Proceedings of the Standing Senate Committee on
Aboriginal Peoples
Issue 10 - Evidence - December 2, 2014
OTTAWA, Tuesday, December 2, 2014
The Standing Senate Committee on Aboriginal Peoples met this day at 9:32 a.m. to study challenges relating to First Nations infrastructure on reserves.
Senator Dennis Glen Patterson (Chair) in the chair.
The Chair: Good morning, ladies and gentlemen. I would like to welcome all honourable senators and all members of the public who are watching this meeting of the Standing Senate Committee on Aboriginal Peoples, either here in the room or via CPAC or the Web.
I am Denis Patterson from Nunavut, and I have the privilege of chairing the Standing Senate Committee on Aboriginal Peoples. Our mandate is to examine legislation and matters relating to the Aboriginal peoples of Canada generally. This morning, we're hearing testimony on a specific order of reference authorizing us to examine and report on the challenges and potential solutions relating to infrastructure on reserves, including housing, community infrastructure and innovative opportunities for financing and more effective collaboration strategies.
We've completed our hearings on housing and are now focusing our study on infrastructure, including innovative approaches to finance infrastructure. Today's panel should be very well-placed to provide the committee with testimony on innovative financing models for on-reserve infrastructure.
Before proceeding to the testimony and perhaps before going around the table and asking members of the committee to introduce themselves, I would like to extend a particular welcome to our esteemed former colleague, Senator Gerry St. Germain, who is welcome back to this room. I have had the challenge of filling his big shoes in this seat, and it is always great to see you, senator.
Hon. Gerry St. Germain, P.C., Advisor, First Nations Financial Management Board: Thank you.
The Chair: And your distinguished colleagues.
I would like to ask senators to introduce themselves, please.
Senator Sibbeston: Nick Sibbeston from the Northwest Territories.
Senator Dyck: Lillian Dyck from Saskatchewan, deputy chair of the committee.
Senator Watt: Charlie Watt from Nunavik.
Senator Wallace: John Wallace from New Brunswick. Good morning.
Senator Beyak: Good morning. Lynn Beyak from Ontario.
Senator Enverga: Tobias Enverga from Ontario.
Senator Greene Raine: Nancy Greene Raine from British Columbia.
Senator Tannas: Scott Tannas from Alberta.
The Chair: Thank you, colleagues. I know you will help me to welcome, from the First Nations Finance Authority, Steve Berna, Chief Operating Officer, and Ernie Daniels, President and Chief Executive Officer; and, from the First Nations Financial Management Board, Harold Calla, Executive Chair. Welcome back to our committee, Mr. Calla.
We also welcome the Honourable Gerry St. Germain, P.C., Advisor; and, from the National Aboriginal Economic Development Board, David Crate, Member and Chief of the Fisher River Cree Nation, Manitoba.
Welcome to you all. We look forward to your presentations. They will be followed by questions from the senators.
Mr. Daniels, I understand you are going to begin, please.
Ernie Daniels, President and Chief Executive Officer, First Nations Finance Authority: Good morning, senators. Thank you for this opportunity to come to talk to you today. Just a bit about me before I get into my presentation: I'm from the Northwest Territories, born, raised and educated up there. I'm a certified general accountant. I was in Ottawa for a number of years, working with the finance officers' association, and made my way to B.C., trying to get closer to home, I guess.
It is a real privilege for me to be here. I will attempt to give you a brief summary of the work the FNFA is doing and make a few recommendations for the committee to consider.
FNFA is one of three fiscal First Nations institutions created under the First Nations Fiscal Management Act, which received all-party support back in 2006. We are a not-for-profit institution, wholly owned by the First Nations governments that are its borrowing members.
Our mandate is to be the central borrowing agency for First Nations across Canada. We provide long-term fixed- rate financing, with repayment terms up to 30 years for its members, by issuing debentures into the capital markets and then relending the net proceeds to First Nations. We also provide short-term bridge financing for our members, at below the bank prime rate. In addition to providing financing, we provide pooled investment services to our members and other First Nations organizations.
By working as a group through FNFA, First Nations have received two investment-grade credit ratings from Moody's and Standard & Poors. We have established capital market confidence and we now have access to financing available to other levels of government.
June 19, 2014, just six months ago, marked the first time in Canada's history that First Nations, as a group of borrowers, accessed financing directly from the global capital markets. The FNFA issued, on behalf of 14 First Nations, the inaugural First Nations Finance Authority 10-year debenture, in the amount of $90 million.
