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MEMORANDUM OF INFORMATION

CREDIT ACTIVITIES IN ALASKA

Senate Memorial No. 3 of the Territorial legislature deals with loans made in Alaska from the revolving fund of $10 million authorized by the act of June 18, 1934 (25 U. S. C. 470). Loans from this fund in Alaska were authorized by the act of May 1, 1936 (25 U. S. C. 473a). This loan fund is available to Indian organizations and individual Indians of one-quarter or more degree of Indian blood in the States, as well as for loans in Alaska. As of June 30, 1956, loans totaling $25,157,792.91 had been made, of which $12,087,255.97 was on loans made in Alaska. There was $7,715,612.28 outstanding on loans, of which more than 50 percent was on loans made in Alaska. The natives of Alaska have received far more than their proportionate share of financing from this fund.

The repayment record on loans made in Alaska is poorer than any other area of the Bureau of Indian Affairs, and the potential loss to the United States is much greater. Indians and Indian organizations were delinquent in payments totaling $941,256.29 on June 30, 1956, on loans received from the United States, of which $628,246.12 or nearly 67 percent was on loans made in Alaska. Individual Alaska natives were delinquent in payments of $616,696.73, which was nearly 62 percent of the unpaid balance on their loans. Exclusive of Alaska, the delinquency rate was about 20 percent of the unpaid balance. The unpaid balance on loans made in Alaska was reduced to $3,847,978.28 as of December 31, 1956.

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1. Loans to 38 native organizations for store operations

Stores and trading posts are operated by Eskimo, Aleut, and Indian village associations in remote areas of Alaska. The economic life of the village centers largely around these stores. Native products are marketed through them, and practically all supplies needed by the natives are stocked by their stores. Some of the villages operating stores have received loans from the United States to help finance their merchandising operations. Others have not.

Because of the isolated location of most of the villages, merchandise can be shipped to some of them only once a year, except for small lightweight items that can be transported by air. The merchandising for these stores is far more complicated than it would be for similar small stores in the States, where transportation is readily available. More capital also is required than by stores of similar volume where merchandise shipments can be made throughout the year. As an

example, a native store manager in January 1957 may have to place orders for merchandise that may not reach the village until September or October. This stock must meet the village requirements until the next year's shipment is received in September or October 1958. If, in January 1957, the store manager underestimates the requirements of the village, it may be 18 months later before adequate supplies of the particular commodity can be obtained. When the thousands of items which the store must stock, such as ammunition, firearms, motors, groceries, clothing, fuel, building materials, drugs, household wares, etc., are considered, together with the fact that much of the merchandise may be traded for native products, such as ivory carvings, other arts and crafts items, furs, etc., which may not be sold for several months, it is apparent how complicated the management of even a small store becomes in an isolated area.

Prior to 1948 purchases for the native stores were handled by the Federal Government. Government employees compiled a catalog from which the store managers made their selections of merchandise. Government employees checked the orders, more or less arbitrarily made additions thereto and deletions therefrom, taking into consideration the financial ability of the villages to pay for the merchandise ordered. Credit policies of the village stores were determined by Government officials. Billings for merchandise shipped to particular villages were made from the ships' manifests. Often the merchandise had been sold by the native stores on a "guesswork" basis before an invoice was received. Funds of the villages were on deposit with the Government, and disbursements for the villages were made by Government officials. The program, although at that time it was much smaller than it now is, was largely a Government operation.

In 1947 some of the villages organized the Alaska Native Industries Cooperative Association (ANICA) to enable the villages to handle their purchases. Some marketing of native products also is handled through ANICA. This association is a nonprofit membership organization, and was organized to provide service to the native villages. Its organization was a part of the Government's program to turn more authority and responsibility for management of their own affairs over to the natives. Membership in the organization is entirely voluntary.

