arenas that you deal with. With that, I would like to ask Byron Mallott to share some comments. [The prepared statement of Ms. Kitka follows:] Prepared Statement of Julie E. Kitka, President, Alaska Federation of Natives Mr. Chairman, and distinguished Members of this Committee, I appreciate the opportunity to present testimony on behalf of the Alaska Federation of Natives (AFN) regarding SBA's 8(a) program, an important legal tool which is intended to help us escape poverty and marginalization, and empower our people to compete in the federal marketplace, deliver value to our federal partners and learn during the whole process. On behalf of AFN Co-Chairs State Senator Albert Kookesh and Ralph Andersen, and our 37-Member Board of Directors--we want to express our appreciation for these hearings, and your support of programs that provide economic opportunities to Native Americans. I offer this testimony to speak to the legal and equitable basis and importance of the Small Business Administration's 8(a) program to the Native people of Alaska and to offer several recommendations. I submit this testimony in my capacity as President of the Alaska Federation of Natives (AFN). By way of background, AFN is the largest statewide Native organization in Alaska representing more than 125,000 Alaska Natives residing in Alaska, and more than 120,000 Alaska Natives scattered over the rest of the 49 states. Alaska Native leadership organized AFN in 1966 to facilitate bringing the various regional and village associations together, to advocate with one voice for a fair settlement of our aboriginal land claims. Congress approved the Alaska Native Claims Settlement Act (ANCSA) in 1971, and for the last 40 years we have been involved in implementation and adapting both the settlement and our relationships to meet the real needs of our people. As President of AFN, I have seen where AFN is both an organization and a movement of Native people who are striving for self- determination. Our decision making process is shared with a 37 member Board and an annual convention of elected Native representatives of approximately one delegate for each 25 members of our villages, communities and Native institutions. It is a formalized process, which has served us well, and continues to adapt. The AFN convention is the largest annual gathering of Native people in the United States and generally numbers about 5,000 people. The AFN convention is a representative and inclusive Native gathering for Alaska Native people. At our annual convention we work hard to maintain unity of purpose, recognizing we have a great diversity within the state, different ethnic and cultural experiences. We focus on statewide priorities, and debate and decide our positions on critical issues. The AFN convention has repeatedly voted to support the SBA 8(a) program as a viable economic tool for Native Americans and have urged us to do everything in our power to protect the opportunities for participation, and to ensure that Alaska Natives are at the table for any discussions that affect our people. I would like to make clear that the AFN has zero tolerance for abuses of this program, or for media hype, which is not grounded in fact. AFN and I candidly recognize that there have been isolated instances of abuse or lapses in judgment by some involved in the 8(a) program. We do not condone such abuses or lapses and are committed to helping ensure that they are not repeated. We believe that the implementation of the new SBA regulations will go a long way toward making sure that they are not. We are committed to ensure the long-term benefits of this program are shared between the federal agencies for whom we do work, and for our young growing population, which is continually building their experience and expertise. By the same token, we urge this Committee and others in Congress to not let a few such instances be misused to destroy this highly meritorious and effective program for others in need of the opportunity it affords Native Americans. I would like to note that we appreciate your leadership of this distinguished Committee in the administration of laws designed to benefit Alaska Natives and Native Americans. This Committee serves a very important role in the lives of our people, protecting commerce with, and among, Native American tribes, corporations and other organizations, while recognizing our unique role and relationship with the U.S. government. We welcome and appreciate your leadership in reviewing the 8(a) programs. We also appreciate the efforts of our elected representatives, Senators Murkowski and Begich, and Congressman Young, who have stood with us to see that the truth is told about 8(a) contracting, and about its great importance to our people. The work you and your Colleagues have done over the years have improved the lives of Native Americans--our people live longer, we have greater access to health care and educational opportunities, poverty is being reduced, and we are hopeful for the future and our place in society as contributing members. Thank you for all you have done and the sacrifices you have made in your lives to take on public service. It really matters and we appreciate it more than you will ever realize. Now, I will focus on the 8(a) program. First and foremost, it is important to recognize that the 8(a) amendments, as they relate to Alaska Natives, are the result of congressional amendments to ANCSA, and to further understand that ANCSA is a fundamental federal law that was intended to establish a fair and equitable relationship between the Federal Government and Alaska Native people. ANCSA is the foundation of much of our economic and legal relationships with the Federal Government, but it is much more than that. ANCSA embodies most of our economic and relational agreements with the Federal Government, agreements approved by the United States Congress for which our people relinquished valid legal claims to lands and resources in Alaska, our homeland. Our leaders took a tough stand. We accepted a settlement that freed the State of Alaska \1\ to receive its lands and the Federal Government to manage its lands. --------------------------------------------------------------------------- \1\ In 1971 when the Alaska Native Claims Settlement Act (ANCSA) was enacted by the Congress, Alaska was a fledgling state, not even 15 years old. --------------------------------------------------------------------------- And we should recognized that the citizens of the United States, and the Federal Government, received a bargain: by settling Alaska Native land claims, title to lands in northern Alaska was cleared, paving the way for the Trans-Alaska oil pipeline to be built, which this summer will deliver the 18th billion barrel of oil to domestic consumers, from U.S. fields. These 18 billion barrels of domestic oil are directly attributable to the agreements that were made possible by ANCSA. The fields of Prudhoe Bay alone have delivered several hundred billions of dollars of goods, services and taxes to the Federal Government. ANCSA made this possible by addressing the status and claims of Alaska Natives. ANCSA remains one of the largest and most complex land settlements in U.S. history. In December 1971, after years of effort by Members of the U.S. Congress and Alaska Native leadership, the Alaska Native Claims Settlement Act (P.L. 92-203) was signed into law by President Richard Nixon. In return for extinguishing their aboriginal claims to Alaska's 360 million acres, Alaska Natives were allowed to retain fee simple title to 44 million acres of land and received $962.5 million for lands transferred to the State, federal and private interests. The Act created 13 regional for-profit corporations and more than 200 village corporations to receive and oversee the land and monetary entitlements. It took decades to get the promises of ANCSA implemented. The structure of ANCSA, and the creation of corporations to be owned and operated by Alaska Natives, was--and remains--of lesser importance to Alaska Native people than protecting our land and our traditional way of life, and surviving in the modern world. The basis of the treatment of Alaska Native corporations under the Small Business Act stems from amendments to ANCSA and to the Small Business Act--it is, today, a critical component of the Alaska Native Claims Settlement Act. In 1986 and 1987, I was working on behalf of AFN in Washington D.C. on a package of amendments to ANCSA called the ``1991 Amendments'' when the 8(a) amendment was debated and enacted. For those unfamiliar with ANCSA, the ``1991 Amendments'' were a result of five years of internal discussion and debate within the Alaska Native community, and with Members of Congress. This legislative effort modified ANCSA and addressed fundamental land protections, the ability to provide special benefits to our Elders and to our younger generations, and the legal structure of Alaska Native Corporations. For example, one major provision would have allowed Native corporation stocks to be sold on the public market. We knew at the time of the debates regarding the 1991 amendments that, if ANCSA was allowed to remain as it originally was enacted, the Alaska Native people were in danger of losing their corporations, those legal entities created by Congress to manage Alaska Native lands and resources. Amendments to the SBA 8(a) program were included as part of the ``1991 Amendments'' because the program was viewed as necessary to the ability of Native Corporations--based in remote, rural areas of Alaska--to transition into the U.S. business world. And, as has been the experience of many minority peoples in our nation's history, we saw that Natives corporations were sometimes excluded or ignored as potentially viable business entities. The ``1991 Amendments'' were fully considered by Congress in 1987, passed without opposition, and were signed into law. The 8(a) amendments also were passed by Congress without opposition and signed by the President. As you well know, the 8(a) amendments provided contracting authority that applies equally to all Native American tribes as well as Alaska Native corporations. The contracting opportunity available under 8(a) is not unique to Alaska Native corporations. Also, it is worth considering the basis for the distinction between laws differentiating between Native American relationships and others. In a great many cases, Native Americans entered into agreements with the Federal Government relinquishing ownership and use and occupancy of lands for treaties and statutes. In our case, Alaska Natives relinquished claims to approximately 320 million acres of land in Alaska with the passage of ANCSA. The agreements embedded in these treaties and statutes across the United States properly provide a basis for differential treatment under the law. Congress can properly distinguish between Native American and non-Native American contracting opportunities. Congress' authority to do so comes from the unique status of Indian tribes under federal law and the plenary power of Congress to legislate on behalf of federally recognized tribes and Alaska Native corporations. This principle is well established in federal law and was recognized by the United State Supreme Court in a leading case, Morton v. Mancari, 417U.S. 535, 551-52 (U.S. 1974). The Supreme Court has upheld legislation that provides for unique application of laws to Native Americans due to the unique history and role of dealings with Indians and has stated that as long as the special treatment can be tied rationally to the fulfillment of Congress' unique obligation toward Indians, legislation regulating commerce with Indian tribes will not be disturbed. Mancari, 417 U.S. at 555. That is the correct and constitutional basis for the Indian and Alaska Native treatment under the 8(a) program. To look back now and seek to separate the economic treatment of Alaska Natives, or any other Native American tribe or group, from the settlement of aboriginal claims would not be just or fair. As you meet here today, in this hearing, not all the lands that were promised to Alaska Natives have been conveyed to our people and our corporations 40 years after ANCSA was enacted. What is the net present value of the lost use of our lands, delayed in some cases by decades? To Alaska Native people, ANCSA is as important as the fundamental human rights statutes of the Civil Rights Act and Voting Rights Act. ANCSA is based on recognition of the validity of the claims of Alaska Natives to lands and waters in Alaska, where our people resided for thousands of years. To pull out pieces of the Act now and examine them out of context would be wrong. ANCSA corporations are not merely for- profit corporations; they are stewards of the Native homeland, sponsors of education and training opportunities, employers of ``first resort'' for our aboriginal people. There is so much more tied into these corporations than some people understand. Most of our entire land base--our land is key to our heritage, culture and future--is held by the corporations, just as Congress intended in passing ANCSA. The corporations have broader responsibilities than many other corporations, for in their hands are our settlement lands, lands which we can not afford to lose. Alaska Native corporations were not started as ordinary corporations, and were not intended to function as ordinary corporations. These corporations were required to be formed by federal law, ANCSA, a requirement not applied elsewhere in other aboriginal land settlements, or to many, if any, other corporations in America. The corporations were a foreign-type entity to our people, but we worked hard, and did what the law instructed us to do with the corporations. Our people struggled in many cases to overcome social and economic disadvantages of operating new corporations in what to the business world is remote Alaska, and to run the corporations as intended. Our people persevered to seek the success Congress intended. Contracting under section 8(a) is, and has been an important aspect of the success of some of our ANCSA corporations, and through them, we have seen important socioeconomic benefits to thousands of our people, as intended. Again, our corporations hold the keys to our heritage, our lands, and economic base, which are essential to our well-being. As these corporations began to succeed, many of the indicators of a healthy society began to improve. For example: Alaska Native life expectancy for both men and women has increased, infant mortality has decreased, poverty has been reduced from over 60 percent to 20 percent--a major accomplishment. Key findings in a report commissioned by AFN shows dramatic improvements in positive indicators; dramatic decreases in negative indicators; and a continuing thread of disparity between the Alaska Native population and non-Alaska Native population, both in Alaska and in the U.S. in all indicators. \2\ Overcoming this disparity must be a targeted focus of all our efforts. --------------------------------------------------------------------------- \2\ In 2004, AFN commissioned a 30-year trend analysis on all major socio-economic and health indicators of the Alaska Native population. The University of Alaska, Institute of Social and Economic Research prepared the report. Key findings show that Alaska Natives have more jobs, higher incomes, and better living conditions, health care and education than ever. But they remain several times more likely than other Alaskans to be poor and out of work. All the economic problems Alaska Natives face are worst in remote areas, where living costs are highest. AFN has made the request available to Members of the Committee. --------------------------------------------------------------------------- Of course, AFN does not assert that ANCSA and our Native corporations are the source of all the improvements in the last thirty years. Other significant impacts on well-being have been federal and state appropriations in health, education and social services; and the Alaska Permanent Fund dividend. However the impacts of ANCSA are very substantial. I believe that it may be tempting to look at some of the greatest success of Alaska Native Corporations and see only success. From where we started, with small, new start-up corporations, beginning with a people that had not operated corporations before, our corporations have come a long way. We have asked other members of Congress and other committees not to skip over what we started with, living and working in what is to most businesspeople the most remote corner of America, in one of the harshest climates in the world: A history of extreme prejudice toward, and lack of understanding of, our people. A history of wariness toward a people who, in a great many cases, literally spoke a different language than most businesspeople in America. A history of exclusion from genuine business opportunity. And a history of no business history with ``mainstream'' large economies in America. This is clearly a case study of an economically disadvantaged minority business. That is why ANCSA and the Small Business Act were amended to provide for economic opportunity for our corporations. These amendments are the basis of the 8(a) program as it applies to Alaska Native Corporations. SBA 8(a) contracting has created the benefits that it was intended to create. Our corporations have built up a capacity that did not exist before. Methodically, efficiently and responsibly, these corporations have built up a capacity to provide employment to Native shareholders, provide training to young people, and develop and offer scholarship opportunities. Our corporations have built up a capacity to provide jobs and help young people see what it takes to succeed in modern America. They have built, as intended, a managerial and business expertise that can carry forward. They have helped create an economic stability where none existed before. Our people take pride in this work, and feel strongly that this is our work, not the work of others. It is an accomplishment to behold, one which is worth understanding in full for its roots, path and basis in law, including Native American law. We believe that the laws governing the 8(a) program provide the correct balance of interests and provide for an effective small business program. Native American participation in the 8(a) program represents less than 2 percent of the total contracting undertaken by the U.S. government. When the regulations need updating, the SBA and federal agencies have shown that they have the authority and ability to modify the program where needed. New regulations for the 8(a) program were published in a Final Rule in February of this year and took effect last month. These regulations provide for changes in the joint venture requirements, require more assistance from mentors in the mentor- protege relationship, and require greater reporting on the benefits to Native members and communities resulting from 8(a) contracts, including the reporting of dividends, funding of cultural programs, employment and other programs. We should give the changes of this new regulation a chance to work and then assess what else needs to be done. As I testified last year to the Subcommittee on Contracting chaired by Senator McCaskill, what happens with Alaska Natives has an impact everywhere: our homeland, our traditional way of life, our economic future--so much depends upon our relationship with the U.S. Government, and the development of our Native people and our corporations. If they fail, we could lose everything. I look at our Native corporations' participation in government contracting as a repudiation of federal termination and assimilation policies of previous decades. With our participation in the SBA 8(a) program, our Native corporations become integrated in the economy. At the same time, we retain our culture and identity; we create jobs; and control the amount of involvement or non-involvement. I view the greatest benefit of our participation in the SBA 8(a) program is the capacity building, which is occurring and continues. We are both contributing to the U.S. economic recovery and building our capacity to help more. We are involved in nation-building work, which benefits all Americans. We work hard, we do quality work within budget and on time, or we do not receive contracts. We build tight financial and accounting systems because we want to work responsibly and according to the law. We are developing our people to be responsible U.S. citizens capable of solving any problems or crisis and working to build our country. I believe strongly that the success of the program is so good that it could be considered a national model for integrating ethnic minorities into the modern global economy. Several areas around the world, which I am sure you monitor, could greatly benefit from the experiences we are gaining in building a better base in our economy for our indigenous people. The upheavals in places like Tibet, while very complex and historical in root causes, reveal the long-standing ethnic tensions and weakness in China's social and economic structure. Unlike the Soviets, who dealt with potentially problematic ethnic minorities in part by moving them en masse from their homelands, China left its ethnic minorities largely within their traditional lands. Ethnic tensions arise and are exacerbated by disparities in social status and economic situations in these two provinces, as well as elsewhere in the world. The experience of Alaska Natives, our separation of economic and political organization, our working relationships with the state and Federal Governments, are all models, which could have application in other parts of the world. In my view, together we have done many things right in the United States and Alaska. The ultimate benefit of the SBA 8(a) government contracts is the capacity building and the nation building work. It is the integration into the larger economy and the opportunity to contribute which is the genius of the U.S. approach. It hasn't been easy, and it is a lot of continuous work by our people, with continual adjustment, but we are on the right path. As we look at 2011 with a slow recovery and serious federal budget issues, we know we are looking at a new reality. The federal fiscal environment has changed. We are in the midst of a global economic realignment and recovery. There is a critical need for the U.S. Congress and Administration's recovery act investment and further action taken and planned. The SBA 8(a) program is a proven way to move resources quickly and to get things done and employ people. With national unemployment figures remaining stubbornly high--we all must be concerned. As we look