This $90 million debenture was purchased by life insurance companies, pension plans and large corporations. The FNFA structure and investor safeguards made our debenture very attractive to them, and the door is wide open for further FNFA issuances going forward. The largest investors were out of New York state, followed by the provincial pension plans here in Canada.
Besides achieving lower loan rates, another important benefit is that each participating First Nation is provided with a letter from the FNFA that indicates their borrowing power. This is the amount of financing that capital markets are willing to lend to each community.
One example is Membertou First Nations. By refinancing some of their existing loans with us, they're saving $140,000 per month. These savings are equivalent to one house each month. The borrowing power letter that we gave chief and council back when they first started was for more than $75 million.
Although the act is operating successfully, it could be modernized and amended to make an even greater impact. To narrow the growing infrastructure gap on reserves, it is worthwhile to discuss these areas.
Our membership to date includes 150 First Nations that have voluntarily asked the minister to be able to use the act and its services. However, this scheduling process is lengthy in time, up to six months, but it could be shortened by authorizing the minister to sign off on the scheduling of requests.
The capital markets worked with the FNFA, establishing leverage factors for each type of own-source revenue, which is used to calculate the borrowing power for each First Nation. Each community's borrowing power is reviewed annually and revised if warranted. To ensure that over-borrowing does not occur, the FNFA has implemented certain revenue leverage safeguards.
The June 2014 inaugural $90 million debenture with a 10-year term was issued at a fixed lending rate of 3.79 per cent. Today's rate would be 3.35 per cent. The 14 First Nations that participated in the debenture used the proceeds for infrastructure, housing, and economic and social development projects. Since then, we have continued to issue bridge financing at 2.6 per cent to members. These short-term loans will be rolled into the second FNFA debenture to be issued in 2015.
First Nations who do not have ''leverageable'' own-source revenues to support loans will find membership difficult to attain. This means that their only solution for infrastructure development is through AANDC annual funding. If leverageable revenue streams could be made available to these communities, these newly leveraged revenues could support FNFA loans and transform their communities and economic opportunities.
Two such ideas for leverageable revenue generation are, first, multi-year AANDC capital funding agreements with First Nations; and, second, participation in large-scale resource projects as equity partners.
Currently, AANDC funds infrastructure on a pay-as-you-go basis, whereby infrastructure is paid for cash as determined by need and other factors. This relieves any debt obligations to Canada but achieves only a limited number of projects each year. As each year passes, the costs of projects increase due to labour and materials inflation, and the infrastructure gap continues to grow. A possible opportunity exists to monetize, through the FNFA, annual federal funding for on-reserve infrastructure. This will enable many more projects to occur today at today's costs, not tomorrow's inflation costs. Monetization would significantly narrow the infrastructure gap which is currently widening.
The second is participation in large-scale resource projects. One suggested way to improve access to capital for First Nations support and involvement in large-scale projects is through the use of federal support. However, large-scale resource projects require loan amounts in excess of what First Nations existing revenues can support. Federal support to FNFA would ensure capital markets the comfort to buy FNFA debentures. Economic participation will translate into significant cash transfer on an annual basis to First Nations communities. This will enable First Nations to monetize their own-source revenues using the FNFA borrowing program to respond to the communities infrastructure needs without having to rely solely on capital funding from Ottawa. I'm sure Harold and Gary are going to talk about this.
I want to talk a bit about amendments to the act. With the successful issuance of the inaugural bond and the firsthand experience working through the requirements of the act, it is apparent that amendments to the act are necessary to make it more beneficial to First Nations to access financing and to address their infrastructure needs. Although work is under way with AANDC to amend and modernize the act, for example, speeding up the scheduling process, there needs to be a concerted push by this committee and others to see it through.
I'm just going to outline three recommendations briefly. The first one is to have FNFA participate in further discussions around alternative methods of providing adequate infrastructure to First Nations across Canada. Second, both types of alternative financing options discussed above would require act amendments and our legal counsel would provide such a proposal in draft form. Third is to implement the recommendations put forth by the national Aboriginal Economic Development Board in their February 2012 report entitled Financing First Nations Infrastructure, which I'm sure Chief David Crate will talk about later.
The Chair: Thank you very much, Mr. Daniels.
Chief Crate, please.
