[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