towards a post-crisis recovery and how Native Americans, including Alaska Natives are helping and can help in the recovery, we request an opportunity for a dialogue with the appropriate Congressional committees on strategic, opportunity expanding ideas. We want to keep developing economic tools, infrastructure, expanding education and training for our people, and developing our institutions and organizations to be effective in the post-crisis economy and world. It will be a changed world, and we want to be ready for it. We want to maintain our Native identity, our cultures and homelands. We want life opportunities and choices. We want to continue to build capacity within all our Native corporations, and tribes and to be known for our good governance and leadership. The continuation of the SBA 8(a) program helps us accomplish our aspirations and goals, and helps our country. We would be pleased to continue a dialogue on this and other matters of concern to this Committee. Mr. Chairman, and Members of the Indian Committee, we sincerely request and invite you to see what a difference contracting has made for our people in Alaska. Please come to Alaska and witness for yourselves and for the United States Senate what a difference the success of these corporations has made. Thank you. The Chairman. Welcome, Mr. Mallott. Mr. Mallott. Thank you, Mr. Chairman. It is so good to see you. Members of the Committee, I thought that I would share with you a little bit of history. I was involved with the passage of the Alaska Natives Claims Settlement Act. I was very young. The involvement took me here to the United States Senate as an aide to one of our U.S. Senators, specifically focused on land claims. I went back and helped found the Alaska Federation of Natives. I was on the first board of directors of Sealaska Corporation, the Alaska Natives Claims Settlement Act corporation for Southeastern Alaska. I was CEO of Sealaska for 10 years. I left the corporation for seven years, came back as a member of the board of directors. And I give you that background just to say this. The ANCSA Corporations are incredibly unique institutions. They have the obligations that any for-profit corporation have. We were created out of whole cloth to be for-profit corporations, having all of those tremendous obligations and responsibilities, not the least of which is a legal fiduciary obligation to our shareholders who are our tribal members, who are able to sue us, bring action against us at any time if we do not meet strict legal definitions of meeting our obligations. And almost all of those obligations tend to be financial and business-oriented. We have tried to make the institutions different in the sense that we can accomplish what we must in the competitive marketplace, in the free enterprise system. And in that marketplace, we are virtually naked. We have to live by all of the laws, all of the precedents, every aspect of all of both the richness and the complexity that drives our free enterprise system. We cannot rest for a single day for fear that competitive or other factors could overwhelm us. We had to learn that very, very quickly. At the same time, we have tried to make corporations responsible institutions for our shareholders as native people. And we have done it, as has been explained to you, in many, many ways. I just mentioned, Mr. Chairman, that this struck home to me in 1990 when I received a call from Herb Kane from Hawaii and he said, Byron, I have been asked to call you because I understand that your corporation has very large trees. And to make a long story short, we are trying to build a replica of a traditional Polynesian voyaging canoe and we would like to purchase trees from you. And as we chatted, he said the reason we want to do this is to strengthen who we are, to build our traditions, to re- inspire our own culture so that our children can meet the future in a way that allows them to have all of the tools necessary, but build fundamentally on who they are as Native Hawaiian people. And I said to Mr. Kane, that is exactly what we are wrestling with in these corporations. We are in our own canoe and we are trying to sail it in the same direction as Native Hawaiians seem to be seeking. And so we made a gift of those logs to Native Hawaiians and it changed our lives in some very powerful ways. We have had to survive in an incredibly competitive world, while trying to maximize the financial benefits to our shareholders, but not just financial benefits; again, the other things: scholarships and education and culture and trying to maintain our communities on our homeland. We are the last American first peoples still living in our own homelands, literally still living on our own homelands. And so the passion for our future is carried by these institutions, but in some powerful ways the institutions are but a tool, but a tool that we take very, very responsibly and we view our obligations with great significance. When Senator McCain was asking the questions he was asking, the thought struck me that, for example, Sealaska, and we have had many success stories. We are a multi-$100 million corporation. We have done this we have done that. But we have had our share of difficulty for sure, as any competitive business does over time. But we have survived and we make every attempt to prosper. But we were among the first business corporations in the Country to bring with the United States Government a recall action successfully against several of our own employees who were seeking to derive private benefit from their role with our corporation. And we put them in prison. We have always been very, very sensitive to others taking advantage of us. In some ways, it is in the DNA because for so many generations, that was a reality. But a program like 8(a), all of the other range of opportunity for ANCSA Corporations, most of which exist in the private marketplace, not in governmental programs, are important ultimately to our existence not as corporations, but as native peoples who want the same kinds of opportunity, who seek the same life that every other American can seek. And I just want to say finally, Mr. Chairman, that it sears my soul when I hear about and know of abuse within our own institutions. And I know that it affects every native person involved in 8(a) in anything we do in the very same way. And for the program, for the regulatory structure to work, for the statutory structure to work properly, we want to be right there at the table with you. Thank you, Mr. Chairman. [The prepared statement of Mr. Mallott follows:] Prepared Statement of Byron I. Mallott, Director, Sealaska Corporation
The Chairman. Thank you so much for your statement. This is part of the reason also we are moving quickly on 8(a), and we certainly want to improve the system, and this is one way of beginning to do that. Thank you very much. We really appreciate your statements. Because of limited time, I will forego my questions and submit it in the record. By the way, your full statements will be included in the record. Senator Murkowski? Senator Murkowski. Thank you, Mr. Chairman. My questions will be limited here today. Jackie, I wanted to ask you to respond to an issue that Senator McCain raised. And this was about the economic disadvantage as a condition to participating within the 8(a) Program. If you can just speak to this issue. Why do you think Alaska Natives are not required to demonstrate an economic disadvantage as a condition? And then a subsequent question would be: Should all tribes be included in the designation of economically disadvantaged, rather than requiring that each tribes proves it? I would like to clear up the air on that a little bit. Ms. Johnson-Pata. Thank you, and thanks for that question. I am going to start by saying yes, I think all the tribes should have the same Congressional designation that Alaska Native corporations have, being economically disadvantaged. And the reason being, first of all, just look at the history of our communities and where our communities are placed. The majority of them are in rural remote areas. Now, if you want to measure economic disadvantage, what is that measurement? Is it a measurement about the level of community poverty? Is it the level of income that comes in? How do you take into account the access to proper health care? How do you deal with the fact that we have the highest number in the Nation of high school dropouts; that we still have the infant mortality rates and the low life expectancy rates; that we still have the health issues and concerns? Our transportation systems are still considered the most unsafe transportation system. I can go on and on, but you would have to account for all those things because they are all components of being economically disadvantaged. It is not a poverty rate. It is not an income level. It is a historic problem in our communities and it is going to take generations to be able to change that dynamic. And that is why I think that trying to do that in Alaska where you may have maybe a corporation that might have one community that is one of our three more urban centers, but the rest of them are in our remote villages. And how can you make that measurement for a region? It is not any different than the challenge you have of how you make that measurement for a tribe. Senator Murkowski. When you think about how you measure, how you account for, we have a system, and the IG, the gentleman, I have forgotten his name, I am drawing a blank, but suggested this is all about following the money. I think we recognize in Alaska just measuring things by dollars oftentimes is not a sufficient or an adequate measurement. Certainly, when we think to the benefits that are conferred to Alaska Natives through this program, how do you put a benefit on preservation of a culture, preservation of a language, that education opportunity? Julie and Byron, I truly appreciate both of you being here. Thank you for traveling so far. Thank you for your words and for your leadership. You have been a leader within the State, Julie, for decades now, as we try to build out our Alaska Native corporations, Byron, your history that you have recounted here, and truly the beginning of so much governance within the State of Alaska and what you have helped to build out. And I think it is important to keep this all in perspective and in context. One of the things that I think is often overlooked is when we talk about an ANC, an Alaska Native Corporation. Well, we all have an understanding of what a corporation is. A corporation is like GE. An Alaska Native Corporation and the structure and how it works is different. And with the Land Claims Settlement Act basically you are told, okay, go into business, without any real assistance there to provide for those opportunities. And so when I mentioned in my opening statement, there were some stumbles. I think we recognized that we were pushing a lot of growing into a very short time period there. But how difficult has it been to really find viable business opportunities? Julie, you have mentioned that without the 8(a) Program, we would simply not see the level of success that we have within our native corporations. But again, how do you build out a successful business opportunity in a small remote village like Scammon Bay or Chevak or Quinhagak or down there in Southeast, Yakutat. If you can just very briefly speak to that, and I know my time is limited here. Mr. Mallott. Well, number one, all shareholders are disadvantaged in using the kind of definition that Jackie used for sure. We without question utilized 8(a) as another tool to help deal with that disadvantaged circumstance. It is among a number, and to create our corporations and give them the kind of ability to be successful in the marketplace, such diversity is important. We began in Alaska. We will never leave Alaska. The first efforts of ANCSA Corporations for more than a generation was to create opportunity in our own communities and within our own State. We felt a tremendous obligation. We found it necessary both for competitive and business survival reasons to move out into the corporate world and to seek enterprise wherever it might take us, but always for the purpose of creating opportunity for our shareholders. And I don't know how else to answer it other than to say we I believe always feel like we are on the razor's edge. We have to be extremely competitive in all aspects of our business. At the same time, we have this tremendous obligation to our shareholders as native peoples, as people. And I think it is important to note in looking at ANCSA that we took that obligation upon ourselves. ANCSA is very clear in saying that this is a legal essentially settlement of land claims; that the Federal Government and other institutions in their roles and their obligations to native peoples both as Indian peoples and as citizens of the United States is not diminished one iota by the passage of the Alaska Native Claims Settlement Act. But being who we are and knowing what our circumstance was and what our potential is, the ANCSA Corporations live that obligation. I don't know how else to articulate it. Senator Murkowski. I thank you. Mr. Chairman, I know that we have a third panel and I want to give deference to them, but Julie, if you have something you want to wrap up with? Ms. Kitka. Yes, I just have a couple of things. One, on the disadvantaged, recently we had done a tracking study by decades of the socioeconomic well being of Alaska Natives. And you can see clearly from the data the whole thread of disparity on every major indicator. And I would suggest that it doesn't even make any sense to carry on with whether or not you are included as disadvantaged or not disadvantaged until you see that disparity gap closed on all those major indicators. Clearly, there has been substantial improvement in the living conditions and socioeconomics of Alaska Native people. You can see the poverty rate going from in the 60 percentile down to 20 percentile. You see infant mortality dropping down. You see our elders living longer. Every major thing, you are seeing huge improvements in the last 30 years, and we are so grateful for the Federal presence and the role that it had helped us do. It has totally made a difference. But to say you are not disadvantaged, I would wait until you see that disparity gap by statistics, by numbers, disappear, and then revisit that. As far as the results of 8(a) government contracts, I will use one regional corporation as an example. A small regional corporation, small population, when they got started right on our land claims, one of their first businesses was fishing because most of the board members were fishermen and they knew how to fish. Well, they didn't know how to market fish. They didn't know how to deal with international pricing. And so they bought a cannery and all the stuff, and then they lost money. They hired the wrong people. Then they got into timber and they did every major area that they were familiar with as people. And they would hire people and it would be the wrong people. They would rip them off. If it hadn't been for 8(a) for this regional corporation and for them getting into it and having to have the tight financial systems, the accounting systems, the top security clearances their managers need to have, everything in that, this corporation, in my judgment, would have had to sell its land back to the Federal Government and would have been buried under debt where the shareholders would have nothing of value. But instead, the 8(a) Program was available for them to build the capacity with a dedicated managerial team that put their resumes on the line, that built partnerships, and began to build a track record. And they are a stunning success now. And like I said, that is one that I am familiar with, and they clearly know they need to diversify beyond just government contracting on that, but clearly the program is outstanding and there needs to be more support of the program. And we need to make sure in this round of budget cuts in the Congress that you don't diminish the money going to SBA to continue their role of oversight because we don't want to go backwards on that. But there is no doubt in my mind that this is one of the most successful programs we have ever seen. Senator Murkowski. I thank you all. Thank you, Mr. Chairman. The Chairman. Thank you very much, Senator Murkowski. Senator Begich? Senator Begich. Thank you, Mr. Chairman. In light of the time, I just first want to say to Jackie, Julie and Byron, thank you for being here. I think the questions and the back and forth that you had with Senator Murkowski really put out on the table a lot of the reasons why 8(a)'s exist. To be very frank with you, I wish Senator McCain would have stayed because it is nice to talk to the regulators, but it is more important to talk to the people who actually do the business and how these resources are expended, and what you do with an 8(a) corporation. Maybe we will able to take some of this testimony you have given and deliver it to his office because I think it would be very important because I think there is a misunderstanding between tribes and ANCs and how it all operates and the work and where the resources go. So I will have some questions that I will send to you folks for the record, but I just wish that he was here to hear this because I think this is the piece of the equation that never gets the full story, and you have done a good job today. So thank you all very much. Ms. Johnson-Pata. Thank you. And we will follow back up with his office. Senator Begich. I knew you would, Jackie. The Chairman. Thank you. Senator Crapo? STATEMENT OF HON. MIKE CRAPO, U.S. SENATOR FROM IDAHO Senator Crapo. Thank you, Senator Akaka. I will forego asking any questions of this panel, but I would ask the indulgence of the Chairman if I might use a few minutes of my questioning time to introduce one of the witnesses on the next panel who is from Idaho. The Chairman. Thank you so much for being here. I want to thank this witness panel very much for your responses and your testimonies. Thank you so much for being with us. Now, I would like to invite the third panel to the witness table. Let me call on Senator Crapo for his introduction of the Chief. Senator Crapo. Thank you, Mr. Chairman. As I just indicated, one of our witnesses today on the third panel is the Honorable Chief James Allan. Chief Allan is a very good personal friend of mine. I have worked with him on many issues over the years, and it is an honor for me to introduce him here to you. Before delving into the specifics of this hearing on the 8(a) Program, I want to commend Chief Allan for his strong leadership on issues of importance to both Idahoans and the American people. With a name like Chief, he has had a lot to live up to and has literally been Chairman of the Coeur d'Alene Tribal Council and heavily involved in leadership in Idaho and in tribal matters for a long time, and I expect will be for a long time to come. I will just submit for the record the rest of my introductory statement. I was going to go through something which I think Chief will do during his testimony, the experience of the tribe in Idaho with the 8(a) Program and how critical the 8(a) Program is to them. But I will wait again for my opportunity during questions and answers to get into that in a little further detail, but welcome, Chief. [The prepared statement of Senator Crapo follows:] Prepared Statement of Hon. Mike Crapo, U.S. Senator from Idaho Thank you, Mr. Chairman and Vice Chairman Barrasso for holding this important hearing on the role of the SBA 8(a) program in enhancing economic development in Indian Country. I appreciate the opportunity to introduce Coeur d'Alene Tribal Chairman, Chief James Allan, who is appearing for this committee today as a witness. It's good to see you, Chairman Allan, and I am glad that the Committee will have the opportunity to hear your testimony. Before delving into the specifics of this hearing and the 8(a) program, I want to commend Chairman Allan for his strong leadership on issues of importance to both Idahoans and all Native people. With a first name like ``Chief'', he has dedicated his professional career to the high expectations bestowed upon him at birth. In his tenure as Chairman of the Coeur d'Alene Tribal Council, Chief's responsibilities include leadership decisions that guide the direction the Tribe takes regarding cultural, historical and natural resources, among other things. Today, Chairman Allan will be testifying to the tremendous success that the Coeur d'Alene Tribe in Idaho has had under the SBA Native 8(a) program. Specifically, the Committee will hear the story of how in just the first year with the 8(a) designation, Coeur d'Alene's tribally-owned company, Echelon LLC, received a contract worth almost 40 million dollars and put over one hundred people to work in an area with the highest unemployment and poverty levels in the state. I had the tremendous opportunity to tour the plant last year and saw firsthand the benefits the program has had on the Tribe's economy and throughout north Idaho. However, you will also hear the story of how in this past year, Echelon LLC was forced to lay off 70 of those Native American employees after recent disparagement caused government contractors to pull out of the program, forcing the Tribe to lose out on a multi-million dollar contract. The basis for these attacks is the premise that Native 8(a) is abusing sole source contracting, despite the fact that only one percent of all federal contracting dollars are awarded to Native 8(a) businesses. As you will hear, the intent of Native 8(a) is to allow minority- owned businesses a chance to compete against the large corporations in the federal contracting market, effectively helping them develop into robust and successful businesses. This has been the case in my state, and I would urge you to listen closely to Chairman Allan and the Coeur d'Alene Tribe's personal successes with this program. Thank you, Mr. Chairman. The Chairman. Thank you, Senator Crapo. Your opening remarks will be included in the record. I would like to welcome Chief Allan, who is the Tribal Chairman of the Coeur d'Alene Tribe; also Lance Morgan, Chairman of the Native American Contractors Association and President and CEO of Ho-Chunk, Incorporated; and finally, Larry Hall, President of S&K Electronics. Welcome to all of you. Mr. Allan would you please proceed with your statement? STATEMENT OF HON. CHIEF JAMES ALLAN, CHAIRMAN, COEUR D'ALENE TRIBE Mr. Allan. Mr. Chairman, thank you so much for inviting me to this important Committee, thank you Members of the Committee. And thank you, Senator Crapo, for that