David Crate, Member and Chief of the Fisher River Cree Nation, Manitoba, National Aboriginal Economic Development Board: Good morning. I want to thank honourable senators for the invitation to present today on behalf of the National Aboriginal Economic Development Board. I'm going to share with you today some of the concerns we have around infrastructure requirements for the communities and then make some recommendations to the Senate committee.
I want to give you a little background information on myself. I have been Chief of the Fisher River Cree Nation on and off for the last 26 years. I have worked for the community and have seen a lot of different things in terms of requirements for our community, infrastructure being one of the biggest needs for our First Nation. I'm also a member of the National Aboriginal Economic Development Board.
The board is comprised of First Nations, Inuit and Metis communities and business leaders from across Canada. Our mandate is to provide policy and program advice to the federal government on Aboriginal economic development. We play an important role in helping the federal government respond to the unique needs and circumstances of Aboriginal people in Canada. Members of our board include Chief Clarence Louie, Chair and Vice-Chair Dawn Madahbee. Both have appeared before this committee on a number of occasions.
As chief of my community and member of the board, I believe that infrastructure is critical to building First Nations economies. Where First Nations across Canada have built strong and sustainable economies, infrastructure has been the foundation. Whether in the form of schools to educate our children, water treatment plants to provide clean potable water, or roads to deliver goods, infrastructure is the backbone of development. It is needed to help grow First Nations economies, investment and government revenues, which in turn can be used to build and maintain infrastructure in the future.
In my community, which is located in southern Manitoba, infrastructure is a top priority. Over the years, our community has benefited from flood mitigation programs with investments targeted at road maintenance, drainage and housing. These investments have decreased the impact of flooding on my First Nations community and have resulted in cost savings.
However, other First Nations are not in the same situation, and many projects do not proceed as quickly as hoped. There are often delays due to the time between the submission of a funding proposal to the federal government and the receipt of funds. I will speak more about the current funding model shortly.
As this committee knows all too well, the infrastructure gap in First Nations communities is significant. In 2011, a national assessment of water and waste water assets concluded that $1.2 billion is needed to bring existing systems up to standard. According to Aboriginal Affairs, $1 billion is required to meet projected school needs, and a 2011 Aboriginal Affairs evaluation estimated that 20,000 to 35,000 new homes are needed and another 5,200 homes are needed to be replaced at a total cost of $4 billion to $6 billion.
And this gap is growing. Many First Nations are challenged by the costs associated with advancing large capital projects. Even when large projects are completed, there is not enough money to cover operating and maintenance costs. Just like other local governments across Canada, First Nations see that this situation is unsustainable. The infrastructure gap lowers the economic potential of any community in a direct and obvious way: inadequate infrastructure results in higher costs for businesses; higher costs result in lower profits; lower profits create a disincentive for investment; less investment means fewer jobs and less productive labour; and lower productivity means lower income output.
The National Aboriginal Economic Development Board agrees with this committee's approach of using innovative financing as a way to address challenges related to First Nations infrastructure on reserves. Relying on cash-based, current-year funding, as is currently practised by the federal government, is not an answer. Innovation is required.
In the board's view, the most effective way to promote innovation in financing is to grow First Nations government revenues. This will decrease pressure on oversubscribed federal programming and provide First Nations with the flexibility to make their own decisions at their own speed.
Revenue streams are critical to financing the infrastructure requirements of most local governments. Without a property tax base, service fees or transfers from provinces or the federal government, the long-term financing of infrastructure in most Canadian municipalities would be impossible.
First Nations, on the other hand, operate in a much different environment. The tax base on reserve makes up a lower proportion of total government revenue than for other levels of government. First Nations governments also rely more on funding from other levels of government and their own source revenues. In B.C., First Nations raised 38 per cent of their income from their own revenue sources, compared to 31 per cent for municipalities. Funding from other levels of government account for 61 per cent of funding for First Nations, compared to 41 per cent for municipalities.
There are three steps the federal government can take to help grow the revenues of First Nations governments. The first step is to fix the outdated collection of Indian monies by Canada. There is no better evidence of Indian Act paternalism than the outdated provisions that see Canada collect and administer First Nations' own revenue. Given that we as First Nations governments are more reliant on our own-source revenues, it is critical that we control them.
Indian monies are derived from the sale of an interest in reserve land, such as oil, gas and timber, or from revenue generated from other activities, such as leasing or rights of way. Under the Indian Act, this money is collected by the Crown and is considered ''public money.''