ANICA's powers are outlined in its articles of association and bylaws, and are exercised by a board of directors. There is one director for each member village association. The officers consist of a president and five vice presidents. The officers constitute the executive committee. Under authority of its articles and bylaws, the board is permitted to delegate some of its powers to its executive committee. Day-to-day operations are conducted by a paid manager and his staff. The manager is employed by the board under written contract approved by the Commissioner of Indian Affairs, and operates under policies established by the board.

A total of 37 native villages are now members of ANICA. The association performs most of the functions in purchasing and shipping commodities to the village stores that were performed by the Government prior to 1948. Invoices for shipments made by ANICA must either accompany the merchandise at the time of shipment, or be airmailed to the villages shortly after the time of shipment. The store managers know exactly what merchandise has been shipped to them,

and the cost. Quantity purchasing by ANICA enables it to purchase merchandise at the lowest possible costs.

Loans by the United States, totaling $1,336,750, have been made to 38 native organizations to operate stores, and to help finance ANICA. Repayments of $873,894.23 have been made, and the unpaid balance is $462,855.77. At the close of the last fiscal year only one village was delinquent in payments to the United States in the amount of $6,000. The United States has not lost a single penny on these loans.

ANICA charges 10 percent of the Seattle cost of merchandise to meet its expenses. The charge may vary from time to time and is determined by the board of directors. The 10 percent service charge does not apply to the cost of freight, insurance, or other costs involved in shipping merchandise from Seattle to the villages. ANICA is a nonprofit organization. In the event it is able to operate for less than the service charge imposed, the amounts in excess of its actual expenses, and sums needed for reserves, are returned to purchasers in the form of patronage refunds, based upon the volume of business done with ANICA.

Copy of the financial statement of ANICA at December 31, 1956, is attached hereto, together with statements from a number of suppliers of ANICA regarding its purchasing practices.

Native villages are not required to make purchases from their stores. from ANICA as a condition of receiving loans from the United States. However, the members of ANICA, having contributed to its capital, generally find it to their advantage to do so. However, considerable merchandise is purchased locally as is pointed out in a letter from the manager of February 25, 1957, copy of which is attached hereto. The following shows ANICA's activities during 1956:

Cost of merchandise at Seattle_
ANICA's service charge.-

Freight, postage, marine insurance.
Tobacco taxes..

Total invoice amounts...

$840, 467. 64

84, 047. 23 214, 373. 14 10, 782. 50

1, 149, 670. 51

A total of $504,101.28 of the foregoing invoice amounts, or about 44 percent, was to village stores not indebted to the United States for loans. These villages undoubtedly found it in their interests to make their purchases through ANICA.

2. Loans to four native organizations for the acquisition of salmon canneries

Loans have been made by the United States to four village associations in southeastern Alaska for the acquisition and operation of salmon canneries, and to enable the associations to make loans to members, principally for the purchase of boats to fish for the canneries. A total of $3,084,029.56 was owing to the United States by these 4 associations as of December 31, 1956, of which $2,505,461.59 was for cannery acquisition and operations, and $578,567.97 was for loans. to members. The latter is discussed under section 3 of this memorandum.

Generally, these canneries have not been of the assistance to the natives that it was hoped they would be at the time they were acquired. The first cannery was built with the assistance of a loan in 1939. It was destroyed by fire in 1948 and was rebuilt from the insurance proceeds. This cannery operated fairly successfully through 1950.

Although it had both profitable and unprofitable years, by 1950 the association had created an equity of $398,669.36 in the cannery from its operations.

One cannery was acquired in 1948 and the remaining two canneries in 1950. The salmon-canning industry was in a downward cycle at the time these three canneries were acquired. From 1939 (when the first cannery was built) through 1950, the salmon pack in southeastern Alaska averaged about 2,013,685 cases annually. The average pack for the years 1951 to 1956, inclusive, has been about 1,225,124 cases annually, or a decrease of approximately 38 percent. Three of the canneries thus were acquired at a time when they had little potential for success. In 1939, at the time the first cannery was acquired, there were 48 operating plants in southeastern Alaska. By 1948 the number had decreased to 39, by 1950 to 36, and by 1956 only 23 plants were operating in the area.