kind introduction. I wanted to start off just by saying why we are here. Why we are here is again perceptions, miscommunication, the bogeyman, a lot of the same issues I have faced my whole life growing up as a native man, with Main Street America always looking to paint a big target on Native America's back saying we are the problem, why everything exists. Being the tribal leader for the last six years of the Coeur d'Alene Tribe, I have seen it all: the arguments against gaming, 8(a), whatever it may be. There is always something or somebody out there, some bogeyman in the corner waiting to spread the misconceptions of welfare, hand-outs, everything under the sun. And quite frankly, it is disheartening because native peoples, the Coeur d'Alene Tribes, my job is to look out for not only my people, but also the people of the community. I come from North Idaho, a heavy logging industry area. A lot of the logging jobs have been wiped out. We have been hit hard. And so the tribe took it upon itself to look out for everybody, Indian and non-Indian alike. Why? Because if we succeed as a whole, everybody succeeds. And that is what we have always done. Five years ago, we had high hopes. We opened up Echelon. We started building the big fuel bladders for the Army, a big contract. In one year's time, we went from four employees to over 100. But sadly, about two years ago, we started hearing all the bogeyman stories again that 8(a) was somehow bad, somehow needed to be fixed. So it really had a devastating effect on some of the contracts we went after. We spent two years on research and development; spent a lot of money to get a pump contract. We thought we had it. At the last minute, the Army pulled out. We got a memorandum saying to overlook 8(a) companies, and quite frankly it ticked us off. We spent all that money. We spent two years doing that. We invited them to come down and take a look at what we are doing. But they just said they bypassed it. I wanted to really point out the facts. There are a lot of comments here today. I know some of your colleagues brought up some numbers, but let's put that in perspective. The numbers really are, while 37 percent of Federal contracting is sole- sourced, only 1 percent of all Federal contracting goes to 8(a). And I ask you to do the math, and those are the facts. I mean, we didn't make that number up. Those numbers are real. And 25 percent of all contracts still go to five of the biggest companies in the United States, and not 8(a), not native companies. So with that, I just wanted to again thank you so much for having me here today. I don't want to take up too much of your time. I know your time is really busy. My comments have been submitted for the record. I stand for any questions that you may have and I thank you so much for having me here again. [The prepared statement of Mr. Allan follows:] Prepared Statement of Hon. Chief James Allan, Chairman, Coeur d'Alene Tribe Dear Chairman Akaka, On behalf of the Coeur d'Alene Tribe, I would like to thank you for the opportunity to present testimony today regarding the role that the Small Business Administration's 8(a) Business Development Program plays in enhancing economic opportunities in Indian Country through tribal government-owned and Alaska Native Corporation-owned firms participating in this crucial SBA program (hereinafter referred to collectively as ``Native 8(a)''). I would also like to commend you and this Committee for the efforts you have undertaken to improve the lives of Native people in this great nation. We appreciate your dedication to fighting the good fight for all of Indian Country. The title of today's hearing is ``Promises Fulfilled.'' Sometimes it is easy for people to forget about the ``promises'' US Presidents and members of this body have made to Indian people. It is also easy to lose sight of the calculated public policy goals of programs like Native 8(a) that were carefully created in furtherance of fulfilling those promises. My testimony today will hopefully provide a useful perspective for this Committee about such promises and how recent unwarranted attacks on Native 8(a) have ignored and broken those promises, with detrimental economic effects. As Chairman of the Coeur d'Alene Tribe, one of my goals has been to educate members of the community, the media and elected officials regarding the facts about Indian Country. All my life I have had to deal with these misperceptions and misinformation. One of the biggest challenges we face as Indian people today is overcoming the misconceptions of mainstream America, often perpetuated by the national media. It is these misconceptions and the ignorance of facts that provide the impetus behind the recent attacks on Native 8(a). The Coeur d'Alene Tribe started a manufacturing company about 5 years ago called Echelon LLC. The company was certified as a Tribally- owned firm in the SBA 8(a) program in 2007. In just over a year, our 8(a) company grew from 4 employees to over 100 employees primarily due to the award of a multi-million dollar 8(a) manufacturing contract. The company expanded into three facilities on the reservation with over 40 percent of our employees being Native American. The Coeur d'Alene reservation also happens to be an area historically with the highest unemployment and poverty levels in the state. The 8(a) program helped our company to breathe a new life and hope into a struggling reservation community. In 2008-2009, we started hearing about scrutiny this program was receiving from members of Congress, primarily Senator Claire McCaskill. Multiple hearings and investigations of the Native 8(a) program ordered by Sen. McCaskill have been conducted in an attempt to expose some ``loophole'' being abused by Native 8(a) in federal contracting. Press releases vowing to bring accountability to government contracting by doing away with the benefits of Native 8(a) have consistently been issued by her office, even taking credit for the quiet inclusion of Section 811 to the National Defense Authorization Act of 2010. It is my understanding that another piece of legislation sponsored by Sen. McCaskill aimed at gutting Native 8(a) has been introduced. The basis for these attacks is the erroneous premise that Native 8(a) is abusing sole source contracting. Interestingly, the facts show that roughly 32 percent of all federal contracting dollars are awarded non-competitively (sole source). Yet, only about 1 percent of all federal contracting dollars, competitive and non-competitive combined, are awarded to Native 8(a) businesses. This means that Native 8(a) is being unfairly and wrongly singled out. While some of these ill-conceived and misguided attacks on Native 8(a) have been unsuccessful, others have had devastating effects on tribal economies. Government contracting officials are shying away from using Native 8(a) because of the scrutiny and negative attention surrounding around it. The Department of Defense has unfortunately bought into this rhetoric, issuing memorandums effectively urging their government contracting officials to use the Native 8(a) sparingly. These contracting officers have several procurement options available when they put federal contracts out for bid. They do not have to use Native 8(a) businesses or any small businesses for that matter and a resultant chilling effect has caused Native 8(a) businesses to lose millions of dollars in government contracts. Select members of this Committee sent a letter after Section 811 was passed warning that its new requirements could make contracting officials reluctant to award contracts to Native 8(a) firms. Sadly, this has come to fruition. While I do not expect that many contracting officers would go on the record to confirm this reluctance or admit to receiving a directive against using Native 8(a) firms, the evidence already exists. Our company has seen multiple sizeable contracting opportunities pulled out of the 8(a) program to be awarded through other contracting vehicles, some of which cancelled after years of R&D and thousands of dollars invested in receiving the award. In the last year, we have been forced to lay off almost 70 percent of our workforce. The ability of our tribally-owned 8(a) company and other similarly situated firms to secure federal contract and compete in the federal marketplace is being diminished. Native 8(a) has been under a systematic attack that has reduced the amount of jobs and revenue for native economies, most of which located in the most poverty-stricken areas of the nation. I ask members of this Committee to implore your fellow members of Congress to preserve and expand the SBA 8(a) program. This program is one of the few government programs providing the results for which it was intended. We ask the Committee to join us in our fight to protect Native 8(a). The Coeur d'Alene Tribe is honored to provide our testimony today. If you have any questions, please contact our Legislative Director, Helo Hancock. Thank you and we look forward to working with you and the Committee on these important matters in the future. The Chairman. Thank you very much, Chief, for being here. We welcome your testimony. All of your full statements will be included in the record. Mr. Morgan, please proceed with your testimony. STATEMENT OF LANCE MORGAN, CHAIRMAN, NATIVE AMERICAN CONTRACTORS ASSOCIATION; PRESIDENT/CEO, HO-CHUNK, INC. Mr. Morgan. Thank you for the opportunity, Chairman and Senators. I am the Chairman of the Native American Contractors Association. I also represent 4,800 Winnebago tribal members as the CEO of Ho-Chunk, Inc. I am thinking about this regulatory reform and I don't fear it at all. I am much more afraid of embarrassing the Winnebago people and the people I have to answer to back home are much scarier to me. And I think in terms of the rules and that sort of stuff, it doesn't bother me at all. We are not going to have any problem with it. It is nothing compared to the problems I have to deal with. I live in a world where the entire economic and legal system seems to be stacked against us at every level. The legal system seems slanted against us. No Indian tribe in their right mind wants to go to the U.S. Supreme Court. Our government systems were imposed upon us. In the 1930s, someone could sign on the dotted line to extract our resources during the Depression. All of our assets, or most of our assets anyway, are held in trust and they are not in our name. We don't control them. We can't collateralize. We can't get a home loan. We can't borrow against it. It has killed farming. It has done all these bad things for us. Our governments can't have taxes. We can't issue bonds. It makes us dependent upon the Bureau of Indian Affairs for things like schools, roads. We have no local control over anything. The only entity with any sort of capital are the tribal governments themselves because of these restrictions, which really impacts entrepreneurism. So we have this sort of socialism going. I mean, you could not have designed a worse economic system for us: bad legal, bad government, no control of your assets, and socialism. That is the world that we have to somehow provide for our people for and it makes it very, very difficult. Now, I run this corporation that started with one employee. I was the only one. I believe in starting at the top so I made myself CEO. [Laughter.] Mr. Morgan. We have 1,400 employees now in five different countries. You would have to come to rural Nebraska to even believe how strange that is. And we have been able to do it largely because of things like the 8(a) Program. In the first year, we had revenues of $400,000, and I remember thinking we had $12,000 this week and that is pretty good. Well, we did $193 million last year, and it changes the whole world for us and our environment. But what is interesting, when I brought up the idea of starting a corporation, everybody basically was against the idea because we had failed at every business we had ever tried before in the past; not one out of two, for our modern history in economics. But the tribe went forward because we have to go forward. We don't have any choice. We have to try. When we started as a corporation, we were doing things that are very typical. The tribe did gaming and it's mildly successful there, but we also really focused in on things where we could create an advantage: gasoline cigarettes, the kind of stereotype stuff, but that's nothing to build an economy on, not for the long term in the future. And we were looking for alternatives. And the Federal Government came to us and said you should get into 8(a) contracting. And because the cigarettes and the gas are so controversial on taxation issues, we jumped at it, ironically because it was less controversial. We had no idea that this could possibly end up, our success would be held against us on some level. To be honest, we were terrible at government contracting. Our attitude was sort of anti-government as a young company and we came around largely with the help of the Salish and Kootenai Tribe who partnered with us on a contract and taught us how to do that, and we have been able to take off from there. In 2004, after losing $700,000 in the first four years of our attempt to be a government contractor, we partnered with them and our revenues have grown to $70-some million as of 2010 on the government contracting side, changing everything for us. It has done a couple of things. It has made us smarter and it has given us pride. The pride is hard to measure because it is a very intangible thing. But the smart is there. It is hard to take it away. Once you learn something, you can't reverse that. And government contracting is something that I really stayed away from in the beginning because in the 1970s, government contracting was a back room sort of thing. You would do some sort of low-end subcontract. It was minimum wage. It was a dark room. And I didn't think that that was what I wanted for our future. But something happened. The 8(a) Program isn't a subcontracting program. It is a prime contracting program and it allowed us to get smarter. It allowed us to move up the economic food chain in these contracts. And the people who used to treat us as subs to kind of deal with, to check the box so that they can get the contract, so to speak, have to deal with us on equal terms. And to be honest, I think all Indians are mild conspiracy theorists, I think that our competitors are now having trouble dealing with us as equals. And that is just the reality of what we face. Now, I know there is a lot of controversy going on related to 8(a), and I think a lot of people have repeated over and over again that there are regulations in place that are going to deal with that. And we think those regulations need to play out. I think some of the stuff is misguided to go further than that. The reason I took the time to talk about the economic environment we live in, because that economic environment still exists. Government contracting and gaming have kind of overlaid on top of this shaky foundation. But if you were to take these sort of things away, we would fall right back into poverty. We would revert almost immediately back into very desperate situations and we would become the subcontractor again, and we would move back down the train to the low-cost labor. And that is really not what we have in mind for ourselves and our future. The other thing that I think is important to mention, and this is my last major point, is that if we were to go backwards, it wouldn't save the government a penny. They are going to spend that money anyway. What would happen is we would go back on welfare. We would go back on food stamps. We would cost the government a fortune. Taking thousands of people, maybe tens of thousands of people off government assistance and giving them hope is the way to go. There is no doubt about it in my mind. And I think that anything else would be cruel after us getting a little taste of what it is like to be successful and self-determined. In conclusion, I want to tell a mini-story. When I was a kid, I spent my summers on the reservation at my grandparents' house. At my grandparents' house, we raised hogs to eat, not to sell. We had to eat them. We raised food. We grew our food on a three-acre plot behind the house. That is how we survived. When we wanted water, we had a hose that came from a pump in through the kitchen window. That was a big deal because you didn't have to go outside. That was the nature of it. My grandmother now lives in a new modern house. We are building a town on our reservation that Senator Johanns referred to. We have our own homes. The homes are built by our construction company. They are built in our housing factory. Our employees move into them with loans from our bank. The Winnebago Tribe recently just committed $1 million of the dividends from Ho-Chunk, Inc. The next 20 people who buy a home get $50,000 in down payment assistance. We had people who had jobs, but because of our economic environment we had zero savings. And so nobody would loan us money on our reservation because we didn't have down payments and the rural valuations weren't there. So the Winnebago Tribe took the money from the corporation and are helping our tribal members achieve the American dream. And that is a major step in a positive direction. Senator Johanns from Nebraska, who was kind enough to give us introductions, paid a visit to us when he was Governor at the groundbreaking of this town. And he said, what can I do for you to help? And I said, frankly, Mr. Governor, you can do more harm than good. We are on to something here. We are providing for ourselves. We are learning to do it ourselves. Just leave us alone and we will be okay. This was before I knew he was going to become a Senator. [Laughter.] Mr. Morgan. I now have a list of demands I will be submitting in writing. But I think that is the point. Let us control our destiny. Give us a chance. In the end, all we are asking for is to work for you. Thank you very much. [The prepared statement of Mr. Morgan follows:] Prepared Statement of Lance Morgan, Chairman, Native American Contractors Association; President/CEO, Ho-Chunk, Inc.
The Chairman. Thank you very much, Mr. Morgan, for your testimony. Mr. Hall, will you please proceed with your testimony? STATEMENT OF LARRY HALL, PRESIDENT/GENERAL MANAGER, S&K ELECTRONICS, INC. Mr. Hall. Thank you, Chairman and other Members of the Committee. My name is Larry Hall. I was introduced by our Senator Tester from Montana who is a good friend of mine. We have been on various groups there in Montana over the years. I am a tribal member of the Confederated Salish and Kootenai Tribes of the Flathead Reservation and President and General Manager of S&K Electronics, Inc., a successful graduate of the SBA 8(a) Program. I appreciate the opportunity to tell the S&K Electronics story and how the SBA program has helped to enhance the economic development of the Flathead Reservation. I can sum it up in three words: the program works. When my father came home to the reservation after World War II, he couldn't find any work. So he moved our family to Seattle where he could find work. He went to work for Boeing. But as children growing up in the Seattle area, we always wanted to come to the reservation for our summer vacations and time with our cousins and my aunts and uncles. My heart was always on the reservation. I always wanted to live there. I was able to come back to the reservation as an intern in college. After graduating from college, I got my first job as economic planner for the tribes, focused on creating jobs on the reservation. First, I tried to create government jobs using various grant programs that the Federal Government had, HUD, CDBG, you name it. And did very well at that, but then those jobs are just transfer-fund type of jobs. I knew that eventually we needed to have businesses, businesses that could have ways of generating their own capital. One of those businesses was S&K Electronics. S&K Electronics, a tribally-owned company, started in 1984 as a way to diversify our reservation economy which was just pretty much related to timber and cattle ranching. We became certified in the 8(a) Program in 1990, after there were significant changes in the 8(a) Program in the late 1980s. We used the program to grow both our capacity and capability to do business. We grew from 35 employees as we started in the program to over 100 when we graduated. We graduated from the program in 1999. That was the nine-year program. We continue to be a highly competitive successful contract manufacturer in electronic and electro-mechanical assemblies for both the U.S. Government, as well as private industry. Some of our largest customers currently are BAE, Northrop, Raytheon, Lockheed. S&K's facilities are on the Flathead Reservation. This is our only place of our business, although in early times we were able to get into some other contract opportunities off the reservation in the I.T. business. The jobs are on the Flathead Reservation. It is over 100 jobs for our people that did not exist before 8(a). S&K has continued to grow and provide dividends to the Confederated Salish & Kootenai tribes through their social and economic programs and initiatives. That amounts to $1.75 million date. It does not include the millions that were invested to grow our business and to maintain our competitiveness in our industry, and the wages of our workers that are then spent in our local communities. One of the economic initiatives that we invested in was to start up another 8(a) company, and that was S&K Technologies. S&K Technologies, which is the company that Lance was mentioning that helped them. It graduated from the 8(a) Program also and continues to return dividends back to the tribes for their social and economic programs and initiatives, as well as grow additional companies. To date, S&K Technologies has returned over $10.6 million to the tribes in dividends. What is different about tribally owned 8(a) companies and other 8(a) businesses? The profits go to the tribe as a whole, not to individuals. What does the money do? Well, it is reinvested in other companies, internships, native language programs, various social programs, job training, economic development initiatives, and even fractionated heirship land consolidation. My father would be proud to know that his children and grandchildren and the children and grandchildren of his peers now have a choice of job opportunities that did not exist when he was young. As I said before, the program works. Thank you for the opportunity to speak and tell the S&K story. [The prepared statement of Mr. Hall follows:] Prepared Statement of Larry Hall, President/General Manager, S&K Electronics, Inc.