Currently, there's about $800 million of Indian monies sitting in the Consolidated Revenue Fund, earning about 2.5 per cent a year. If we conservatively estimate that First Nations governments pay 8 per cent annually to borrow money, this means that First Nations are paying $44 million in unnecessary interest costs each year.
Another way to look at this is on a cash flow basis. Each year, about $250 million is collected under the Indian Act's Indian monies provisions. The board estimates that these revenues could be leveraged to $1.7 billion using the First Nations Finance Authority's pooled borrowing model. This is a missed opportunity and one that if corrected would benefit both Canada and the First Nations.
The second step is for Canada to improve the funding model used for First Nations infrastructure. Currently, most First Nations receive federal contributions to build infrastructure on a program application basis. There are three problems with this approach: contributions often have restrictive terms and conditions which limit discretion in deciding how to best allocate funding; funding agreements are limited to a maximum period of 10 years, far shorter than the 30-plus-year life cycle, for example, of a P3 project; and these funds are subject to annual parliamentary approval, which reduces lenders' confidence in their predictability.
One solution to address these problems is to provide a statutory basis for First Nations infrastructure. This would provide the certainty required to leverage funds through an institution such as the First Nations Finance Authority into larger amounts of capital.
The third step is for the federal government to introduce a federal loan guarantee to facilitate participation in major revenue-generating opportunities. Harold Calla and Gerry St. Germain can speak more eloquently to this proposal, but I do want to note that the board supports this concept as it holds the promise of helping First Nations generate significant revenues at a very low risk to Canada.
While the committee's study is focused mainly on reserve, I also want to acknowledge the challenging infrastructure situation in other parts of Canada, particularly for the Inuit communities and First Nations under modern treaties. Given the Aboriginal character of the North, the majority of the population is Aboriginal, and almost all of the land is covered by modern treaties. Economic development in northern Canada is inseparable from Aboriginal economic development.
Because of the major resource development potential of Canada's North and the role that Aboriginal communities are set to play in major resource development, special attention should be paid to using resource development to create a lasting endowment of infrastructure that will support long-term and diversified economic development.
Self-governing First Nations face many of the same infrastructure issues as those operating under the Indian Act. In addition, they face the challenge of having to work around Canada's own-source revenue policy. This policy reduces federal funding as self-governing First Nations improve their economies and raise more taxes and business income, thereby providing a strong disincentive for economic development. A more rational policy would not discourage self- governing First Nations for growing economically. The board believes that Canada's own-source revenue policy should be removed.
In conclusion, I again thank senators and the committee for allowing me to be able to present on this very special and important issue.
The Chair: Thank you very much; that was very clear.
Mr. Calla, please proceed.
Harold Calla, Executive Chair, First Nations Financial Management Board: Thank you, Mr. Chairman, and thank you to the committee members. I am pleased to have the opportunity to be back before you on this important topic of study.
To my side is your distinguished former colleague, Senator St. Germain. As some of you are aware, since retiring from the Senate he has been volunteering his time to help the First Nations Financial Management Board respond to requests from First Nations to explore options for First Nations to obtain greater access to capital markets, particularly as it relates to their involvement in major resource projects.
The opportunities provided by the proposed resource development agenda play directly into issues of the ability of First Nations to finance future on-reserve infrastructure. The former senator will have some comments to make in this regard in a few minutes.
I was last before the committee in January of this year, and at that time I was asked to make general comments on what I saw as some of the barriers to addressing the need for on-reserve infrastructure and housing. Since that time, the biggest barrier — access to capital, the ability for First Nations to access the money necessary to invest in infrastructure projects — remains the elephant in the room.
In my earlier presentation, I spoke about the need to revisit the mandate of the department's current on-reserve infrastructure program. It is limited in its effectiveness because it does not support the infrastructure for economic development. In order for First Nation communities to be able to do long-term planning and to invest in the kind of infrastructure projects that are needed, there must be a willingness to revisit and revise the current fiscal relationship First Nations have within Canada. It is not realistic to expect First Nations to be able to engage the resources that are necessary, including adequate project financing, when we are dealing with 12-month funding cycles from the department.
As we development longer-term financial arrangements, we need to be mindful of the needs of the capital markets to realize on the potential that securitization of the revenue stream offers. At the same time, it is also unrealistic for First Nations to anticipate that Canada will somehow find the resources to mask the growing on-reserve housing and infrastructure deficit through increasing transfer payments or conventional program spending.