Aside from the decreased fish supply, other factors also have contributed to the unsuccessful operation of the canneries. The village associations that were not recognized as bands or tribes prior to May 1, 1936, were organized on the basis of a common bond of occupation, association, or residence of the natives, under authority of the act of May 1, 1936 (25 U. S. C. 473a). The natives organizing the associations had little, if any, business, technical, or other experience or training qualifying them to operate or direct the operation of a highly competitive industry such as canning. Although experienced managers were hired to operate the canneries for the village associations, the employers of the managers were the largely inexperienced councils of the village associations. Efficient management of the plants, consequently, was very difficult. In some instances, council members. (employers of the manager) were also subordinate employees of the managers. Self-interest of the council members often was directly opposed to efficient cannery management. Council members often did not understand the need for or support the efficient economical operation and management of the canneries. The village associations were organized on a somewhat artificial basis and the members often had little loyalty to their own organizations. Competing commercial operators would offer inducements to the better fishermen, and the common bond of occupation, residence, or association was insufficient to assure loyalty to the canneries of the village associations. To a considerable degree, this left the village canneries with insufficient production to operate profitably, and with the marginal fishermen who nevertheless had to be financed, and in whom other operators were not interested. Commercial operators could raid the fleets of the association canneries and pick off the top producers by offering them inducements to fish for the commercial canneries. The association canneries are restricted in their financing of fishermen to members of their own particular village association, and consequently were at a disadvantage in not being able to offer inducements to the top producers of other operators.

1 Pacific Fisherman Yearbook, Jan. 25, 1957, p. 91.

The following shows the results of operations of the four canneries since 1948:

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1 $15,000 of profits of 1 cannery with an equity diverted to association use. 2 1956 figures are unaudited and are projected to Mar. 31, 1957, based on current market prices as pack has not been entirely sold.

Because of concern over 1951 operations, the firm of Ernst & Ernst was employed in 1952 to make a study of cannery operations. In 1953, a consultant was employed to make a study and submit recommendations as to how operations could be improved. The 1953 fishing season, however, was far more disastrous than had been anticipated, making is imperative that immediate corrective measures be taken.

During 1954, one cannery (Angoon) was financed for operation by the village, although on a more economical basis than in the past. This is the only village which still has an equity in the cannery. Its operations were profitable in 1954. The fish of one cannery (Hydaburg) were custom-canned at Metlakatla, which also is a native operation, although its cannery operations are not financed by the United States. A loss was incurred. One cannery (Klawock) was leased to a commercial operator, with resulting loss to the village association. The lease was entered into by the council, and was approved mainly in order that the village people might have employment in the cannery. The fish of the remaining village (Kake) were canned at the nearby plant of a commercial operator, and a profit was made.

During 1955, Angoon again was financed for operation by the village, and made a small profit. The operations of Hydaburg and Klawock were combined, operating at Klawock. Both made a profit. Kake's operations were again combined with those of a commercial operator, but this time operating at Kake, and resulted in a profit.

The operating loss suffered on the 1953 pack of 87,270 cases was $682,910.20. The improved arrangements put into effect in 1955 resulted in a profit of $137,358.61 on a pack of 88,235 cases.

During 1956 operations were on the same basis as in 1955. The 1956 pack has not been entirely sold, but indications are that Angoon suffered a large loss, Hydaburg suffered a small loss, Klawock made a small profit, and Kake, which operated in conjunction with a commercial operator, made a sizable profit.

At the present time arrangements are in effect whereby only 1 of the 4 canneries, Kake, is operated by a commercial operator. However, the plants or parts of the plants have been operated by commercial operators at various times since the canneries were first acquired by the village associations. Hydaburg, the first cannery,

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