ANCHORAGE, Alaska -- An Eskimo community that has used oil revenues to erase deep poverty over the last decade is facing a multimillion-dollar financial scandal that could hurt continued efforts to modernize the farthest reaches of North America.
With oil money, the North Slope Borough has changed the landscape of the once-poor U.S. Arctic with a massive decade-long capital improvement drive.
Now, the municipality the size of Idaho is asking what happened to millions of dollars of $1.2 billion in oil revenues that was spent to bring public housing, running water, sewer systems and adequate schools to eight Inupiat Eskimo villages where recent ancestors lived in sod houses.
An audit commissioned by borough Mayor George Ahmaogak showed the price for the roughly 8,000 people in the borough 700 miles north of Anchorage, translates into $150,000 of bonded indebtness per resident.
Borough leaders say the current bonds under issue -- an amount equal to the bonded indebtedness of the rest of the state -- are backed by over $12 billion in assessed oil field development and will continue to be paid on schedule.
But the problem has cast into doubt the borough's remaining modernization projects.
In response to the audit, Ahmaogak halted projects and proposed substantial cuts. In addition, he plans to trim back a $100 million annual operating budget that is double its 1980 level.
'Why should we keep on borrowing and increase our debt?' Ahmaogak said. 'We've got to control our spending, put a halt to our capital improvements and at least look at our total debt at this particular time.'
Legal action to recover funds and more extensive audits are pending, he added. The FBI also has begun its own investigation of potential fraud and extortion involving borough funds.
The audit questioned numerous payments, advances and contract amendments, including $14.5 million pushed through by Ahmaogak's predecessor, Eugene Brower, in his final days in office.
Ahmaogak defeated Brower, a three-term mayor, last October and later canceled many of the transactions Brower had approved.
'He (Brower) personally authorized all the payments that were made between that period,' said auditor Ann Helmick. 'It was something out of the ordinary.'
The audit also pointed out potential conflicts of interest as the borough contracted for some of its improvements with firms that borough advisers either owned or were affiliated with.
Many of the questions about open-ended contracts, inflated charges, excessive mark ups, double billing and so-called negotiated contracts that were not put up for competitive bidding were aimed at such companies and individuals.
Most of the firms are Anchorage- and Seattle-based construction companies that, along with employees and individuals, contributed nearly $100,000 to Brower's 1984 re-election campaign.
Brower raised a $230,000 campaign warchest.
According to the audit, at least three companies dealing with the borough had as partners or corporate officers two key borough advisers under Brower -- Lewis Dischner and Carl Mathisen. Those firms were identified as North Slope Constructors Inc., North Coast Mechanical Inc., and Tri-Leasing Inc.
In addition, the principal housing contractor, H.W. Blackstock Inc. of Seattle, listed as its president Kenneth Rogstad, who is also president and part-owner of North Slope Constructors Inc.
While those firms do not represent all the companies questioned or affiliated with the borough, they were major forces in shaping the modernization projects.
Dischner, a former state commissioner of labor who helped Inupiats get military construction jobs in the 1950s, had been the borough's lobbyist in Juneau for a decade until Ahmaogak fired him.
Mathisen is an Anchorage businessman who served off and on as a management consultant for the modernization projects until he was also fired.
Brower now works for North Slope Constructors Inc. He declined on two occasions to speak with UPI.
'The way I feel about it at least if somebody is going to have consulting work, they should stick to consulting work,' Ahmoagak said. 'They shouldn't be going around and forming construction companies and catching it on the other end also.'
The audit also illustrated unclear billing procedures and potential conflicts of interest.
For example, the audit reported that the borough leased a house owned by Johnnie K. Brower for $1,000 a month through Oct. 31, 1983 in Barrow, one of the Inupiat villages. Brower was an employee of the borough and related to Mayor Brower.
On Oct. 9, 1984, Blackstock Co. received $137,823 from the borough for improvements made to the house, which was used by Carl Mathisen.
A review of billings from a Mathisen firm indicated that he also charged the borough $135 a day per diem when he was in Barrow.
Beyond the monetary losses, the audit could provide ammunition for opponents of the borough, some of whom are jealous of the enormous tax wealth from oil company property the municipality obtained when it formed in 1972.
Those opponents have tried unsuccessfully to cap the modernization drive with spending-limit bills introduced in the state Legislature.
Borough founder Eben Hopson, who led the long battle to create the municipality, began the area-wide modernization program in 1975.
The late Hopson saw the borough's creation as a vehicle to formalize Inupiat home-rule of the Arctic and preserve dwindling Native land ownership and the pristine environment.
Jacob Adams, president of the borough assembly and the borough's second mayor, said checks and balances during the rapid modernization drive probably were lacking.
'We've had to continually wrestle with the problem of the administration coming to the assembly for more money; never taking the time to scrutinize and ask for more information of why he's asking for more money to complete the (modernization) projects,' Adams said.