To put this issue in context, the current deficit for on-reserve housing and infrastructure stands somewhere between $3 billion and $5 billion. These are not small numbers, and they represent a growing need. Government policy and decision makers should be looking for solutions outside the status quo. A 200-year procurement strategy is not the answer for today's needs. This issue, from my perspective, goes beyond the need to address the infrastructure and housing shortfall. Economies within First Nation communities must be fostered in order to support a long-term solution.
In the absence of an economy, it is nearly impossible to raise capital, to finance projects or to maintain the operational functions of existing infrastructure. Without an economy, concepts such as a rental housing regime cannot be implemented to provide sustainable housing for community members. We should not be looking to a shelter allowance under a welfare system as a solution.
Current opportunities for First Nations to participate in the future growth of the economy of Canada should be viewed with an objective lens. First Nations participation in proposed major resource development is one such area of future economic growth that may be leveraged by communities and used to fund infrastructure and housing needs.
As some of the members of this committee will already know, the Financial Management Board, through the support of Minister Bernard Valcourt and his department, has been resourced to assist First Nations in making informed decisions regarding their participation in proposed projects. As an option to address the barrier First Nations face in accessing the capital markets, the proposal suggests that Canada backstop the First Nations equity purchase in resource development with a loan guarantee.
The concept that utilizing the strength of Canada's credit rating to access capital markets at preferred rates of interest is not an original idea. We can point to examples of the Lower Churchill hydro project receiving a loan guarantee, along with private mortgage insurers, such as Genworth, who receive a 90 per cent federal sovereign guarantee for every insurance policy they sell. In the United Kingdom, their government enacted legislation in 2012 that provided for a government loan guarantee scheme with an upper limit of 50 billion pounds sterling for the financing of major projects of national significance.
I had the opportunity to present the details of the financial management board's work in this regard to the Standing Senate Committee on Energy, the Environment and Natural Resources this past spring. Some of the questions posed to me at the time were: What sort of numbers are you talking about and how much will it cost?
Not to discount the importance of those questions, but I believe the question we face today is what it will cost if we do not do something to foster the inclusion of First Nations in the economy? We know what the cost is today, but what will it be 10, 15 or 20 years from now? Growing an economy is the only solution that makes any sense.
I also believe we should be looking past the cost of facilitating a loan guarantee or other mechanisms that allow for greater First Nation participation in the economic mainstream. What we should be looking at is the order of magnitude of benefits to Canada and the provinces that will accrue from First Nation participation in the economy.
The financial management board commissioned a third-party economic analysis of one illustrative liquefied natural gas project that showed economic benefits in the order of $200 billion in the first 25 years of the project. The revenues that First Nations stand to receive from their participation in these projects are in an order of magnitude not seen by any community to date. It is very likely that First Nations will reinvest these resources into addressing housing, infrastructure or other needs in their communities and therefore benefit the Canadian economy and the economies of regional and local communities.
These are achievable examples of how First Nations can leverage their participation in major projects to foster this economic development growth in their region, but these are also long-term solutions. However, there are positive steps that may be taken to address certain matters in the short term.
Since my last appearance before the committee, I'm pleased to state that the First Nations Finance Authority, as Ernie has said, has issued their inaugural bond of $90 million at the rate of 3.79 per cent for 10 years — unheard-of in this country. Congratulations to them. And congratulations to all of you, who had the vision in 2005 to enact this legislation in an all-party support resolution.
These are not partisan issues. I hope, again as Ernie said, speaking to the legislative amendments, that that same non-partisanship can apply as we approach the coming federal legislation. We need legislative amendments and we need them now. We need everyone to support that approach as we move forward.
As Ernie said, some of the money acquired through this debenture was reinvested for infrastructure projects on reserve, and this was the first time in our history. As the financial management board continues efforts to certify the First Nations across the country, the option to use the finance authority to gain access to capital markets becomes more available to address some of the infrastructure and housing issues communities face.
Public-private partnerships present another option to address the challenges on reserve. The department should look to play a greater role in areas where it can be effective to assist with exploring the option of public-private partnerships that facilitate on-reserve infrastructure procurement. Last month, I attended the Canadian Council for Public-Private Partnerships' national conference, where I was asked to moderate a panel focused on opportunities with First Nations communities. Let me say that there are great opportunities for First Nations in the P3 world to partner, particularly when it comes to addressing water and waste water facilities. As someone who has served on the board of Partnerships British Columbia for six years, I know that when a P3 project is identified and carried out on a suitable basis, the results for the taxpayer and the end-user can be tremendously positive.