The Chairman. Thank you very much, Mr. Hall, for your testimony. I am going to submit my questions for the record and call on Senator Murkowski for any questions she may have. Senator Murkowski. Thank you, Mr. Chairman. And I want to thank each of you for your testimony here today, for coming to Washington, for speaking up on this. What I heard from the three of you coming from different tribes, different experiences, was that not only does this program work, as you have stated, Mr. Hall, but what it has delivered are a series of intangibles that are perhaps difficult for an IG, difficult for Mr. McClintock as he tries to itemize what the benefits of this 8(a) Program, this Indian 8(a) Program are. He says he has to follow the money and that was why it was important to ask the question about whether or not he has any experience in Federal Indian law; any experience in dealing with reservation communities or Alaska Native villages; whether or not he has been a participant in this. I didn't really hear that. But what I heard you articulate very clearly, Mr. Morgan, was that with success comes a level of smartness, and okay, we might be able to identify gains in education. But what is very difficult to quantify is the pride that comes with being self- sufficient; that comes with being self-sufficient after decades and centuries of a system where basically you have described the system quite well in terms of how things have been provided on the government's terms, with the opportunity to really try to do anything on your own stifled or limited. And the efforts that have been made have resulted in failure. And when you have subsequent failures, that leads to kind of an attitude or a mind set that we can't do this; that perhaps we are not capable of this. What I am seeing coming out of the 8(a) Program is a challenge that, yes, in fact we can compete and we can compete well. And we can provide for our people in a way that lifts everyone. And that sense of pride and that sense of self-sufficiency unfortunately doesn't kind of fall into this matrix when we measure government accountability. So I think we need to all be working with people like Mr. McClintock and the I.G.'s, the auditors, those that are looking this; people like Senator McCain who clearly have some questions. But I will ask a question, and it may be a bit of a rhetorical question, but I will leave it at this. Do you think that it is perhaps blowing things out of proportion or sensationalizing things for the media to focus just on the revenue numbers? Just on the revenue numbers? You have mentioned, Mr. Morgan, that you have done well; that the tribe is receiving considerable return in terms of revenues. And I don't believe you told me how many tribal members you have, but when you do the math, it probably looks pretty impressive, pretty good. Do you think this is the wrong way to be measuring things? And if so, how can we change this dynamic? Because I think it is critical to the success of the Indian 8(a) Program. Mr. Morgan. I appreciate the question. A couple of things. I have a rule that I never put my accountant in charge of the business. They are good at what they do, but they are not the people you want making the decisions for the future of our people. And I am sure the IG, Mr. McClintock, is great at his job, but he didn't seem to have any clue about the kind of challenges that are out there in Indian Country. And to make it a numbers game only is a mistake, especially when you keep out all the other numbers that might in some way impact us. So I think that is unfair. As far as some of the revenue numbers, we faced this problem in our own community. We will get a contract for $20 million. That might be over five years. The government is pretty careful about what your profit percentage is, so you are not making a lot of money off of that. Senator Murkowski. It sure sounds good, though. Mr. Morgan. Yes, it sounds wonderful. I have gotten to the point, though, where I won't even say the number in our own community because they are thinking, all right, how much do we get. And so you really have to work hard to perform to get those contracts. First, to be in the stage to get them, then to keep them, and to keep them going. But the profit margins aren't that good, but we are not saying no. It is still the best things we have in terms of diversifying our business. Ho-Chunk, Inc. would not be an international entity were it not for those kind of opportunities. No one is going to come out of their way and come to the Winnebago Reservation in rural Nebraska to give us some sort of sophisticated contract. Without these programs, it just simply would not happen. We would never have gotten to the point where we were able to evolve; where we could make a meaningful impact in our communities. Senator Murkowski. But on the other hand, you have to perform and you have clearly performed or they wouldn't be coming back to you. Mr. Morgan. We were the State Department's small business of the year a few years ago, so obviously we have been doing our part, but it is an incredibly difficult environment, as other people have said. And we don't just answer to the government. We answer to our own people and our own tribal government. And so there are a lot of people looking over our shoulders in our world. And there are a lot of people who are depending on us to make the right decisions and do the right things so that we can impact people's lives in our community. It is an incredible responsibility, but it is not something you are just going to put down on a piece of paper and put it on a flow chart or spread sheet. Senator Murkowski. I appreciate that. Chief Allan, did you want to make a comment? Mr. Allan. Yes, I just wanted to put that in perspective. I think what people do forget to look at, or they look at the numbers, is what impact it has as a whole. For example, we are the largest employer in Benewah County. We are the second- largest in Bonner and Kootenai County. And we have every tribal member that wants to work put to work. And so we have to get the workforce from the community and we employ almost 2,000 people, people as a whole, for the good of Idaho, for the good of everybody. So when you hear a number out there, it is misleading and it is almost damaging because it is not the whole picture. The whole picture is how many people you put in a job; how much taxes are going back to the State of Idaho for the betterment. We did a study in the State of Idaho for the five tribes in Idaho, and we were one of the top 10 employers because of all of our separate businesses and everything that we are doing. So I think when a government agency fills a number out there, it is wrong and it is harmful. Thank you. Senator Murkowski. Again, gentlemen, thank you so much for your testimony. Thank you, Mr. Chairman. The Chairman. Thank you very much, Senator Murkowski. Senator Crapo? Senator Crapo. Thank you, Mr. Chairman. I know that the time is getting late and we are kind of getting jammed up up here. So I am going to focus my questions on you, Chief, and frankly you just did make most of the points I was going to ask you about. But I wanted to get a little bit specifically into the experience that you had with Echelon plant. As you know, I was there to tour this plant with you, and I know of the big success that it was. But could you explain just in a little more detail just what happened? My understanding is that because of the criticisms and the attack on the 8(a) Program and the allegations about the program that have been made that basically you have had to lay off about 70 percent of your employees at that plant. Is that not correct? Mr. Allan. That is true, Senator. We did have to lay off 70 percent of our employees so we can sit back and now we have to reevaluate our game plan and figure out which direction we are going to move our 8(a) Program. We were with the Army and with our fuel bladders, and we thought we had the pump contract, but everybody kind of got spooked at the last minute. And so we are kind of backtracking a little bit and we will live to fight another day, though. Senator Crapo. Well, I am very confident of that because I have seen how efficient and how effective you are able to be in the operations of these businesses. But I just wanted to add my support and concern to that which has already been expressed here at the hearing about not only the importance of maintaining the 8(a) Program, but also about the importance of making it clear that the allegations that have been made about the 8(a) Program are themselves having negative impacts on our Native Americans. And that simply has to be addressed and addressed quickly. And so Mr. Chairman, I again appreciate you holding this hearing and look forward to working with you as we seek to address and resolve the issue. The Chairman. Thank you very much, Senator Crapo. It has been a great hearing. I would tell you that I personally look at the 8(a) Program as a great opportunity, big or small, as was mentioned by Mr. Morgan. You can do something with it and it is something that can grow into bigger things. I hope that native people of our Country will look upon that as something that is workable. And the reason I use workable is that it is not perfect. You can get into trouble with it, too, if you make wrong decisions. But it can help you come about to grow so that you can get into bigger things. And this is what I am hoping will come about with the 8(a) Program as we proceed here. Our intent is to try to look at the challenges that we are facing with this program and to try to turn it around so that it will be able to help us better than it did in the past. There are problems, no question about that, and the thing is, we just have to be aware of that and continue to proceed. I like to think of this program that would be supported by education, meaning to get all the facts about these things so you can use it to your advantage. And also to be able to protect you and the tribes in case that is needed. Then of course, the resources to help to empower you to build and to help your communities as has happened in many cases that you mentioned. There are challenges, but we must work together to try to limit those and take advantage of the opportunities. I thank you so much. It was good to hear from you and what you have been through already. We will look forward to continuing to work with you. I want to thank our witnesses for coming all these miles to Washington to testify. And to remind you that the record is open for written testimony for two weeks. We will permit the members, of course, to add anything they want, whether it is questions or other things. So I want to thank you again, mahalo nui loa, for making this a success. Thank you very much. This hearing is adjourned. [Whereupon, at 4:30 p.m., the Committee was adjourned.] A P P E N D I X Prepared Statement of Hon. Daniel K. Inouye, U.S. Senator from Hawaii Mr. Chairman, thank you for holding this oversight hearing on the Small Business Administration's Native 8(a) program. Senator Begich and I originally requested this hearing to provide an opportunity for the Tribes, Native Hawaiian Organizations, and Alaska Native Corporations to tell their stories, the real stories and not those sensationalized in the media. We wanted those stories to be placed into the record which actually helped Native people and provided opportunities for future generations all across Native America. When the Native 8(a) program was first started, the goal was to provide an economic development tool to provide economic self- sufficiency for Native communities. The intent was a ``helping hand'' and not a ``handout'' via social welfare programs. This program has demonstrated success, and as a result, it has become a target. I look forward to hearing from the witnesses in hopes of establishing a balanced record. In Hawaii, we have established Native Hawaiian Organizations (NHO). Native Hawaiian Organizations are non-profit organizations, managed by Native Hawaiian individuals and principally serving Native Hawaiians, which have majority ownership by an 8(a) designated for-profit firm. What makes NHO's most unique is their ultimate mission to serve their communities. Profits generated by the 8(a) firms are dispersed for the benefit of the Native Hawaiian community. Each NHO has a different priority. They provide different services and programs into the Native Hawaiian community. For example, these services include educational scholarships, mentorship and job training, culturally-based leadership development for at-risk youth, extra- curricular science technology engineering and mathematics (STEM) education programs, and financial literacy educational programs. NHO's are the youngest among the Native 8(a) businesses. However, they are making their mark in the Native Hawaiian community in a positive way. They are becoming more competitive in government contracting. As they become profitable, social programs and Native Hawaiians benefit. I truly hope it continues. I commend the Small Business Administration for proposing reasonable regulations which will help to strengthen this program. These regulations will bring more oversight, as well as transparency to the Native 8(a) program. This will help dispel the misinformation, and allow the successes to be highlighted. I look forward to continuing this discussion and working with my colleagues to strengthen the Native 8(a) program such that more Native Americans can move toward economic self-sufficiency. A rising tide raises all ships. ______ Prepared Statement of Hon. Chad ``Corntassel'' Smith, Principal Chief, Cherokee Nation
______ Prepared Statement of Hon. Tex Hall, Chairman, Mandan, Hidatsa and Arikara Nation
______ Prepared Statement of Hon. Sean Parnell, Governor, State of Alaska
______ Prepared Statement of Virginia Ward, Chairwoman, Board of Directors, Afognak Native Corporation Chairman Akaka, Vice Chairman Barrasso and honorable members of the Senate Committee on Indian Affairs, cama'i (hello). My name is Virginia Ward and I am the Chairwoman for the Board of Directors of Afognak Native Corporation. Thank you for the opportunity to provide written testimony for the hearing record about Afognak Native Corporation and the benefits we provide to our Alaska Native shareholders. I am a shareholder of Afognak Native Corporation and I am originally from the Old Afognak Village, which is located on Afognak Island in the Kodiak Archipelago in Alaska. The Old Afognak Village was heavily damaged as a result of the great 1964 earthquake and tsunami that struck much of south-central Alaska. Following the destruction of my home, I, along with most people of Old Afognak Village, relocated to the Village of Port Lions on Kodiak Island. Even though we no longer live in the Old Afognak Village, we, as a people, still identify ourselves as Afognak People. We are Aq'wanermuit (People of Afognak). This is our identity and our community spans cities, oceans, and countries. But no matter where we go, our foundation is set by the Alutiiq core values of harmony, appreciation, respect, efficiency, communication, and trust. These values guided the Alutiiq people for generations before us, and they have provided the framework around which we structure our Corporation, as they are embedded in our Code of Conduct. History of Afognak Native Corporation Afognak Native Corporation (Afognak) is a village corporation organized under the Alaska Native Claims Settlement Act of 1971. Afognak was formed in 1977 through the merger of two Native Corporations, Port Lions Native Corporation and Natives of Afognak Inc. Afognak is governed by a nine-member Native Board of Directors, all of whom are shareholders of the Corporation. Board members are elected by their fellow Native shareholders and serve three-year staggered terms. As an Alaska Native Corporation, Afognak is responsible for meeting the economic, social and cultural obligations of our 812 shareholders. This is a congressional mandate we take very seriously. We are fulfilling this mandate by providing benefits to individual shareholders and by strengthening Aq'wanermuit (our community). By providing benefits to our shareholders and by strengthening our community, we develop a collective strength; we empower every shareholder as well as their families and their descendants. Afognak owns 160,000 acres of land in the Kodiak Archipelago, primarily on Afognak Island. In addition we are the managing partner of the Afognak Joint Venture (AJV) which owns 130,000 acres of land also primarily on Afognak Island. The AJV is a partnership between Afognak and Koniag Inc., which is an Alaska Native Regional Corporation. As managing partner, we are responsible for the use and care of these additional acres. Our lands represent our most valuable asset. Our corporation and our shareholders use our lands for cultural, subsistence, and recreational activities as well as some limited opportunities for economic development. Prior to our involvement with the SBA 8(a) program, Afognak relied heavily on natural resource development, mainly the harvesting of timber on Afognak land. Over time, our Board of Directors recognized that the volatility of the international timber market, as well as the finite timber resources owned by Afognak, made timber harvesting an unsuitable long-term economic development strategy for the Corporation. As we attempted to fulfill the mandate of the Alaska Native Claims Settlement Act (ANCSA); we repeatedly struggled with geographical isolation, the steep learning curve required to master the Western corporate model, and the intense needs of our shareholder population. Despite being tasked under ANCSA to operate as a business, we found that a profitable entry into the marketplace was easier said than done. History of ANCSA and the Link to the 8(a) Program The legislative history of ANCSA clearly shows that the goal of the act was to provide a mechanism with which Alaska Natives could participate in the capitalist economy. Under ANCSA, the federal government has a statutory duty to encourage participation by Alaska Natives through Native corporations in America's capitalistic economy. As the ANCSA evolved and the Alaska Native Corporation structure was established, it became increasingly evident that Alaska Natives were not receiving all the benefits intended by Congress and to which Alaska Natives were entitled under the Act. Alaska Native Corporations (ANCs) were inefficient as the geographic and economic barriers of our rural settlements proved difficult to overcome. It became apparent that ANCs would not be able to fulfill social responsibilities to their shareholders and achieve economic potential without some adjustments. Congress amended ANCSA in 1988 and again in 1992 establishing ANCs as minority and economically disadvantaged businesses for purposes of government procurement programs. By these amendments, Congress made clear that favoring ANCs for government contracts was an integral and intentional part of ANCSA's economic settlement. These 1988 and 1992 ANSCA amendments provide ANCs' eligibility for government contracting preferences as bargained for consideration in exchange for the extinguishment and settlement of Alaska Native aboriginal claims in Alaska. The Board of Afognak decided to enter the government contracting marketplace based on the well-established legislative history of the ANCSA. The Development of the Alutiiq Family of Companies In 1998 and 1999 we began the due diligence process on government contracting and the opportunities for business development through the SBA 8(a) program. The Board was aware of a few other ANCs that were using the program to grow their businesses, and we believed we could emulate that success over time with the development of the Alutiiq family of companies. As with many new business ventures, the creation of the Alutiiq companies has had many challenges. Not all of our contracts have been profitable, and some of the lines of businesses we explored were not a good fit. Now, eleven years after the first Alutiiq company was formed, we are both grateful and accountable for the blessings and responsibilities our success has bestowed on Afognak. We believe our unwavering commitment and a laser-like focus on measurable results and accountability has allowed our participation in the 8(a) program to provide a myriad of benefits to our shareholders, their descendants, and the Native community at-large. The Benefits Provided by Afognak to its Shareholders We understand that the Committee's focus is on the successes of the Native 8(a) program and the benefits it has provided to Native Communities. Afognak has been blessed in that we have enjoyed business success in the program, which has allowed for a wide range of benefits to be distributed to our shareholders in a variety of forms. Benefits we provide include a Shareholder Hunting & Subsistence Program; Lands Management Programs; donations, community contributions, and sponsorships; a Shareholder Death Benefit; Elder Benefit; Small Business Growth Program and Shareholder Development Programs. However, the most notable and tangible benefit provided to our shareholders during this time period came in the form of substantial semi-annual dividends. In the last 10 years Afognak has paid out almost $95 million in dividends to our shareholders. The decision to benefit our shareholders in the form of dividends, rather than other services or programs, came after much research and deliberation by our Board of Directors. A 2005 survey of Afognak Shareholders, which was commissioned by our Board, revealed that the average household income of our shareholders was approximately $45,000 per year. This is only $17,430 above the 2010 U.S. poverty guideline of $27,570 for a family of four in Alaska. This data strongly suggests that the dividends paid to Afognak shareholders over the last several years have had a significant, measurable effect on moving our shareholders out of poverty. Clearly Afognak's success in building our businesses has allowed us to make a dramatic effect on our shareholders' lives and particularly the lives of those living in our rural communities. Many of our shareholders live in a village with no grocery store; and where an airplane ticket to travel to Kodiak or Anchorage costs $100 and $700, respectively. The cash dividends Afognak provides meet critical needs of our shareholders on basic human necessities--housing, food, childcare, education, and energy costs. Also noteworthy is the increase in Afognak Shareholder equity as a result of our participation in 8(a). Afognak's Shareholders' equity, which is the total assets of the corporation less the total liabilities of the corporation, has grown $87,350,000 over the last eleven years. However, our shareholders' equity, like that of all other ANCs, is substantially different from that of other business owners, particularly other individual 8(a) participants. As mandated by ANCSA, shares in Afognak Native Corporation cannot be bought or sold. Shares are not a liquid asset for our shareholders, and they cannot be used as capital for private investment. Nevertheless, this growth in shareholder equity strengthens the foundation of our corporation and sustains the benefits we currently provide, while also supplying resources to support and enhance our culture and traditions that may have otherwise been lost for future generations. One final benefit I would like to touch upon is Afognak's scholarship programs. Our corporation is committed to developing future generations of Alaska Native leaders. As such, Afognak offers two scholarship programs for shareholders and their descendants who want to attend traditional universities, vocational education, or other training programs: the Higher Education Program (HEP) and the Career Enhancement Opportunities (CEO) Program. The Higher Education Program provides financial support to shareholders and their descendants who are pursuing higher education through traditional university or vocational education. From 2000 to 2010, Afognak awarded $1,368,144 in 334 scholarships to our shareholders and their descendants under the HEP. The Career Enhancement Opportunities Program provides financial support to shareholders and their descendants who are seeking additional education to enhance career opportunities through means other than full-time traditional college or university attendance. From 2000 to 2010, Afognak awarded $210,771 in 171 scholarships to our shareholders and their descendants under the CEO Program. These programs provide the means and opportunities to further our shareholders' educations in a manner which otherwise might not have been available. We are beginning to see the fruits of our efforts. Many recipients are graduating or completing their chosen program and putting their new skills to work for Afognak, their communities, and/or their families. We are slowly working