How does CIRI pay its resource revenue distributions? What’s the difference between Section 7(i) and 7(j)? Why do shareholders have to wait to know their resource revenue payment amounts?
To answer these and other questions, the Raven’s Circle recently sat down with Rhonda Oliver, vice president, CIRI corporate controller.
Raven’s Circle: Can you give us a general overview of how resource revenue sharing works?
Rhonda Oliver: To understand resource revenue sharing, it’s important to understand the distinction between Section 7(i) and Section 7(j).
First, a little history:
In 1971, the U.S. Congress passed the Alaska Native Claims Settlement Act (ANCSA), which settled Alaska Native peoples’ aboriginal land claims and distributed 44 million acres of land to 12 Alaska-based regional corporations—of which CIRI is one—and more than 200 village corporations.
Congress recognized that the economic potential of the lands selected by ANCSA regional corporations would not be equal, so Sections 7(i) and 7(j) were included in the law to help equalize ANCSA regional corporation revenues from activities such as oil and gas development, mineral development and timber sales.
- Section 7(i) of ANCSA requires that, after certain allowable costs are deducted, each of the 12 Alaska-based ANCSA regional corporations keeps 30% of its net resource revenues, with the remaining 70% divided among the regional corporations, including the distributing region. It’s important to note that the remaining 70% is not divided equally among the 12 regional corporations; rather, the percentage of the revenue pool each corporation receives is based on the number of original enrollees that corporation had at the time ANCSA was enacted (Dec. 18, 1971).
- Section 7(j) of ANCSA requires that the percentage of the 70% pool that a regional corporation receives is divided equally between itself and the village corporations and at-large shareholders in its region. Thus, CIRI retains 50%, and the remaining 50% is divided among at-large shareholders and village corporations in the CIRI region and paid out in the form of CIRI’s annual resource revenue distribution.
RC: What’s an “at-large” shareholder?
RO: Initially, shareholders who were enrolled by the Bureau of Indian Affairs (BIA) to only an ANCSA regional corporation were known as “at-large” shareholders and each received 100 shares of at-large stock in her/his respective corporation. Shareholders who were enrolled by the BIA to an ANCSA regional corporation and were also enrolled into an ANCSA village corporation received 100 shares of village corporation stock in addition to 100 shares of village-class stock in the regional corporation.
Due to gifting and inheritance, some ANCSA regional corporation shareholders now own both at-large and village-class shares of stock in the regional corporation. The way CIRI pays out its resource revenue distribution depends on the type of shares a shareholder owns.
RC: So, CIRI gets a percentage of the other 11 regional corporations’ 7(i) distributions. What happens then?
RO: Under Section 7(j), that money is divided equally between CIRI and the ANCSA village corporations and at-large shareholders in the Cook Inlet region. Thus, CIRI keeps 50% for things like shareholder dividends, reinvestment, operating expenses and paying taxes.
The remaining 50% is paid out in the form of CIRI’s annual resource revenue—or 7(j)— distribution in two ways, depending on the type of shares owned:
- Payments made in connection with non-village (or “at-large”) shares are paid directly to the shareholder.
- Payments associated with village-class shares are paid to the underlying village corporations.
RC: If I own CIRI village-class shares, how much will my 7(j) distribution be?
RO: Although ANCSA requires regional corporations to pay 7(j) amounts associated with village-class shares to the associated villages, it does not require village corporations to distribute those amounts to their shareholders; that’s up to the directors of each individual village corporation.
RC: First quarter CIRI dividend amounts are typically announced before resource revenue distributions. Why?
RO: CIRI can’t immediately announce the amount of its 7(j) distributions because 1) The company must calculate how much has been received from the other regional corporations in connection with their 7(i) obligations; 2) CIRI has to close its prior-year accounting books to determine its own 7(i) obligations; and 3) CIRI must calculate how much 7(j) obligation we have based on the 7(i) revenues received from the other regional corporations and our own 7(i) sharing.
RC: How does the 7(j) calculation process work?
RO: 7(j) payments are typically made at the first available date after the 7(i) calculation is completed, which usually occurs the beginning of April. We have to make our 7(i) payments within 90 days of the date the amount owed is known, so we target March 31. As soon as that’s completed, we can make our 7(j) payments. The timing is really contingent on completion of the financial books and records for the prior fiscal year (i.e., receiving and paying or properly accounting for all prior-year expenses and income), completion of the audit work process— which usually takes, at a minimum, two-and-a-half months—and completion of the 7(i) report. CIRI then announces the amount of the 7(j) distribution in the Raven’s Circle, on its website and on the dividend hotline, with the actual distribution made shortly thereafter.
RC: Will the proposed CIRI Settlement Trust be used to pay 7(j) distributions in the future?
RO: No. The 7(j) payments that CIRI currently pays to at-large shareholders and village corporations each year come from payments that CIRI receives from other regional corporations. CIRI is obligated by law to make 7(j) from the funds it receives, and the Settlement Trust cannot satisfy that obligation. CIRI will continue to make 7(j) payments, and at-large shareholders will continue to receive an IRS Form 1099, which reports that income to the IRS.
For more information on CIRI resource revenue distributions, visit www.ciri.com/shareholders/benefits/dividends-and-distributions/resourcerevenue-distributions.