In closing, I believe we must look outside the status quo for the solutions needed to address challenges with not only on-reserve infrastructure and housing, but to foster economies that are vitally needed to advance the standing of First Nations communities in the long term.
On that note, I want to again thank the committee for allowing me to be here and would invite Senator St. Germain to share comments with you today.
The Chair: Thank you very much, Mr. Calla.
Senator St. Germain.
Hon. Gerry St. Germain, P.C., Advisor, First Nations Financial Management Board: Thank you Mr. Chair.
Honourable senators, it's nice to be back. I miss the place. I don't miss the travel, but I do miss you, as colleagues, from both sides. As Harold just pointed out, the non-partisan aspect was what made this committee successful when I was here, and I hope it continues because it's so important that the focus be on the constituency of our First Nations and not on ourselves.
As Harold mentioned, since my requirement from the Senate at the end of 2012, I have been volunteering some of my time with the First Nations Financial Management Board — not a consultant, not a lobbyist; I just decided that it was important that we, as Aboriginal people, get into the mainstream of the economy. The only way to do this is to gain the trust and respect of First Nations. If you work for anybody, whether it's government, industry or a First Nation, you lose your neutrality. I think that's key. I saw this work, and many of you who are sitting at the table now have seen this work, so I hope that we can go forward, maintaining the focus on First Nations.
I'd like to go back to the reference from this committee's report on safe drinking water, which we studied back in 2007. The report quoted Dr. Harry Swain, the lead on the expert panel on safe drinking for First Nations. He said:
. . . if we want to see the completion of what has been a fairly considerable national effort to get good water on Indian reserves, then we should worry about the basic resources. . . .
Drinking water and waste water treatment facilities represent a large part of the existing on-reserve infrastructure deficit. Seven years after the committee's report, we're here talking about ways to access the capital necessary to address the basic resources identified in Dr. Swain's statement. Federal funding alone is likely not enough to address issues of this magnitude in a timely and effective fashion, as has been laid out by the previous speakers.
As Harold has outlined in his remarks, it's unrealistic to expect housing and infrastructure issues on reserves to be corrected in a meaningful way without establishing local economies for First Nations communities. I believe that future actions of governments across Canada must look to include our Aboriginal people in the economic opportunities that are taking place in this country, particularly in our natural resource sector, if we are to create the long-term change that is absolutely required. Leveraging these opportunities to create local economies in First Nations communities is a direction that offers a hand up rather than a hand out.
In preparation for this presentation, I also reflected upon the committee's report on barriers to economic development that was published a number of years back, led by you, Senator Sibbeston, as the chair at the time. The report made a number of recommendations. Among those recommendations, the report identified that the Department of Aboriginal Affairs needed to adopt a long-term approach to source capital for economic development projects on reserve. The report also recommended the establishment of a national Aboriginal consultation and accommodation framework that would focus on the impacts on First Nations traditional lands from large-scale natural resource projects and provide options on how First Nations could share meaningfully in the benefits.
Colleagues, most of the issues we have identified in our presentation today are not new to this arena, but the solutions are. So in order to achieve success on infrastructure, on housing and to foster sustainable local economies within First Nations communities, we must accept that the present way of doing things has not worked and is not working. Governments must be willing to explore new policy options, such as loan guarantees for First Nations to access capital. An environment must be fostered that allows the benefits of corporate enterprise to flow in First Nations communities. If you don't have access to money in this world, my friends, you can't really get into business. Without being in business, you can't really have an economy or secure a revenue stream to address the challenges that exist. You can't really do any long-range planning when you're relying on transfer payments and changing governments based on a 12-month cycle.
As an Aboriginal person who has benefited from success in business, I can say that it has an effect on your personal priorities. When you don't have to worry about how to pay the bills, you can place more focus on the socially important aspects of life, like planning your future and your family's future. Being financially stable has allowed me to focus on my Metis culture, to know who my people are, to know what our cultural traditions are and to celebrate our historical way of life. We used to hide the fact that we were Metis. It was shameful. They called us the les maudits sauvages. It's true. The thing is that until I got to a certain stage in life of success — and I'm not saying success is based only on money, but it sure helps. I wouldn't be wearing this and I wouldn't be identifying proudly of who I am if I had not had an economically successful career in life for me and my family.