towards the generational shift that will allow our shareholders to hold the senior management positions in our Corporation--but we are not there yet. Afognak is proud of the collective benefits we are able to provide our shareholders, their families, their descendants and the Native community at large as a result of participating in the 8(a) program. We believe it is exclusively the role and responsibility of our Board of Directors to evaluate the needs of our shareholders and to implement the appropriate methods to best meet those needs. This practice is consistent with the overarching federal Indian policy of economic self- determination. Conclusion In closing, I would like to reiterate my overall message--the 8(a) program is working as intended and working quite well. This program has enabled Afognak to provide the financial support and economic opportunities to many who previously had little hope of gaining an education, starting a business, or joining the professional workforce. The 8(a) program enables ANCs like Afognak to deliver critical support in the form of shareholder dividends and community services to revitalize economically-challenged Alaska Native communities as well as provide great value and service to the Federal Government. In 1971, the U.S. Government made a commitment to honor and support the Alaska Native people. This promise came through the Alaska Native Claims Settlement Act when the U.S. Government seized millions of acres of oil-rich Native land worth hundreds of billions of dollars in exchange for the formation of ANCs and subsequent participation in the SBA 8(a) program. Today, we expect the U.S. Government to keep its promise by sustaining ANC participation in this program. Quyanaasinaq--(thank you very much) for the opportunity to tell the Afognak story. ______ Prepared Statement of Ken Johns, President/CEO, Ahtna, Inc. Chairman Akaka, Vice-Chairman Barrasso, and honorable members of the Senate Committee on Indian Affairs, Nts'e dit'ae (a formal Athabascan greeting). My name is Ken Johns and I currently serve as the President & CEO of Ahtna, Inc., one of the 13 regional corporations established under the Alaska Native Claims Settlement Act (ANCSA) of 1971. By way of introduction, I am a shareholder of Ahtna, Inc., and am originally from Copper Center, which is located in the Copper River Valley. Thank you for the opportunity to provide written testimony for the record pertaining to the hearing held on April 7, 2011, titled, ``Promise Fulfilled: The Role of the SBA 8(a) Program in Enhancing Economic Development in Indian Country.'' The title of the hearing could not be more appropriate. As this testimony will demonstrate by providing background on Ahtna, Inc., its business operations, and its participation in the Small Business Administration's 8(a) program, the SBA 8(a) program has provided Ahtna with knowledge, tools and skill sets to bring our Corporation from near bankruptcy to a solid foundation and the ability to provide many needed benefits to our shareholders. This is one program that is working for Native peoples. Background of the Ahtna People Historically, the Ahtna People are Athabascan Indians, who settled the Copper River Basin region over 7000 years ago. The Athabascan people traditionally lived in Interior Alaska, an expansive region that begins south of the Brooks Mountain Range and continues down to the Kenai Peninsula. We lived in small groups of 20 to 40 people that moved systematically through the resource territories. Annual summer fish camps for the entire family and winter villages served as base camps. Depending on the season and regional resources, several traditional types of houses were used. Our aboriginal lands included the area of Alaska which houses the Kennecott Copper Mine, the richest concentration of copper in the world. When the area was ``discovered'' by explorers, it was Chief Nicolai, an Athabascan Tyone who other chiefs recognized as their leader that greeted the famous first explorer of the whole of Interior Alaska. In 1885, US Army Lt. Henry Allen was given the mission to explore and chart all of the rivers in the Alaskan interior, record the indigenous tribes, and assess their numbers. \1\ --------------------------------------------------------------------------- \1\ Legacy of the Chief, Ronald Simpson 2001. --------------------------------------------------------------------------- Allen's small group began at the mouth of the Copper River and headed up the rugged valley. As he struggled up the rapids and cliffs about the river he was observed by the Ahtna people. Chief Nicolai, whose village of Taral was far up river near the present town of Chitina, was kept informed of Allen's progress. Eventually Chief Nicolai came face to face with the Allen party. Convinced that the Americans were no threat, he let them proceed; however, Chief Nicolai had great perception. When Allen revealed his keen interest in the copper found along the valley, Chief Nicolai knew it was only a matter of time before others would come. A few years later, Chief Nicolai's foresight became a reality when surveyors and engineers began to arrive. Soon after, the railroad was built and the Ahtna people's way of life was changed forever. \2\ --------------------------------------------------------------------------- \2\ Id. --------------------------------------------------------------------------- The Kennecott Mine was the largest Alaskan operation of its type from that time until long after World War II ended. With the exception of the Juneau gold district, Kennecott's gross revenues in copper exceeded that of every gold mining operation in Alaska and the Yukon. On April 8, 1911, the first ore train hauled $250,000 of 70 percent copper ore. In 1916, the peak year for production, the mines produced copper ore valued at $32.4 million. \3\ The Ahtna people never realized any profits or other forms of payment for the resources of their lands being taken. --------------------------------------------------------------------------- \3\ http://en.wikipeida.org/wiki/Kennecott,Alaska --------------------------------------------------------------------------- In the 27 years of operation, except for 2\1/2\ years of shutdown, Kennecott produced 4.625 million tons of ore averaging 13 per cent copper valued at roughly $207,000,000 with an estimated profit of $100,000,000. In addition, the silver by-product from this operation brought in another 4\1/2\ to 9 million dollars in revenues. The mine closed up shop in 1938. \4\ --------------------------------------------------------------------------- \4\ Id. --------------------------------------------------------------------------- In the 1980s, Kennecott became a popular tourist destination, as people came to see the old mines and buildings; however, the town of Kennecott was never repopulated. Residents involved in the tourism industry often lived in nearby McCarthy or on private land in the surrounding area. The area was designated a National Historic Landmark in 1986 and the National Park Service acquired much of the land within the Kennecott Mill Town in 1998. \5\ The land of the Ahtna people had been formally taken from them forever. --------------------------------------------------------------------------- \5\ Id. --------------------------------------------------------------------------- When Alaska became part of the United States in 1867, there was no provision in the law for private ownership in the new territory, except for the private individual property holders who had obtained written title to the land when it was under Russian rule. ``Uncivilized'' tribes (which included all but the acculturated Natives who had accepted the Russian Orthodox religion) were to be treated like Indians in the continental United States, which meant they had claim to their ancestral lands but no citizenship rights. ``Civilized'' tribes were to be given the rights and citizenship of other Americans; in practice, however, the United States government and new residents to the newly acquired territory treated all Alaska Natives as ``uncivilized'' tribes. In 1906, John Billum, Sr., (Nasghilniie) an Ahtna Athabascan from Chitina drafted a document that claimed aboriginal rights to traditional lands. He was able to develop a map that included all headwaters and indicated what lands to which the Ahtna people had aboriginal claim. The document was delivered to Washington, D.C. by Mr. Charles O'Brien, a Bureau of Indian Affairs (BIA) teacher. This vital document would later become the foundation for the Ahtna region within the Alaska Native Claims Settlement Act. By the time of statehood in 1959, most of the land in Alaska was already claimed by the federal government, with small amounts centered around the cities being owned by individuals, almost all of whom were non-Natives. Yet, the rights of Alaska Natives to their ancestral lands had been acknowledged in a number of legal documents from the time of the purchase by the United States. The message in all the documents was that Alaska Natives own their own land, but that it was up to future generations to decide how they would get title to it. The issue of exactly which lands were ancestral did not begin to be addressed until the 1900's when, bit by bit, Natives began to lay claim to portions of the land in the state. The discovery of oil in Prudhoe Bay by Atlantic Richfield Company (ARCO) on March 12, 1968, created a sense of urgency as the need to pave the way for construction of an oil pipeline became evident. The first formal discussions by the Ahtna people on the proposed oil pipeline began in March, 1969. Our Ahtna leadership worked with members of Congress to help settle our land claims and clear the title on the land where the pipeline would be built. On December 18, 1971, Congress passed landmark legislation known as the Alaska Native Claims Settlement Act (ANCSA). This Act completely changed the traditional role historically played by the federal government and its relationship to Native people. Rather than perpetuate the reservation system, the Act established corporate ownership of assets to ensure long-term profitability and financial independence for Alaska Natives. ANCSA provided the foundation of Alaska Native peoples' economic and legal relationships with the federal government. For these relationships and the approval of agreements by Congress, the Ahtna People and all other Alaska Native groups relinquished valid legal claims to lands and resources in Alaska. History of Ahtna, Inc. ANCSA established thirteen Alaska Native Corporations (ANCs) including Ahtna, Inc. and over 200 individual village corporations. Eventually the US Government ceded 44 million acres of land and paid $962.5 million to ANC corporations. To date a total of 1,528,000 acres of land has been conveyed to Ahtna, Inc. from an entitlement of 1,770,000 under the Act. Seven of the eight village corporations within the Ahtna region created as a result of ANCSA, merged with Ahtna, Inc. in 1980 and their lands are now the responsibility of Ahtna, Inc. With this merger came a strong unity and vision of the future for Ahtna's original 1179 shareholders. Chitina Native Corporation is the only village corporation that did not merge with Ahtna and the only other ANC in the Ahtna Region. Ahtna is governed by a 13-member Native Board of Directors, all of whom are shareholders of the Corporation. Board members are elected by their fellow native shareholders and serve three-year staggering terms. As an Alaska Native Corporation, Ahtna is responsible for meeting the economic, social and cultural obligations of our now 1,651 \6\ shareholders. This is a Congressional mandate taken very seriously by the Corporation and is reflected by our vision statement and expressed values. --------------------------------------------------------------------------- \6\ As of April 15, 2011, there are 1630 active shareholders for 207,318 shares. There are an additional 21 inactive shareholders for shares totaling 2932 for a total of 210,250 shares. This includes Class L stock who are shareholders; the Ahtna Board and shareholders approved to opening enrollment to individuals born after December 18, 1971. As a result, the number of shareholders continues to increase. --------------------------------------------------------------------------- Ahtna's vision reads: Ahtna, Inc., with a strong sense of cultural pride and identity, will enhance the overall well-being of our shareholders through the wise stewardship of our natural resources, and sustained growth and economic development for future generations. In addition, Ahtna's values are comprised of the following:
Cultural and Traditional Principles Integrity Professionalism Dedication Respect Sharing Ethics Perseverance Courtesy Ahtna is committed to providing a broad range of opportunities for our shareholders and preserving our Native culture; the Small Business Administration's 8(a) Program has provided a means to help achieve that end. Link Between ANCSA and Government Contracting ANCSA established ANCs in part to resolve long-standing issues around aboriginal land claims and to facilitate economic growth in Alaska by introducing Native companies into the Western economic system. ANCSA was and continues to be an extraordinary national experiment in federal relations with Native Americans. The formation of corporations to deliver benefits to the Alaska Native people differs substantially from most government programs. ANCSA's main goal was to have a fair and just settlement of all claims by Alaskan Natives through self-determination, but it was also a development tool for one of America's poorest minority groups to escape from poverty through direct participation in a U.S. market economy. As Ahtna, Inc. and other ANC's emerged from ANCSA, there was substantial evidence that Ahtna, Inc. and its shareholders were not receiving all of the benefits from the Act, including lands promised under ANCSA. As referenced earlier, Ahtna, Inc. still has 242,000 acres to be conveyed as part of the settlement. Due to the vast area and rural nature of Alaska, the lack of economic development opportunities in Native villages and the lack of basic infrastructure in rural Alaska, it was virtually impossible for ANCs to generate economic progress without significant assistance. Alaska's vast size and isolation created insurmountable obstacles to sustain economic development. In addition, the conventional corporate structure conflicted with our traditional Native values, hindering our ability to enter into a free enterprise society. By the mid 1980s, many of the regional and village corporations were experiencing financial hardships and unable to break out of the geographic constraints in rural Alaska. Congress recognized the need for ANCs to be able to diversify in their economic opportunities and as a result, legislation was passed in 1986, amending ANCSA and allowing ANCs to participate in SBA's 8(a) program: ``Congress confirms that Federal procurement programs for tribes and Alaska Native Corporations are enacted pursuant to its authority under Article I, section 8 of the United States Constitution.'' 43 U.S.C.1626 (e)(4)(A). Recognizing the unique structure and purpose of ANCs, Congress stated that for all purposes ANCs and subsidiaries controlled by ANCs would be considered owned and controlled by Natives as a minority business enterprise. 43 U.S.C. 1626(e)(1)&(2). In 1992, Congress further amended ANCSA clarifying that ANCs and the businesses controlled by them are deemed ``economically disadvantaged.'' 43 U.S.C. 1626(e)(1)&(2). This amendment eliminated the need for ANCs or our subsidiaries to prove ``economically disadvantaged'' status as part of the 8(a) application process, therefore, streamlining the acceptance process into the 8(a) program. However, even with this issue being resolved, it was still a two year process before Ahtna was successful in having a subsidiary enter into the program in 1994. While Congress has enacted many laws to nurture self-determination and economic development in Alaskan Native communities, our ability to participate in SBA's 8(a) program has been the most successful program enacted to meet the federal government's Trust Responsibility towards the Native people of this land. \7\ A primary goal of federal policy toward Native people in Alaska is that ANCs will help alleviate poverty and economic and social disadvantages among Alaskan Natives. Not surprisingly, as Alaskan Natives, we continue to experience many of the social ills associated with high rates of poverty: low per capita incomes, lower levels of educations, high rates of alcohol and drug abuse, higher than normal rates of diabetes, heart disease and obesity, and many social problems such as shockingly high rates of suicides (three times the rate of other Alaskans), high rates of crime, and incarceration. --------------------------------------------------------------------------- \7\ See AFGE v. United States, 95 F. Supp.2d4, 36 (D.D.C. 2002), aff'd 330 F.3d 513 (D.C.Cir. 2003). Federal Government argued in court that Native participation in the 8(a) program ``furthers the federal policy of Indian self-determination, the United States' trust responsibility, and the promotion of economic self-sufficiency among Native American communities.'' See also, Morton v. Mancari, 417 U.S. 535, 555 (U.S 1974). U.S. Supreme Court upheld legislation that provides for unique application of laws to Native Americans due to the unique history and role of dealings with Indians and has stated that as long as the special treatment can be tied rationally to the fulfillment of Congress' unique obligation toward Indians, legislation regulating commerce with Indian tribes will not be disturbed. --------------------------------------------------------------------------- ANCs and the SBA's 8(A) Program In 1968, the SBA 8(a) Business Development Program was established to assist firms owned and controlled by economically and socially disadvantaged individuals to enter the economic mainstream. Assistance is rendered to eligible firms in a structured developmental process over a nine year program participation term. Services include provision of: developmental analysis, counseling, and progress monitoring; management and technical assistance authorized under 7(j) of the Small Business Act; and access to business development opportunities under section 8(a) of the Act. Alaska Native Corporations, lower 48 Tribal Governments, and Native Hawaiian Organizations (NHOs) have been granted unique rights under this program to help foster economic development. The establishment of the unique aspect of the SBA 8(a) specifically for what has been termed as ``Tribal 8(a)s,'' ``ANC 8(a)s,'' or ``Native 8(a)s'' (collectively ``Native 8(a)s'') is a recognition by Congress and our federal government that these Native organizations have a larger obligation and responsibility in doing business as government contractors--Native 8(a)s must utilize business approaches and models to perpetuate the indigenous cultures whose only home lands are within the United States while at the same time fostering economic independence through participation in the mainstream economy. Unlike investor owned 8(a) firms that benefit one or two people, Native 8(a)s are owned by Native enterprises that have a direct responsibility to the Native communities they serve, communities which are comprised of hundreds and often times, thousands of native individuals. As a matter of law, ANCs' deservedly qualify as ``economically disadvantaged,'' which is a fundamental part of governmental efforts to encourage Native American participation in federal contracting. Tribes and ANCs are exempt from a federal cap on no-bid service and construction contracts that applies to 8(a)'s owned by individuals. Congress created this distinction because as explained above, tribes and ANCs serve large communities and groups of shareholders, while other minority small businesses generally provide benefits to sole proprietors or small groups of owners. Like all 8(a)'s, an ANC 8(a) company must perform at least 50 percent of the work on 8(a) contracts with their own employees for federal service and manufacturing contracts and 15 to 25 percent of the work for federal construction contracts. Those requirements set the minimum amount of work 8(a)'s must perform. In reality, the vast majority of ANCs, including Ahtna, surpass those amounts and provide employment for thousands of Alaskans, along with people residing in the Lower 48. The primary goals of ANCs are economic self-sufficiency, community and cultural development and continuity of Alaska Native tribes and villages. In recent years, there has been substantial interest regarding monitoring and oversight of Native 8(a) contracting. As a result, the National Defense Authorization Act (NDAA) for FY 2010 included a provision now known as Section 811. This section requires any sole-source contract to Native Enterprises valued at $20 million or more to go through a formal written Justification and Approval (J&A) process. Tribal consultations were held on Section 811, in accordance with Executive Order 13175, prior to drafting the implementing regulations. These consultations were finalized in October, 2010 and the FAR Council published an interim final rule on March 15, 2011. In addition, on February 11, 2011, the SBA issued final regulations that provide significant reform to the 8(a) program, addressing concerns that have been raised by some members of Congress and certain factions of the media, about the program. These regulations were the result of years of work including numerous Tribal consultations held over the course of three years. The regulations went into effect on March 14, 2011, and will increase oversight of Native 8(a) firms, significantly change how ANCs, Tribes and Native Hawaiian Organizations participate in the program, and increase reporting and transparency. ANC companies and leaders have embraced more oversight by SBA in order to verify that ANC enterprise in the 8(a) program are good stewards of taxpayer funds, consistent with the intent of Congress. The fostering of competitive and self-sufficient ANCs is in the interests of the United States, and Alaska Native communities. Competitive and self-sufficient ANCs will help alleviate economic and social disadvantages of Alaska Native communities, increase tax revenues, and reduce the costs of government support programs to Alaska Natives. Continued support and guidance from SBA programs will incubate market competitiveness among ANCs and allow Alaska Native and Congressional goals of economic self-sufficiency and greater local self-government and cultural recovery more quickly and efficiently. Ahtna, Inc. and SBA's 8(a) Program Prior to entering into government contracting, Ahtna's primary source of revenue was contracting with oil companies to perform work on the Trans Alaskan Pipeline. Construction on the pipeline began in 1973 and Ahtna, Inc. formed its first subsidiary, Ahtna Construction & Primary Products Corporation, to pursue this line of work. Ahtna has a unique relationship with the oil companies as the Trans Alaska Pipeline travels through 55 miles of Ahtna land and bisects the region along the Copper River. By the mid 1980's the contracts on the pipeline began to decline and by the end of the 1980's our operational profits from pipeline ventures were at a breakeven point. Like many other ANCs, Ahtna learned the hard way that the lack of diversity of economic opportunity in our region left us chronically at risk. As we had no other sources of regional economic development, we knew that we had to venture into new markets to secure additional revenue streams and ensure a more stable economic platform. The 8(a) program offered the ability to diversify and secure additional revenue streams. In November 1994, Ahtna Development Corporation (ADC) became the first of Ahtna, Inc.'s subsidiaries to receive certification as a Tribal 8(a) company from the Small Business Administration. ADC's lead core business has been Operations and Maintenance (O&M) with specialization in Department of Defense sites worldwide. The Information Technology and Records Management core businesses were added in 1997 forming the new growth aspect of the company. ADC graduated from the 8(a) program on October 31, 2002 and continues to perform numerous contracts and business operations to provide opportunities and benefits to our shareholders. By the late 1990s, Ahtna, Inc. made a business decision to increase our capabilities, expertise and ability to go after larger sources of contract revenue. In this process, Ahtna decided to purchase ownership in 3 separate companies to pursue government contracts. The Clearwater Group, Wire Communications Inc. and Ahtna Government Services Corporation were all companies in which Ahtna acquired 51 percent ownership. We were new to a complex