Patronage and Capital Credits

A cooperative, or co-op, is a business owned and operated by its members rather than investors. A cooperative is an organization established to provide certain goods or services for the benefit of its members. Cooperatives are based on a few key characteristics, including:

• Member-owned: Cooperatives are owned and controlled by their members, who are also the stakeholders of the business.
• Democratic structure: Cooperatives are democratically controlled, with each member having one vote. A cooperative principle is that each cooperative member’s vote is of equal value regardless of how long the member has been a member, or how much business they do with the cooperative.
• Equitable distribution: Economic results are distributed fairly based on the volume of operations.
• Benefits members: Cooperatives operate for the benefit of their members, rather than to earn profits for investors.

Because CTC is a cooperative, owned by its members, it doesn’t technically earn profits. Instead, if revenues exceed the cost of doing business (expenses), the co-op earns margins (profits). Any revenues over and above the cost of doing business are considered. These margins represent an interest-free loan of operating capital by the membership to the Cooperative. Each year, net tax margins earned are assigned to members in proportion to the amount each paid for telecommunication services that year. These assigned margins are called patronage capital credits.

Capital Credits represent the economic participation of the members of the cooperative. A cooperative funds its operations through the business the members do with the cooperative. Members, through their patronage, furnish capital for the ongoing operations of the Cooperative.

This capital allows the Cooperative to finance operations and construction, with the intent that this capital will be repaid to members in later years when the Cooperative is financially able to do so, and when the Board elects to do so.

Capital Credits are not cash and Capital Credits should not be confused with profits. Cooperatives operate on a non-profit basis and exist to provide reliable and high-quality services to its members. Instead of generating profits to give to shareholders, cooperatives reinvest excess earnings to improve and continue its operations for members.

The amount of patronage members earn each year is based upon the amount of capital they contribute to the Cooperative through payment of their monthly bills. The sum of your monthly bills for a year is compared to the total monthly bills for all subscribers to determine capital credits. Capital Credits accumulate in the member’s account until they are retired, at the direction of the Board or the dissolution of the Cooperative. Allocated Capital Credits appear as an entry on the permanent financial records of the Cooperative and reflect member equity or ownership in the Cooperative. When Capital Credits are retired, a check is issued to the member and their equity in the Cooperative is reduced.

No, capital credits are calculated based on a member’s monthly bills. If you are billed for a service even one month, you would accumulate some Capital Credits if the Cooperative earned positive net tax margins in that year. Capital credits are calculated for all members who purchased services during a year in which the Cooperative earned positive net tax margins. No special action is required to start a Capital Credit account. Membership with the Cooperative immediately activates your Capital Credits account.

Capital Credit retirements are decided by the Cooperative’s Board of Directors. Their decision may be based on the communications they receive from members, advice from legal and financial partners, the company’s need for capital on a forward-looking basis, and the overall financial health of the Cooperative.

Though philosophies may vary from board to board, the CTC Board of Directors anticipates issuing checks whenever the Cordova Telecom Cooperative’s financial viability warrants. One of our cooperative goals is to make patronage capital payments periodically.

The Cooperative Board of Directors reviews patronage assignments and retirements annually.

Allocated Capital Credits may not be used to pay current bills. When Capital Credits are retired active members will receive a check if the amount is over $40.00 else it will be applied to the next billing cycle.

CTC is constantly investing in maintaining and improving our telecom infrastructure to deliver quality affordable services to our members. The upgrades in technology are expensive and our rurality increases costs. The Board has made a conscious choice based on recommendations from legal and financial advisors to reinvest net tax margins. The Cooperative still allocates capital credits annually to each member’s account and carries the obligation to retire them at some future date, as they represent your ownership in the Cooperative.

As of 2024 the Cooperative has several grant projects underway that will require significant matching funds through 2027. These efforts will expand the Cooperative service footprint and generate new long-term revenues for the members. We plan to revisit the current approach to annual patronage retirements after we complete these projects.

Bylaws allow for the early retirement of Capital Credits upon the death of a member. The estate or executor of the member can petition for the Capital Credits to be retired early, on a discounted basis. The Board of Directors must approve the request during a subsequent meeting.

Capital Credits are not worth their full value until approximately 20 years from allocation. Early retirement of capital credits will result in a reduced value.

If you think you missed a retirement or have unclaimed Capital Credits you can give us a call at 907-424-2345 OR check the State of Alaska Unclaimed Property https://unclaimedproperty.alaska.gov/app/claim-search .

For residential accounts, Capital Credits are generally not taxable.

If the cooperative has reason to believe its services are used by a member for business purposes, and the Capital Credit retirement for a year exceeds $600, the Cooperative is required to issue a 1099-MISC to the member.

Members should consult with their tax advisor regarding the reporting and taxability of their Capital Credit retirements.