I have heard Chief Clarence Louis say — and Chief Crate made reference to him — to First Nations that if you want to maintain your culture, your language and your identity, get rich. If you want to lose it, stay poor. That is the most straightforward, honest approach that you could actually bring. I don't care whether you are of Scottish origin, Senator Wallace, with a tartan, or where you come from. Senator Watt, it's the same thing in the North, and Senator Dyck, it's the same thing in Saskatchewan.
In closing, let me reiterate that if we are to address the systemic challenges of housing and infrastructure on reserve, governments must show a willingness to adapt innovative solutions to eliminate the barriers to First Nations' access to capital. Governments should utilize the vast expertise of existing institutions like the First Nations Financial Management Board to provide the necessary strategic advice on how to deal with these issues from outside the machinery of central agencies of government. In my opinion, expanding the options available to First Nations in which they can join the mainstream of the economy of Canada is the only way — and I repeat, the only way — that First Nations will have the means necessary to protect their rich culture, history of traditions and rightful standing for generations to come, just in a small way to right the many wrongs that have been brought upon Aboriginals in the past in this country.
Thank you, colleagues, for listening and for providing me the opportunity to be back with you here at this table. Harold and I, and I'm sure the other members of the panel here this morning, are prepared to answer questions.
I want to make special mention of the staff that supports this committee. All of them — clerks, stenographers, interpreters — make a big difference. They have always put a special effort into working with this committee, and I would be remiss if I didn't thank them for the great work they have done.
Thank you and God bless.
The Chair: Thank you very much. It is wonderful to have you back with us in this room, senator.
Before I turn to questions, I want to thank you all for your clear presentations and consistent advice. The recommendations you've come forward with — eliminating the year-to-year funding, having the federal government being open to long-term capital contributions, leveraging the revenues that are presently collected on First Nations lands by the Crown into opportunities to raise funds and utilizing institutions that are represented here around the table to monetize those opportunities — are crystal clear.
We have representatives of the First Nations Financial Management Board and the National Aboriginal Economic Development Board and the First Nations Finance Authority all here in one room. Your boards exist to advise government, and you are making clear recommendations to us about what's needed, including some legislative changes. Have you laid the ground for these recommendations? Do you believe there's an appetite on the part of the government to make these changes? We have been encouraged to study this issue and, particularly, to study innovative financing options. I think the government itself realizes, as was said to us this morning, that we cannot solve this problem with a 200-year plan. It's overwhelming. The committee has been overwhelmed. Is there some sensitivity or appetite on the part of the government to make these changes? Should we recommend them in clear, strident terms? Would you comment briefly on that? Have you discussed these options with the policymakers?
Mr. Calla: Yes, we have, and it's ongoing. We have been supported by the department, by the minister, by the government. Yes, there is an appetite.
Is everybody cautious? Yes. Is this thinking outside the box? Yes. Everyone is concerned about the implications and should be. These are careful matters that need to be studied, but they are prepared to engage. I can say that categorically at this time. Is it going to take some courage and a spirit of bipartisanship? Absolutely.
Politics are politics. We know that there is an election coming, but I think we have to focus on the reality of the opportunities we have before us today, the need for timely decision making for these major initiatives to be considered, otherwise the Canadian economy suffers. Having First Nations engaged in this debate and included in the economic benefits I think is being recognized by government. We do need to sit down at tables and begin to develop the means by which this success that we're looking for is implemented. I think there is a willingness to do that, but that success also has to come from First Nations coming together. I think they are starting to do that in ways that will allow for a more effective consideration of the issues.
In direct response to your question, I believe there is an interest on the part of government to deal with these issues. They are being prudent, as they should be, because I think we all recognize that the status quo isn't acceptable. It will only get worse. Particularly given recent Supreme Court of Canada decisions, it is imperative that First Nations are involved in some of these discussions.
I'm very encouraged, and a year from now I believe we will look back at tremendous successes both in terms of change of policy and the approach.
Mr. Crate: I can only echo comments that Harold made. I will give you a good example.
When we talk about the need for schools across the country, we all realize that they'll never catch up in terms of capital requirements, so engagement is happening across the country with government. Using Manitoba as an example, discussions are happening with the regional office around innovative financing. There is discussion around the use of potential use of the First Nations Finance Authority as one solution to addressing infrastructure and capital requirements for new schools.