organizational structure and were growing quickly, and did not yet have the business expertise to manage these changes. As a result, the Corporation experienced management challenges and difficulties in dealing with business partners. It was at this point that the board and shareholders embraced a change in management and direction. After learning some hard lessons from business losses, Ahtna decided to take greater control of its subsidiaries and acted on retaining companies with 100 percent ownership or selling our ownership interest if 100 percent ownership could not be attained. We took 100 percent ownership and control of Ahtna Government Services Corporation and The Clearwater Group and in 2004 sold our ownership in Wire Communications Inc. Since making those changes, all of our subsidiaries are now 100 percent owned by Ahtna, Inc. and their boards are all comprised of Ahtna shareholders. This structure provides transparency throughout the family of companies, which is the key to our future success. This transformation was vital because at the beginning of 2004, Ahtna was reeling from a string of unprofitable years and facing a growing amount of debt. Our financial institution was squeezing the corporation with restrictions and made no bones about the fact that they did not want our business anymore. On top of that there was a growing list of pending litigation that threatened to topple our company. One case in particular involved a previous decision to back a third party construction company bond that had a $14 million liability. Ahtna was in dire straits and the light at the end of the tunnel was getting dimmer and dimmer. In the fall of 2004, Ahtna Government Services Corporation entered into the Department of Energy's Mentor/Protege program with Tetra Tech and won a large DOE contract ($80 million--3 year) to provide contract oversight and design build of overseas nuclear detection devices at key points of cargo transit. This contract was competitively re-bid in 2007 and awarded to Ahtna Government Services Corporation. The growth and experience Ahtna gained through this contract is a testament to the intent of the 8(a) program and ANCSA. It was a huge success and helped to breathe life back into Ahtna, Inc, as our banking institutions were now willing to provide financial support to our company. Throughout the course of this contract, Ahtna Government Services Corporation self-performed only the contractual minimum percentage of the work, and by the end we had acquired the knowledge and skill set to meet and surpass our SBA required percentage of self-performance. This helped us capture profit which we used to pay down other obligations in a timely manner. This contract, the capabilities we developed through it, and our unique rights in the SBA 8(a) program saved our corporation from having to declare bankruptcy. Although we were unable to pay shareholder dividends during this time, we maintained a strong financial effort to provide benefits to our shareholders in the form of land protection, subsistence advocacy, scholarships, employment, burial assistance benefits and self-determination (benefits are more thoroughly address later in this testimony). Since 2006, Ahtna has turned the corner on our past problems and we have begun to see the light at the end of the tunnel. Our efforts to keep this company focused on shareholder leadership and development has not only met the intent of ANCSA and the 8(a) program but it also meets the aspirations of our people. Our people know that as a corporation we have come a long way, but there are still many struggles in our communities we have yet to overcome. The 8(a) program has played an enormous role in our ability to provide benefits to our shareholders. We still need continued assistance and support to ensure that all our shareholders have the opportunity to fulfill the promises of both our land settlement and as citizens of the United States the ability to have self determination. Ahtna now has twelve \8\ operating subsidiaries involved in a wide variety of business, including government contracting, civil and vertical construction, pipeline maintenance, environmental remediation, surveying, facilities maintenance, administrative and janitorial services, food service contractors, tourism, forestry and gravel sales. Of our twelve operating subsidiaries, five have successfully graduated from the SBA's 8(a) Program, and four are currently in the Program. Each of these companies are budgeted to show profits for Ahtna in 2011 and beyond. Each has created name recognition within their fields of industry and all are highly competitive in going after new contracts. This economic diversity would not have been possible without the 8(a) program and the ability to go outside Alaska to find opportunities. --------------------------------------------------------------------------- \8\ As of March 31, 2011. --------------------------------------------------------------------------- Ahtna's Vision Regarding Shareholder Benefits Ahtna is a shareholder run company at all levels which is the driving force behind Ahtna's ability to provide meaningful opportunities and culturally significant benefits to our 1,651 shareholders. Our thirteen-member board directs operations, and all board members are Ahtna shareholders. Ahtna has several active board committees which also provide direction to Ahtna's management in all aspects of the Corporation, including the Customary and Traditional Committee (subsistence); Land Committee; Shareholder Committee; Investment Committee; and Policy Committee. In addition, each subsidiary has a three or five-member board selected from the Ahtna, Inc. Board of Directors, resulting in all subsidiary board members also being Ahtna shareholders. Ahtna's management team consists of nine members, five of which are Ahtna shareholders, including the President/Chief Executive Officer, Chief Operating Officer, Vice President of Land and Resources, Vice President of Human Resources and Vice President of Corporate Affairs. In addition, the Vice President of Legal Affairs & General Council (another management team member) is an Alaskan Native, making a total of six of the nine members being native individuals. Five of the seven subsidiaries that have Presidents are shareholders. These numbers reflect that Ahtna shareholders are leading our companies into the future with a strong desire to enhance the overall well-being and education of all shareholders so our future generations can step into their roles and lead our companies with a sense of cultural pride. Ahtna and its family of subsidiary companies understand that the ultimate purpose of all operations is to benefit our shareholders and future generations. The question asked by leadership regarding any endeavor is ``What is the long-term benefit for our shareholders?'' A majority of Ahtna's 1,651 shareholders (and their descendents) reside in rural Alaska in isolated and economically disadvantaged areas. For example, in 2000, Gulkana (74 percent Alaska Native) was 41 percent below poverty and 39 percent unemployed. In comparison, Glennallen (12 percent Alaska Native), a town 14 miles south of Gulkana, was only 8 percent below poverty and 5 percent unemployed. See http:// www.commerce.state.ak.us/dca/commdb/CF_BLOCK.htm. Therefore, providing certain services to shareholders, such as advocacy for subsistence rights and assistance with burial costs for family members, is a priority. Land is one of the most important shareholder assets. In exchange for giving up its aboriginal claims, Ahtna has thus far received 1.5 million acres out of its 1.77 million entitlement under ANCSA, which was small in comparison to the original 44 million acres set aside for all ANCSA corporations. Under the Alaska National Interest Lands Conservation Act (ANILCA), 603,000 acres of Ahtna's entitlement was locked up in the formation of the Wrangell Saint-Elias National Park and Preserve and the Denali National Park Preserve. Development of this land for shareholders' benefit has been difficult, if not impossible. Additionally, Ahtna's land is accessible by road and on the pipeline corridor, causing trespass and unauthorized to be a long standing problem. It is easy to understand why protecting and preserving our land for resource development, shareholder use and subsistence is a top priority to our People. Of the $962 million dollars distributed from ANCSA, Ahtna's share was only $13.3 million dollars paid over a number of years in small installments. Balancing our shareholders' interests over the years, Ahtna has needed to carefully spend these funds to protect shareholder land and provide basic shareholder services. As a result, over the past decade, Ahtna has invested over $15 million in protecting, preserving, maintaining and being good stewards of our lands. All resources used to protect our most valuable asset will always be money well spent. Although stated earlier in this testimony, it is important to remember Ahtna's vision when discussing benefits. The company's vision focuses not only on profitability, but also on providing vital shareholder services and cultural preservation, land protection and preservation, and economic opportunities for our People. Ahtna strives to promote these priorities for our shareholders. Benefits to Ahtna Shareholders Ahtna exists to improve the lives of the Athabascan People that have inhabited the Ahtna Region for over seventy centuries. Ahtna also exists to protect and preserve the Athabascan culture and values, by providing financially for individual shareholders and their communities, by protecting and preserving our lands, by promoting cultural gatherings and supporting the preservation of cultural resources, by bringing shareholders together to discuss issues of importance to the Ahtna People such as lands and subsistence, and by supporting organizations and endeavors that benefit Native people across Alaska. From 2000-2010, Ahtna has spent in excess of $20.2 million to provide a great myriad of benefits to our shareholders and their families. As Ahtna finds its way through financial recovery, the Ahtna Board has been able to focus more on investment strategies that will ensure the sustained funding for future generations of shareholders, as well as increasing shareholder benefits and services for the generation that made ANCSA and Ahtna, Inc. a reality. Ahtna maintains shareholder relations staff in each of its offices, to answer questions and provide services to shareholders. Ahtna provides quarterly shareholder publications to report on business, announce opportunities, provide subsistence and land information, and make announcements about special events in shareholders' lives. The following provides an overview, but not comprehensive explanation, of the benefits Ahtna is now able to offer its shareholders, largely in part of the Corporation's participation in the SBA 8(a) program. A. Shareholder Relations and Cultural Preservation The Ahtna Heritage Foundation. The Ahtna Heritage Foundation (TAHF) is a regional non-profit that administers Ahtna's cultural and educational programs. TAHF was established in 1986 to perpetuate the Ahtna heritage and enhance the socio-economic status of the Ahtna people. To accomplish its mission, TAHF uses the traditional culture to enhance the education, the life skills, the pride and self esteem of the Ahtna people. TAHF focuses on remembering and retaining the positive aspects of the Ahtna history and culture. Ahtna supports TAHF by funding its operating costs ($186,865 in 2010), as well as providing in kind support through other professional services and office space. TAHF is able to use its funds to run the Ahtna Cultural Center, document oral traditions, maintain cultural artifacts, assist with the Ahtna Culture Camp, facilitate the Ahtna dance group, and support many other projects that focus on Ahtna history and culture. Since 2000, Ahtna has contributed approximately $2 million towards TAHF, either in scholarship monies, operating costs, or other in-kind donations. Scholarship Program. In addition, TAHF administers the Walter Charley Memorial Scholarship Program, named after our prominent Athabascan Elder and Chief who spoke to youth and elders about heritage and wisdom. The Scholarship Program uses funds set aside by Ahtna, Inc. for this purpose. Scholarships are available to full-time and part-time students in good standing. In recent years Ahtna has been able to substantially increase the amount budgeted for this Program. For example, in 2001 Ahtna spent $30,000 in scholarship awards, while in 2010 Ahtna spent $187,000. The budget for 2011 is $200,000. Ahtna also encourages our shareholder students by providing them graduation financial awards at every stage of their process. Ahtna provides these gifts for students receiving a GED, a certificate, or an undergraduate or a graduate degree. Cultural Preservation. Apart from TAHF, Ahtna supports other projects and activities that perpetuate the Ahtna culture and history. Ahtna purchases traditional artwork and jewelry, including the beadwork that is so much a part of Ahtna's history and ceremonial dress. Ahtna has supported the Ahtna Culture Camp, where elders share precious time and knowledge with youth and others in the Copper River Region. These are opportunities to share historical stories, traditional ways of subsistence and the Athabascan language. Learning these traditional skills helps youth develop a closer connection to their culture. In recent years, Ahtna has also hosted an annual Youth and Elders Conference, providing another opportunity for Elders to share their wisdom and traditions with the younger generation. Ahtna has commissioned consultants to digitalize tape recordings, and recently commissioned an anthropologist to identify historic trails within the Ahtna Region and document their names in the Ahtna language. Investing in our culture is an intangible asset that is priceless but since 2007, Ahtna has contributed approximately $700,000 into our cultural preservation activities. Burial Assistance Fund and Memorial Support. For many years, Ahtna has maintained a Burial Assistance Fund, providing shareholders with much needed funds following the death of a close family member. This Program has seen significant increases in funding in recent years, currently providing $3000 to help a family suffering a loss to cover the funeral expenses and over the last decade, Ahtna has offered approximately $465,000 in burial assistance to our shareholders. In addition, Ahtna often provides shareholders other support during the traditional potlatch to celebrate a loss. Elders Benefits Program. Ahtna considers one of its most valuable and honored resources to be its Elders, and the health and welfare of its Elders to be of utmost importance. Ahtna's Elders provided the guidance to establish Ahtna, Inc. and to lead it to becoming a very successful company for all shareholders. We have long provided our Elders resources they may need, such as salmon, game and chopped wood, as well as food gift baskets during the holidays. In recent years, the Ahtna Board of Directors established an Elders Benefit Program to further foster our Elders' health and welfare. The Board declared the first Elders' benefit in the amount of $300 per Elder in December, 2009 and declared the same Elders' benefit in December, 2010. Although the dividend may seem small, it was a huge step for Ahtna and helping to provide for our Elders. Dividends. Recognizing that the majority of our shareholders do not have much financial wealth or the ability to find employment in the Region, Ahtna strives to responsibly issue dividends to shareholders. As discussed above, Ahtna has been through some tough times in the early 2000s and was unable to issue a dividend in those years. With the economic successes in recent years, Ahtna provided dividends in 2007, 2008 and 2009 of $2.79 per share and $4.00 per share in 2010. This is a total of $2,377,923 being paid out in dividends to our shareholders over the past four years! Regional Community Support. We understand the importance of community and the role that other entities have in supporting our shareholders. Every year the Board provides an annual contribution of $10,000 to each Village in the Region, and often helps fund their annual meetings. Our donation helps with administrative costs associated with running tribal programs that are chronically underfunded by the BIA and other agencies. Ahtna also supports the Copper River Native Association (CRNA), the Regional non-profit entity providing health and social services to the Native people living in the Ahtna Region. CRNA is also significantly underfunded by the Indian Health Service (IHS), which routinely does not pay tribal entities the indirect costs associated with running IHS programs. We support other community activities in the Region, such as an annual basketball tournament, community carnivals and parades, dances, shareholder open houses and holiday receptions. Other Organizations. Ahtna also recognizes that collectively many ANCs and Alaska Native organizations face the same opportunities and challenges as we do, as well as the drive to provide for our People in culturally appropriate avenues. Therefore, Ahtna donates to some of these organizations, such as the Alaska Federation of Natives (AFN), the Native American Rights Fund (NARF), and the ANCSA Regional Association. The existence of these other organizations, their pursuit of like causes, and the ability to tackle issues as a collective benefit to our shareholders. B. Shareholder Development--Training, Education and Employment Ahtna's shareholder development vision is to ``encourage shareholders to reach their highest employment potential and to provide them employment opportunities within Ahtna for all future generations.'' As such, Ahtna focuses on helping shareholders obtain employment, training and education, and by getting shareholder employees into management training tracks within our company to ensure Ahtna is shareholder run and managed. In recent years, with additional funding from profitable subsidiaries and with additional job opportunities, Ahtna has been able to institute a more aggressive program to recruit, hire, train and retain shareholders. In 2008, Ahtna hired a Shareholder Development Coordinator to run the Shareholder Development Program. Over the course of 2008, Ahtna and each subsidiary company prepared a 2009 Shareholder Development Plan, outlining their Board and Management Team's shareholder development initiatives. Over the past two years, Shareholder Development has made tremendous strides in reaching our shareholders and assisting them with their employment goals. For 2011, the focus areas of the Shareholder Development Department are: Strengthening subsidiaries relations and reporting mechanisms Strengthening shareholder employee relations and use of shareholder development plans Expanding shareholder outreach efforts and communications Redesigning Talent Bank to be a more comprehensive recruitment/employment assistance tool Establish P&Ps for On-call and Workforce Development programs Further development of Internship Program Release a Shareholder Demographics Survey Expand employment support services and educational assistance resource library To provide a better understanding, we highlight a few specific Shareholder Development programs below. Shareholder Hire. First and foremost, Ahtna has always promoted shareholder hire through a ``shareholder hiring preference,'' which also includes a preference for hiring shareholder descendants and spouses. This preference has translated into hundreds of employment positions within Alaska and particularly through Ahtna's construction and pipeline projects. In our 2005 report to the U.S. Government Accountability Office, we reported 760 employees across the Ahtna family, of which 86 were shareholders. As of December 31, 2010, Ahtna has 2,188 employees, of which 96 are shareholders. \9\ Although we recognize that our shareholder hire percentage would appear small due to increased work outside Alaska, we have been able to maintain about a 1 in 4 shareholder hire ratio for our Alaska positions. (Ahtna generally maintains the existing workforce when taking on new work in the lower 48.) Ahtna had approximately 401 Alaska-based employees in December 2010, of which 96 were shareholders, shareholder descendants or shareholder spouses. --------------------------------------------------------------------------- \9\ For the purposes of these numbers, ``shareholders'' includes shareholder descendants and spouses of shareholders. --------------------------------------------------------------------------- Ahtna also partners with companies outside the Ahtna family to provide employment and training opportunities in the Region. For instance, Ahtna has an agreement with Princess Lodge, which is has a resort in the Ahtna Region, whereby Princess will train qualified shareholders in management positions at the resort. Additionally, Alyeska Pipeline Service Company provides Ahtna funding to support individual shareholder interns in fields that are relevant to the pipeline work. Internship Program. Ahtna began its internship program informally and started the Shareholder Internship Pilot Program in Fall 2006. This Program is now permanent and has three internship opportunities within the Ahtna Family of Companies in 2011. This Internship Program assists Ahtna shareholders and descendants in pursuing higher education by funding school costs, providing work experience, and helping them achieve successful employment within the Ahtna family of companies. Along similar lines, in 2008 Ahtna also started the Youth Summer Intern Program, providing recent high school graduates the opportunity to work at Ahtna for the summer. Ahtna has many success stories over the short course of this Program. Specifically, five of the six interns that participated between Fall 2006 and Spring 2008 have been hired within the Ahtna family. For example, Eva Olhausen participated in the Pilot Program between 2006 and 2007. After she received her B.A. in Business Administration in 2007, Eva was hired on full time as a Human Resources Specialist at Ahtna Technical Services, Inc. Eva has since transferred over to Ahtna, Inc., as the Benefits Specialist and has received her Benefits certification. Temporary Employee Program. Ahtna maintains a list of on-call shareholders interested in working within the Ahtna family of companies. Ahtna fills all temporary clerical and laborer-type positions through this on-call list. These ``temp'' placements give shareholders an inside view of working for an Ahtna company and also give them an opportunity to display their skills and qualifications. Individual Shareholder Development Plans. Ahtna helps employee shareholders identify their career goals through Individual Shareholder Development Plans (ISDP). An ISDP outlines the shareholder's strengths and goals, and identifies professional/education development opportunities that help the shareholder reach their career goals. Management Trainee Program. Shareholder management is not new to Ahtna, as is demonstrated by the current Ahtna leadership. Ahtna shareholders are leading the companies and ensuring future generations can step into their roles and lead our companies with a sense of cultural pride. Ahtna recognizes the need to identify and promote ``emerging executives'' and the need for ``executive management training'' to ensure Ahtna stays a shareholder managed company. In past years, Ahtna has funded significant continuing education and training expenses for our shareholder executives and managers. Through this program, we identify shareholders with the potential and interest to manage within the Ahtna family and develop an ISDP to get them there over an appropriate timeframe. Many other Ahtna, Inc. manager positions are currently held by shareholders, including: Shareholder Records Manager (maintains all shareholder records and stock transfers) Land and Administrative Supervisor (oversees 8 employees in the Glennallen office) Information Technology Technician (manages Alaska-based IT needs) Management Trainees and other managers can receive assistance with a college degree or other training, and may work across several different departments and companies within the Ahtna family. The ultimate goal to maintain a manager or executive leadership position with the Ahtna family of companies. Workforce Development Fund. In past years, Ahtna has funded training opportunities that promote employability in the trades. For instance, in 2006 Ahtna sent 13 shareholders to training in Texas for ``rough neck'' training. In recent years, Ahtna has budgeted $30,000 in a Workforce Development Fund to (1) provide individual shareholders funding for training opportunities, including enrollment and travel costs; and (2) to sponsor trainings in the Region impacting the employability of a large number of shareholders. With regard to the latter, Ahtna Contractors, LLC has been sponsoring skills trainings in the Region where there is an identified skill set needed to perform current construction projects. Outreach. Ahtna is committed to providing shareholders access to information, support services, training and employment through effective outreach and marketing of Ahtna occupations and careers. We continuously update our job openings and advertise career opportunities to shareholders, through the Shareholder Development News (e- newsletter), the Kanas (quarterly shareholder publication), the Ahtnajobs.com website, and other shareholder contact tools (such as advertising at local high schools and other job fairs). C. Land and Resource Management Ahtna, Inc. owns in fee title, approximately 1,528,000 acres conveyed in December 1998 from an entitlement of 1,770,000 acres. This includes 714,240 acres of land surrounding the eight villages, and close to 45,000 acres in bonus selections to be distributed to the villages based on historic use and subsistence needs. Ahtna's Land Department is guided by the strategic direction of the Ahtna, Inc. Board of Directors and the Board's Land Committee and the Customary and Traditional Committee. Unlike ``traditional'' for-profit corporations managing buildings or property, the priority of Ahtna's shareholders is to manage these lands and resources for future generations of the Ahtna People in accordance with cultural and traditional uses and values, conservative development strategies, and principles of culturally appropriate stewardship. The Land Department has four primary functions: (1) identify and preserve Ahtna's land interests and allocate appropriate interests to others; (2) protect Ahtna's customary and traditional uses; (3) protect the land from unauthorized uses; and (4) manage and develop commercial land uses. Crossing over these broad categories, Ahtna maintains strong communications with shareholders and villages on land-related issues; works closely with State and Federal agencies on land and natural resource matters; and provides for geographic information system (GIS) mapping to provide support and research land status and development issues. Our land programs are a direct benefit to our shareholders, and several specific programs are discussed below. Merged Village Programs. In 1980, seven of the eight Village Corporations merged with Ahtna, Inc. Under the terms of the Merger Agreement, Ahtna assumed management of all former Village Corporation lands. Ahtna is required to coordinate use of these lands with village- based shareholder committees known as Successor Village Organizations (SVO). The SVO reserves the right to withhold consent to any type of new development within the former village lands. The Land Department also obtains permission from an SVO before issuing any commercial use permit within those lands. Ahtna respects these rights and expends considerable funds ensuring Land Committee and SVO participation in land decisions. The Merger Agreement also provides for the transfer of former Village Corporation lands to individual shareholders from the merged Village Corporations. This Merger Land Use Program provides shareholders to a long-term lease of 5 acres per 100 former Village Corporation shares. Ahtna manages this program as well. Homesite Program. Under ANILCA, individuals are entitled to 1.5 acres of land in fee title if they can prove traditional use of the land. Ahtna administers a Homesite Program that assists shareholders with identifying their property interests, completing the appropriate paperwork, and documenting their traditional uses for submission to the BLM. Resource Development. Ahtna's lands include areas that are either known resources or have high probability for resources for gravel, timber, minerals, oil and gas. The Land Department manages development of Ahtna's resources considering potential revenue to Ahtna and shareholder dividends and minimizing negative impacts on traditional shareholder activities such as fishing and hunting. For instance, in 2010 Ahtna's gravel sales brought in $81,412 in revenue. Commercial Land Use Program (Lease, Permit, Easement). The Land Department issues leases, easements and permits for commercial uses. These arrangements generate funding through a $1000 proposal fee, which supports administration of the Land Department's research and review. Additionally, if Ahtna accepts the proposal, as part of the agreement, the lessee donates 10 percent of the contract or $1,000 (whichever is greater) to the Walter Charley Memorial Scholarship Fund. Individual Use Permit Program. Ahtna's lands are open to entry by permit only. Ahtna's Permit Program allows individual use in a variety of manners. A land crossing permit can be purchased to cross Ahtna lands to reach public hunting or fishing areas. Permits are issued for small amounts of gravel, for individual use such as a driveway. Permits are issued for camping and berry picking. Ahtna does not allow hunting on its lands except for a special Bison permit and for Predator Control Hunting (i.e., wolves). In 2010, Ahtna issued 451 individual use permits. Shareholder Resource Program. Ahtna provides shareholders access to free gravel for personal use such as for a driveway, and allows villages access to free gravel for village projects. Shareholders are also entitled to 100 free house logs per year and 25 cords of fire wood. Shareholder Assistance Program. Ahtna assists shareholders with land status research at no cost. Ahtna provides maps, GPS services, property legal descriptions, surveys, title research, and assistance with BIA Native Allotments. Ahtna waives all the fees associated with shareholders submitting requests under the Commercial Land Use Program, as well as the Scholarship donation for accepted proposals. Subsistence Preservation. Like most ANCs, Ahtna's People have a traditional subsistence lifestyle, hunting moose and caribou and fishing in Ahtna's many rivers like the Copper River. We help protect these customary and traditional practices through subsistence advocacy. The Land Department and Ahtna management review proposed regulations, attend meetings, and submit proposals and comments regarding both State and Federal laws and regulations. Ahtna representatives sit on boards and committees that provide venues to protect Native subsistence rights. Ahtna has also been at the forefront of litigation against the State of Alaska to protect subsistence rights. Ahtna supports other entities, like NARF, which also seek to protect Native subsistence rights. Land Protection. Ahtna land is on the road system in an area accessible to Alaska's major population hubs (Fairbanks and Anchorage). Trespass is frequent and land protection is a major component of Ahtna's land management program. Land Protection Officers are stationed in each village and deal with all complaints of trespass, hunting disputes, trap line disputes, theft, wood cutting disputes, vandalism, criminal mischief, littering, hazardous material dumping and clean up issues. Officers educate shareholders and the general public on private land laws, patrol via ATVs and boats, post private property signs, and issue permits in the field to individuals on Ahtna property. D. Reinvestment in Our Companies Ahtna's ability to provide benefits to our shareholders can only come as a result of successful business opportunities and growth of our companies. In order to have successful and growing companies, it is imperative that we reinvest back into our companies, empowering them to build stronger infrastructure, powerful leadership, and the capabilities to bid and win larger and more competitive work. As the companies build, the benefits expand which is the ultimate goal and empowers our shareholders. Conclusion We as Alaska Natives ceded large parts of Alaska to the United States and trillions of dollars of natural gas and oil reserves. The Alyeska-Pipeline Service Company reported on its website that as of through 2010, over 16.2 billion barrels of oil have run through the Trans Alaska Pipeline System and although only rough estimates can be calculated, using the average price range of $80-$100 per barrel of oil, the equates very roughly to somewhere between over $1.28 trillion and $1.6 trillion being generated in revenue. That is an amazing amount in natural resources that Alaska Natives ceded to the United States and the number only continues to rise! In return, we retained some land and less than a billion dollars as assets to develop for-profit and non- profit regional corporations and associations. ANC access to the SBA's 8(a) program helps fulfill Congressional mandates for government contracting aimed at providing training and market opportunities for minority and disadvantaged businesses. Our Native shareholders are in control of our Corporations and are the primary beneficiaries of dividends, equity, and philanthropy generated by ANCs. Our business is shareholder driven in every aspect. Our leaders, whether as Ahtna Shareholders in management, Village spokespersons, or directors on the board, have all played a meaningful role in shaping Ahtna as it stands today and the direction for the future generations of the Ahtna People. Through special contracting opportunities, we have been able to realize economic development opportunities that benefit entire communities of people that have historically and continue to this day to be economically depressed. Benefits cannot be measured by dividends alone, but rather employment opportunities, preservation of the traditional culture, opportunities for higher education and training, protection of our lands and resources, and enhancement of the pride and self esteem of the Ahtna People. Federal contracting through the SBA 8(a) Program is one of the vehicles that has given Ahtna the means necessary to provide these benefits. I would like to close my testimony with one message--the 8(a) program is working and it is working well! To date, Alaska Natives still remain among the most impoverished populations in America but through utilizing programs such as these, we will continue addressing the needs of our people. Thank you very much for the opportunity to provide this testimony. ______ Prepared Statement of Eric S. Trevan, President/CEO, National Center for American Indian Enterprise Development I. Introduction Chairman Akaka and Ranking Member Barasso, the National Center for American Indian Enterprise Development (the ``National Center'' or ``NCAIED'') commends the Senate Committee on Indian Affairs for convening this important hearing, appropriately titled ``Promise Fulfilled: The Role of the SBA 8(a) Program in Enhancing Economic Development in Indian Country.'' The National Center is pleased to present this testimony on how this program is furthering Native business development and fulfilling the overarching Federal Indian Policy goals of Indian self-determination and self-sufficiency. The Small Business Administration (SBA) operates several small business contracting programs to achieve two important goals: (1) enable the Federal Government to diversify the supplier base for the Federal procurement market, and (2) strengthen small, minority and Native contractors seeking to penetrate that enormous market. Of all the SBA's programs, its Business Development Program authorized by Section 8(a) of the Small Business Act (the ``8(a) Program'') has been the most successful in helping Indian tribes, Alaskan Native regional and village corporations (ANCs), and Native Hawaiian Organizations (NHOs) diversify, grow their enterprises, and generate revenues and jobs for their Native communities. As enterprises of each of these indigenous aboriginal groups are eligible to apply for certification as 8(a) Program participants, our testimony refers to them collectively as ``Native 8(a) enterprises'' participating in the ``Native 8(a)'' program. The National Center has long played a pivotal role in spurring Congress and Federal agencies to support Native and minority business development. NCAIED leaders have testified repeatedly before Congress, and worked closely with other national Native organizations to improve the Native 8(a) program and advance other Native business and economic development initiatives. We also collaborated in the first-ever consultations that the SBA and the Office of Management and Budget (OMB) and Federal Acquisition Regulatory Council (FAR Council) conducted with Indian tribes to discuss 8(a) regulatory proposals, and submitted comments and recommendations for the SBA and FAR Council consultations record. II. Background on the National Center The National Center, organized over 42 years ago, is the longest serving Native American business development assistance provider in the United States with the mission to develop the American Indian private sector as a means to help Native communities become self-sufficient. The National Center operates a national network of non-profit centers across the country that provide procurement technical assistance, business development and management consulting services to Indian tribes, ANCs, NHOs, and businesses owned by these entities, as well as individual Native Americans, Alaskan Natives and Native Hawaiians. Our business centers assist a broad range of first generation Native entrepreneurs to sophisticated tribal enterprises in developing business feasibility studies, business plans, banking relationships and lines of credit, marketing and growth strategies. We are supported by, and also help, Federal agencies by: coaching contractors on completing applications for certifications and registrations; finding capable Native companies to fulfill Federal requirements; and providing contractors guidance on contracting programs administered by the SBA, various other Federal and state agency requirements, and various agencies' Mentor-Protege programs and other teaming arrangements. The National Center also produces various national and regional events that train, promote and market Native enterprises to the public and private sectors. Our premier annual national event is the phenomenally successful Reservation Economic Summit & American Indian Business Trade Fair (RES). At RES 2011, nearly 3,000 individuals and 400 exhibiters attended, including tribes, ANCs, Native enterprises, Fortune 500 and other major corporate representatives as well as Federal, state, local and tribal political and procurement officials. Trade delegations from Canada, Turkey and China also attended. Over the years, the National Center estimates that its operations have assisted approximately 80 percent of the Tribes in the lower 48 states and more than 25,000 Native enterprises, and have trained over 10,000 tribal members. Furthermore, due to its centers' bid matching, other business assistance and networking opportunities produced at its RES and other conferences, the National Center has helped companies generate over $4.5 billion in contract awards. The comments below are based on countless hours of assisting Native 8(a) enterprises as they struggle to grow, diversify, thrive and return economic benefits to their Native communities and other areas where their companies generate tax revenues and jobs. We have learned that our conferences and training sessions must provide opportunities for Native 8(a) enterprises to learn from fellow contractors, federal procurement officials, and other contracting experts their valuable guidance on best practices to ensure compliance with the spirit and letter of the 8(a) rules. We also have found that the Native 8(a) program works best when the Native community's political and business leaders recognize their fiduciary duties to their tribal members to do their due diligence to understand the intricacies and responsibilities of operating government contracting enterprises. Key to this process is to vet carefully and hire experienced managers (whether Native or non- Native) who know or can quickly learn how to navigate procurement rules and market effectively. Some tribes may decide contracting is too difficult and risky for profit margins that they consider too low. Other tribes find that contracting presents new and different types of job opportunities for their tribal members, offers a chance to diversify the tribe's economy, and expands their horizons to operate both on and off their remote reservations and even in the global marketplace. In short, the Native 8(a) program is proving to be an effective procurement tool and economic development program, fulfilling its promise just as Congress intended. III. Legal Framework of the Native 8(a) Program Very compelling reasons prompted Congress to authorize the Native 8(a) Program's provisions. Their enactment were grounded on the confluence of Federal Indian Policy, Federal Small Business Policy and Federal procurement policy considerations, and were and still are fully justified by sobering socio-economic indicators that have improved very little over time. A. Foundations of the Political ``Trust Relationship'' The governments of indigenous American Indians, Alaskan Native and Native Hawaiians were considered sovereign nations from their first interactions with European settlers. The U.S. Constitution's grant to Congress of the power to ``regulate Commerce . . . with the Indian tribes'' in Article I, Sec. 8, ] 3, and its interpretation in subsequent landmark Supreme Court decisions, gave rise to the Federal Government's special political ``trust relationship'' with and responsibility to the Tribes. See Cherokee Nation v. Georgia, 30 U.S. 1 (1831); Worcester v. Georgia, 31 U.S. 515 (1832). These cases arose from violations of constitutional and treaty protections. Tribes across the country entered into treaties, giving up lands in exchange for promises of Federal protection and support for education and community development, only to suffer more treaty violations. The General Allotment Act of 1887 forced conversion of more than 90 million acres (two-thirds of reservation lands) from tribal ownership--often without compensation--to non-Indian settlers as ``surplus'' lands. The 1867 Treaty of Cession promised Alaska Natives peaceful possession of their lands and the Alaska Statehood Act confirmed these rights. Then discovery of rich oil fields led to enactment of the Alaska Native Claim Settlement Act and relinquishment of 89 percent of Alaska Natives' lands. That Act created regional and village corporations to administer the settlement funds and generate revenues for the benefit of their many thousands of Alaska Native shareholders. This constitutional and statutory foundation underpins subsequent Congressional action to assist these Native communities in their struggle for economic business and community development, self determination and self sufficiency. B. History of the 8(a) Program and Specific Native 8(a) Provisions Beginning in 1942, Congress authorized Federal contracting with small businesses and in 1977 created the Small Business Act's Section 8(a) program for Federal agencies to award contracts through the SBA to small, minority-owned businesses. Congress also set a goal of at least 10 percent of all federal contract awards to minority-owned businesses, including those owned by American Indians, Alaska Natives and Native Hawaiians. About 15 years later, the Senate Committee on Indian Affairs held its first hearings to determine whether Indian preferences in government contracting were effective, why so few Native-owned enterprises were participating in government contracting, and why a ``President's Commission on Indian Reservation Economies'' report had found that government contracting and procurement policies, regulations, and procedures were significant obstacles to Indian reservation economic development. \1\ The National Center presented testimony at both hearings. --------------------------------------------------------------------------- \1\ See Hearing on ``Indian Finance Act and Buy Indian Act,'' Senate Select Committee on Indian Affairs, 100th Cong. 1st Sess. 21 (1987); Oversight Hearing on ``Barriers to Indian Participation in Government Procurement Contracting,'' Senate Select Committee on Indian Affairs, 100th Cong. 2d Sess. 80 (1988). --------------------------------------------------------------------------- In 1987, our then President, Steven Stallings, testified on Indian economic development and government contracting. He recommended expansion of the Buy Indian Act's application to more Federal agencies, and proposed a Buy Indian Act certification that all Federal contracting agencies could accept, including the SBA's contracting programs. He urged that more contracts be issued as Buy Indian because the ``unchecked discretionary authority'' of the Bureau of Indian Affairs (BIA) to award substantial and valuable procurement opportunities to non-Native contractors. Despite Buy Indian Act requirements and implementing policy directives that ``all purchases or contracts are to be made or entered into with qualified Indian contractors to the maximum extent practicable,'' Mr. Stallings stated that BIA procurements using Buy Indian Act procedures totaled only $10 million in FY 1971 and grew only to $60 million in FY 1983. Unfortunately, lack of Buy Indian Act usage and enforcement persist to this day. The National Center testimony focused on the difficulties that Indian-owned contractors often encountered in seeking certification for the SBA's 8(a) program. Of the few firms that had achieved certification by 1987, most had received no 8(a) contract awards. Stallings noted that the two largest contracts (representing the majority of 8(a) award dollars to Indian-owned companies) were awarded to tribal-owned companies on the Devil's Lake Sioux and Fort Peck Reservations under special arrangements. At that time, most of the 8(a) certifications resulted from a Memorandum of Understanding signed by SBA and the Department of Defense (DOD) in September 1983. The Memorandum committed SBA to ``receive'' 150 fully completed applications for 8(a) status and ``target'' 75 of them for certification. Stallings reported that SBA did its part, but DOD had not provided the contract support promised. He recommended improvements to the 8(a) program, more business and procurement technical assistance to Indian-owned businesses and tribal governments, and more effective training programs. At the Senate Committee's later hearing in 1988 on ``Barriers to Indian Participation in Government Procurement Contracting,'' Mr. Stallings again testified in support of 8(a) program reforms, especially to assist tribal-owned companies. He reported slow growth of contracting companies owned by Indian tribes and American Indian and Alaska Native individuals, lagging far behind other groups: only 14,843 companies, generating gross receipts of just $646.7 million, representing only 1.8 percent of the total number of small businesses, and a mere l.4 percent in gross receipts of all minority-owned businesses, combined. Comparative figures showed: 248,141 Hispanic- owned companies with gross receipts of nearly $15 billion; 339,239 African American-owned firms with gross receipts of $12.4 billion; and 240,799 firms owned by Asian American and other minorities with gross receipts of nearly $17.3 billion. To reach parity with these other groups on a per capita basis, a 4,000 percent increase in Native business ownership would be needed. Also testifying at this hearing was Ronald Solimon, the National Center's immediate past Board Chairman. He then served as CEO of Laguna Industries, Inc. and described how his collaboration with Raytheon Corporation, SBA and DOD had led to a joint venture between Laguna Industries with Raytheon that was awarded a DOD contract. Mr. Solimon recommended that the Congress amend Section 8(a) to authorize 8(a) companies owned by Tribes or ANCs to joint venture with companies that could mentor them along the way. The low level of Federal (particularly defense) contract awards to Native-owned firms greatly concerned then Committee Chairman Daniel K. Inouye. He emphasized that ``directing [the] purchasing power [of the Federal Government] to accomplish social goals such as assisting disadvantaged members of society is well established'' and acknowledged that ``unfortunately, . this public policy goal has not been achieved with respect to the participation of businesses owned by [N]ative Americans.'' \2\ In keeping with Federal Indian policies, he acknowledged that it is Native groups' ``common trust relationship with the United States'' that ``allow[s] the Congress to legislate unique benefits and treatment for the Native Americans.'' --------------------------------------------------------------------------- \2\ Oversight Hearing on ``Barriers to Indian Participation in Government Procurement Contracting,'' Senate Select Committee on Indian Affairs, 100th Cong. 2d Sess. 2 (1988). The public policy referenced in Chairman Inouye's 1988 statement derives from the U.S. Constitution's grant to Congress of the power ``to regulate Commerce . . . with the Indian Tribes.'' Article I, Sec. 8, ] 3. This Constitutional provision, and its interpretation in subsequent landmark Supreme Court decisions, gave rise to the federal government's special political relationship with and trust responsibilities to the tribes. See Cherokee Nation v. Georgia, 30 U.S. 1 (1831); Worcester v. Georgia, 31 U.S. 515 (1832). Thus Congressional enactments bestowing special rights to tribes and ANCs are based on this political relationship and trust obligation, not on a racial classification designed to remedy past racial discrimination. --------------------------------------------------------------------------- Responding to these recommendations, the Congress passed the Business Opportunity Development Reform Act in late 1988 (as well as amendments authored by Congressman Rhodes in 1990) that added the special 8(a) provisions applicable to companies owned by tribes and ANCs. Congress included these special 8(a) provisions recognizing that tribes and ANCs, as representative organizations, are responsible for generating continuing income and jobs for, and improving the livelihood of, hundreds or thousands of tribal members and Native shareholders. In parallel action in 1988, the Congress also amended the Procurement Technical Assistance Center (PTAC) Program to target assistance to Indian Country. It authorized creation of American Indian PTACs, or AIPTACs, designed to serve multiple Bureau of Indian Affairs areas. A number of these AIPTAC offices now operate within the National Center's network of business assistance centers, and help Native-owned companies learn how to navigate the complex Federal procurement marketplace using the 8(a) program and other procurement and business development tools available to them. C. Native 8(a) Fulfills Federal Small Business and Indian Policies Part of the National Center's function as a procurement technical assistance provider is to assist Native American contractor clients to be capable bidders, awardees, and performers of Federal contracts. In order to meet these objectives, these contractors must be prepared to serve the best interests of the Federal agency that will award the contract. We believe that a competitive or sole source award to a Native 8(a) enterprise will allow the agency to meet its small business goals and further Federal Small Business Policy objectives, including: Congress' declaration that the development and growth of small businesses is a national priority, 15 U.S.C. Sec. 631(a); Congress' articulation of the federal government's policy to ``aid, counsel, and assist small businesses to ensure that a fair proportion'' of federal contracts for goods and services are placed with small business, 15 U.S.C. Sec. 631(a); The FAR's articulation of such policies by requiring executive agencies to provide ``maximum practicable opportunities'' to small businesses, including small disadvantaged businesses, such as 8(a) contractors, in federal acquisitions of goods and services, 48 C.F.R. Sec. 19.201(a), see also 15 U.S.C. Sec. 637(d)(1); and Congress' establishment of goals for award of federal contracts to small businesses and small disadvantaged businesses, 15 U.S.C. Sec. 644(d)(1). Equally important are the numerous articulations of Federal Indian Policy that underpin the Native 8(a) provisions, including: Congressional recognition of ``the obligation of the United States to respond to the strong expression of the Indian people for self-determination by assuring maximum Indian participation in the direction of educational as well as other federal services to Indian communities so as to render such services more responsive to the needs and desires of those communities.'' 25 U.S.C. Sec. 450a(a); Congress' declaration of its ``commitment to the maintenance of the Federal Government's unique and continued relationship, and responsibility to, individual Indian tribes and to the Indian people as a whole through the establishment of a meaningful Indian self-determination policy . . . . In accordance with this policy, the United States is committed to supporting and assisting Indian tribes in the development of strong and stable tribal governments, capable of administering quality programs and developing economies of their respective communities.'' 25 U.S.C. Sec. 450a(b); and Congress' declaration of its policy ``to help develop and utilize Indian resources, both physical and human, to a point where the Indians will fully exercise responsibility for the utilization and management of their own resources and where they will enjoy a standard of living from their own productive efforts comparable to that enjoyed by non-Indians in neighboring communities.'' 25 U.S.C. Sec. 1451. As each Federal agency is a component of the Federal Government, and therefore is obligated to honor the Federal trust relationship with Indian tribes, the determination to award a contract on a sole source basis to a Native 8(a) enterprise is in the best interest of the agency as part of its trust obligation to promote Indian self-determination. IV. Reports Confirm Native 8(a) Enterprise Success The results of these Congressional enactments demonstrate real progress. The U.S. Census Bureau reported in 1997 that its data (though incomplete) showed 197,300 Native American-owned businesses in the United States, up 84 percent from 1992, employing 298,700 people and generating $34.3 billion in revenues. See 1997 Economic Census: Survey of Minority Owned Business Enterprises: Company Statistics Series (2001). By 2002, Census estimates were 206,125 Native-owned firms, up 4 percent from the 1997, but total revenues down 23 percent to $26.3 billion. See 2002 Survey of Business Owners, U.S. Census Bureau. In 2007, the National Center estimated that, of the roughly 360 tribes in the lower 48 states, several dozen had launched government contracting operations and applied for 8(a) program certification. Some were very successful, while others struggled to break into the difficult federal market. The SBA's list of the top 8(a) firms included several owned by ANCs and Tribes, and some had appeared on the Top 25 8(a) list of information technology firms. See Wakeman, 8(a)s Still a hit with ANCs, tribally owned companies, 20 Washington Technology (Sept. 26, 2005). Numerous other reports, even those that critique elements of the Native 8(a) program, confirm that the above-recited Congressional initiatives to spur Native economic development have been remarkably successful. The first major report issued in April 2006 from the Government Accountability Office (GAO) entitled ``Increased Use of Alaska Native Corporations' Special 8(a) Provisions Calls for Tailored Oversight'' (GAO-06-399). This GAO report provided helpful, balanced information on ANC 8(a) contracting as activities undertaken in response to the ANCSA that directed ANCs to pursue economic development to benefit their Alaska Native shareholders. GAO's report also explained how ANCs' participation in the 8(a) program has helped them generate revenues to return benefits to their Alaska Native shareholders, and how the SBA and federal agencies need to improve their oversight of ANC and other 8(a) contracting. The GAO report also made some recommendations for improvements, virtually all of which have been accomplished with SBA administrative actions and recent promulgation of revised 8(a) regulations. Also very helpful in presenting a clearer picture of economic development progress in Indian Country is the September 2007 report, entitled ``Native American Contracting Under Section 8(a) of the Small Business Act--Economic, Social and Cultural Impacts,'' by Jonathan B. Taylor of Taylor Policy Group, Inc., who is associated with the Harvard Project. His analysis confirms what the National Center's network of offices has learned anecdotally from working with Native-owned businesses across the country: the Native 8(a) provisions have succeeded, as Congress intended, in facilitating Native communities' diversification, self-determination and economic self-sufficiency. The Mentor-Protege programs of the SBA, DOD and other federal agencies also have helped in strengthening tribal- and ANC-owned companies. These reports, and many other studies, economic impact analyses, and other documentation submitted for this Committee's hearing record contain substantial additional information on the success of the Native 8(a) provisions, how they fulfill Congress' intent in enacting them in the first instance, and why they should continue. V. Remedial Actions Should Improve, Not Cripple, the Native 8(a) Program It is hard to think of a more worthy contracting program that has been more maligned than the Native 8(a) program. Nonetheless, the current and past Administrations certainly have recognized the program's worth, especially the SBA which directed its limited staff to take significant administrative, enforcement and rulemaking actions to improve its operation and oversight of the Native 8(a) program. The SBA addressed problems it identified, issues raised in GAO and SBA Inspector General (IG) reports, Congressional critiques, and concerns voiced by tribes, ANCs and their 8(a) program participants about the behavior of a few errant 8(a) companies and their non-Native managers that unfairly placed the whole Native 8(a) program in a bad light. Other SBA actions have focused on enhancements, such as efforts to clarify (and thereby improve) the process for tribal enterprises and other applicants seeking 8(a) certification. We applaud SBA's willingness to conduct many consultations with Indian tribes, businesses, and national organizations, such as the National Center, the National Congress of American Indians (NCAI), Native American Contractors Association (NACA), Alaska Federation of Natives, and National 8(a) Association to hear proposals to address the various issues raised. In addition to Federal consultations and other activities, many private sector initiatives have been undertaken to develop proposals, implement trainings to build capabilities and broaden procurement knowledge, adopt best practices and compliance manuals, institute compliance reviews and more trainings. The National Center is proud of the role it has played in conducting training sessions, advocating best practices and compliance, and fostering mentoring and partnering for Native 8(a) enterprises to enhance their capabilities. We have conducted special 8(a) panel discussions at our business development and procurement assistance conferences focusing on the special Native 8(a) provisions, the fiduciary responsibilities of the enterprise management and the Native board (e.g., tribal councils, tribal business development boards, and other Native boards) to their tribal members and Native shareholders to operate their 8(a) enterprises in full compliance with both the letter and spirit of the laws. The National Center also has entered into partnering arrangements with various other national organizations to encourage greater collaboration among Native and other contractors in bid matching, joint venturing, teaming and performing federal contracts. The National Center continues to work with NCAI, NACA and the National 8(a) Association to develop joint statements and reach out to other organizations representing 8(a) and other small contractors to work jointly toward the day that all Federal agencies increase, meet and even exceed their 23 percent small business contracting goals. VI. Specific Recommendations for Additional Improvements The National Center recommends the following additional actions, many of which this Committee can and should take, to strengthen Native American entrepreneurial and economic development outreach, program support and oversight: A. Enact Native American Business Development Provisions After careful deliberations, last year the Senate Committee on Indian Affairs developed several very signification proposals to enhance business and economic development in Indian Country. Chairman Byron Dorgan circulated a comprehensive Discussion Draft, received comments, and proffered many of the legislation's provisions as floor amendments while the full Senate was considering the Small Business Jobs bill. Below are the provisions that the National Center urges the Committee to take up again and promptly move forward: 1. Native American Business Development Program: After several years, there is now consensus on provisions (most recently contained in last year's S. 3534) to authorize the SBA's Office of Native American Affairs (ONAA), headed by an Associate Administrator, and grants for Native American Business Centers so that more business management, financial and procurement technical assistance can be made available in more locations throughout Indian Country. SBA's ONAA must have more authority to be able to compete for a fair share of the funds already appropriated for SBA's entrepreneurial development program overall. Without specific authorization to access those entrepreneurial development program funds, the ONAA will continue to be substantially disadvantaged in trying to provide adequate outreach and assistance across the country with its grossly inadequate budget of only $1,250,000 (down from $5,000,000 annually during the Clinton Administration). 2. Surety Bonding: Expansion of existing, but unutilized, surety bond guarantee authority for the Secretary of the Interior to issue surety bond guarantees either independently or supplemental to a surety bond guarantee issued by SBA, up to 100 percent of amounts covered by a surety bond issued for eligible construction, renovation, or demolition work performed or to be performed by an Indian individual or Indian economic enterprise. Often tribal and individual Indian-owned construction companies engaging in construction contracting (whether under federal, state, local or tribal government contracts, or commercial contracts) face significant barriers to securing any surety bonding at all. Many insurance/surety companies choose not to work with tribal contractors, because they do not understand tribal sovereignty and do not want to work with tribal courts. Technical assistance and training for contractors seeking surety bonding also would help them mitigate risk, build capacity, improve performance, grow and create more jobs. The National Center's business assistance centers provide this type of guidance now, but more targeted assistance related to surety bonding is needed. 3. Indian Loan Guarantee Program Enhancement: The Indian Finance Act authorized the Secretary of the Interior to provide guaranteed loans to businesses that are majority-owned by tribes or Indians. Implementing regulations require tribal businesses to provide collateral worth at least 20 percent of the loan principal. Too frequently, this equity requirement inhibits the launch of on- reservation enterprises or development projects that employ reservation residents. The Dorgan proposal would amend the loan guarantee provisions to require the Department of the Interior to establish a tiered system, based on the number of on-reservation jobs created, that would provide more favorable equity terms and authorize an increase in the amount guaranteed up to 100 percent for energy and manufacturing businesses. This change would make the Indian loan guarantee program far more helpful to the establishment of tribally-owned energy or manufacturing businesses, and potential employment of more local reservation residents. 4. Buy Indian Act Amendments: Enacted in 1910, the Buy Indian Act obliquely states simply that ``so far as may be practicable Indian labor shall be employed, and purchases of the products of Indian industry may be made in open market in the discretion of the Secretary of the Interior.'' (25 U.S.C. 47). The Dorgan Discussion Draft included provisions to clarify and strengthen Buy Indian procurement procedures to apply when fulfilling agency requirements will make use of funds appropriated for the benefit of Indians. Such procedures would foster increased award of contracts to Indian economic enterprises by procurement personnel of the Department of the Interior, Indian Health Service, and other agencies receiving funds appropriated for the benefit of Indians. Also proposed was creation of a Data Center for the collection of information on the experience, capabilities and eligibility of Indian economic enterprises, and reporting requirements on agency use of the Buy Indian Act and information collected by the Data Center. B. Other Actions the Committee Can Take We urge the Committee members to share what they have learned with their colleagues on other committees, and explain why Congress enacted the special Native 8(a) contracting provisions. Equally important is stressing how the Native 8(a) provisions are fulfilling their promise and purpose by: (1) upholding the Federal trust responsibility; and (2) serving the Federal agencies' best interests by meeting requirements at costs that are fair and reasonable. This Committee also can play a major role in urging the various Federal contracting agencies over which it has direct jurisdiction to meet and exceed their individual agency's small and minority business contracting and subcontracting goals, using Buy Indian Act contracting authority to the fullest extent possible. Just as witnesses at the Committee's 1987 and 1988 hearings emphasized, the Federal departments and agencies that disburse funds ``for the benefit of Indians'' (e.g., Bureau of Indian Affairs, other Interior agencies, the Indian Health Service, the Army Corps of Engineers, the Departments of Transportation, Housing, Agriculture, etc.) should be using the Buy Indian Act authority to contract with Native-owned businesses, small or large. To ensure that more ``teeth'' are put into Buy Indian Act implementation, the Committee should request briefings by the agencies and conduct oversight hearings to receive status reports from these contracting agencies on their past performance in contracting with Native contractors of all types, and their plans for increasing that contracting support. Witnesses from Indian country also should be invited to report on their efforts, successful and unsuccessful, to convince these agencies to award contracts and other arrangements (such as park concessions) qualified Native contractors. C. Ensure Federal Agencies Meet Small Business Contracting Goals Tribes, ANCs, NHOs, their Native 8(a) enterprises, and all the national organizations representing 8(a) and other contractors must rally together to focus much more attention on the question of what can be done to improve the record of all Federal agencies in meeting both their prime and subcontracting goals for awards to small and minority businesses. With the significant growth in the Federal market, there is no excuse for the continual decline in the percentage of contract awards to small businesses. The following joint policy positions best summarize actions that should be taken: Fulfill Congressional intent to further the Indian Self- Determination policy set forth in 25 U.S.C. 450a by preserving the provisions that promote the competitive viability of 8(a) companies owned by Indian tribes, Alaska Native regional or village corporations, and Native Hawaiian Organizations that help support their Native communities by developing more self- sufficient Native economies; Support limits on bundling and consolidation of contracts, break up such contracts for award to small businesses, or employ procurement procedures to enable teams of Native-owned and other small businesses to pursue bundled or consolidated contracts; Spur the SBA on in its efforts to negotiate with individual contracting agencies to set and meet small and minority business contracting goals higher than their current levels, and to be more accountable for their past performance and future plans to make more awards in each subcategory of small business contracting; Increase the Government-wide contracting goals for awards to small and minority businesses (previous bills have proposed not less than 30 percent of total contract awards to small business, and not less than 8 percent of total contract and subcontract awards to small disadvantaged business and 8(a) concerns); and Encourage small businesses with larger contracts to implement subcontracting plans to develop stronger business alliances among all types of small business contractors, including 8(a) and other small disadvantaged concerns, HUBZone, service disabled veteran-owned, women-owned and other small businesses. V. Conclusion The National Center thanks the Committee in advance for considering our comments and recommendations. ______ Prepared Statement of Christine E. Klein, A.A.E., Executive Vice President/Chief Operating Officer, Calista Corporation Please see the below bullets and attached fact sheet on a few of the benefits that the 8a program has helped enable Calista corporation to provide to its Alaska native shareholders through some of the contracts received: Shareholders: Calista had 13,300 original Shareholders enroll in 1971; their Descendants number over 20,000, making Calista one of the largest Alaska Native Corporations (ANCs) based on population. The Calista area of Alaska is larger than the state of New York, has little if any infrastructure, and is remote and now surrounded by federal lands, wilderness, preserves, and parklands which isolates the region and makes it very difficult to access and develop economically. Dividends: the Board of Directors established an ``Akilista'' Fund to generate a dividend income stream for Shareholders in perpetuity. Calista has provided dividends to Shareholders for the past three years after it recouped its capitalized losses and became profitable through business revenues, and the Akilista Fund met its criteria for making distributions. Over $12.3 million in dividends and distributions have been made since 2008. Elders: Original Shareholders who reach the age of 65 have received special Shareholder benefit check distribution for the past three years to help them with the high cost of heating fuel and living expenses. Education: A Scholarship Fund has been providing assistance for 16 years providing post secondary, graduate, certification, and vocational education opportunities through scholarships. Since 1994 over $2.2 million has been awarded to over 1,300 Shareholders and Descendants. Internships: Calista provides paid summer internships to college students in good standing, helping them acquire hands on critical job skills. Students receive work experience, pay, and a living stipend, totaling more than $78,000 in 2010 alone. Employment: Calista maintains an active Shareholder and Descendant resume and talent bank database for job recruiting and its companies all have and utilize Shareholder hire preference policies for employment opportunities. Infrastructure Studies, Assessments, and Plans: Energy assessments of hydroelectric, geothermal, oil/natural gas and diesel, as well as transportation infrastructure have been conducted or led by Calista. These efforts are to try solving difficulties associated with the extremely high living costs due to lack of any basic infrastructure in the region. Apprenticeships and Training: A highly successful certified drillers training program was established by Calista with the State of Alaska through apprenticeships, with their employment hours going towards shareholder journeymen certifications. Jobs: Calista has consistently had high Shareholder hire rates for over 10 years. More than 30 percent of Calista and subsidiary employees in Alaska are Alaska Native. Subsidiary company Chiulista Services has a 92 percent Shareholder hire and retention on its Donlin Creek mine exploration contracts within the Region and is a model program of success. The Brice Incorporated construction company owned by Calista is also known for its highly successful local hire numbers and training on remote civil construction projects and long history of building airports and roads throughout the Calista Region. Calista supports the SBA 8a program and ability to do sole source contracting with qualified Alaska Native Corporations' (ANC's). The ANC's are unlike other companies in that they are owned by whole communities of disadvantaged native peoples unlike other companies owned by a few members who benefit from the profits. Limiting the ANC 8a program contract caps to the same limits of individual small business cap limits would be devastating to the steady positive progress finally being made in some of the poorest areas of the country. If you have any questions at all, please feel free to call us. Thank you for the opportunity to provide this information. Attachment
Response to Written Questions Submitted by Hon. Daniel K. Akaka to Julie E. Kitka