For our community, we're going to be bringing forward to government the possibility of a pilot with the First Nations Finance Authority for the construction of a new school. We are seventy-fifth on the national list, which means that we are looking at maybe 30 years from now to build a school.
I think the appetite is definitely there, with the First Nations and with government, to look at new ways of addressing this serious issue.
Mr. Daniels: To add to what Harold said, I sit at the same table as Mr. Calla in many meetings, and we are actually working at all different levels to try to gain support to push a lot of these amendments through, from the deputy minister on down to, especially, AANDC. We keep repeating the same monetization message over and over because we understand that. That's what we do; that's our business.
We know it's gaining some support at the different levels. The political level needs to really grab on to this, and I think that's where the senator and Harold come in.
I think it's really important to say that the groundwork has been laid, especially on the private side. We have investor confidence in what we have doing now, which is really important. It doesn't exist in the world in any other place that First Nations as a group have credit ratings from Moody's and S&P. If you can name one, I would be really surprised. This is something to really take advantage of. We have the ability to do that now, and we have First Nations that are willing to do this work to borrow that go through the process with FMB. I think that's really important as we consider these things. The support is out there. The money is out there. We just need the mechanisms that the government can actually help to facilitate.
The Chair: Speaking of those mechanisms, Mr. Daniels, could we follow up with your legal advisers on specific amendments that you'd recommend to the FNFMA?
Mr. Daniels: Yes.
The Chair: We'd like to do that through our staff.
Thank you very much, gentlemen.
Senator Dyck: Thank you for your presentations this morning. My background is as a neuroscientist. I must say that I find financial and economic matters somewhat of a puzzle, but you've certainly helped me to understand it much better this morning.
Just to follow up with regard to the amendments that you might be sharing with the committee, Mr. Daniels, does that address specifically the two ideas that you present, on page 3 of your report, on multi-year AANDC capital funding and participation in large-scale resource projects as equity partners? Is that what the amendments will address?
Mr. Daniels: The amendments are really administrative, and there are policy changes that really need to be fleshed out. These would be two policy changes that we need to work out a bit more before we move on and present to Harold.
Mr. Calla: We are having a meeting in two weeks with the department to finalize the legislative amendment report that we're preparing. The three institutions under the act and the department are working on legislative amendments. I would respectfully request that you let us have that meeting in two weeks, and we would then be prepared to share that with the committee so that you might better understand the matters that are under debate, and we would be prepared to answer questions on that.
Clearly, creating the ability to leverage revenues that come from the Government of Canada is an important piece of the legislative amendments. We need long-term capital and we need to be able to leverage that on a community-by- community basis. Yes, we do believe in participation in major projects and the revenue that flows down.
I want to be clear. We talk about participation, but what does it mean? It means that you get equity, and presumably you get profits that will be derived. Those profits come down into your community. They become own- source revenues to your community that can be leveraged by the First Nations Finance Authority to provide infrastructure for housing, water and economic development on your reserves. That's what we see the long-term benefit doing. You should appreciate that the proposal we have speaks to utilizing the services of the First Nations Fiscal Management Act, including being certified by the financial management board. In that way you would develop financial administration laws, a financial management system that would be certified by the financial management board, and we would issue a financial performance certificate to the First Nation that would measure their financial performance in order for them to have access to the borrowing pool.
We have a very close relationship with the other institutions, but it is clear that the legislation was designed to establish the ability to get a credit rating, and the financial management board certification is required before you can go to the finance authority.
These mechanisms and this control framework has been reviewed by rating agencies and investment banks and is the reason the finance authority was able to get a single ''A'' credit rating that allows them to go to the capital markets in the manner they do.
When we talk about these major projects, to us it's second nature. But I realize sitting here, what does it mean to you when we say that? What it means is they're going to make money in their communities, and they're going to leverage that money they get into their communities to address the infrastructure and housing needs by being able to securitize that revenue stream with the finance authority.
Senator Dyck: We have over 600 First Nations, and if I use two extremes, we have the haves and the have-nots. The haves are the ones that already have well-developed economies. Those, for example, would be Membertou and Osoyoos which have already, I believe, taken advantage of the First Nations Finance Authority mechanism to get loans at a good rate and thereby realize a lot of savings.
We also have the have-nots who have not yet developed their local economies. As our honourable friend said, if you don't have money, you can't get into business. How are the have-nots going to access capital to start their local economies?
My second question is what proportion of First Nations are ready to move forward with the First Nations Finance Authority and who is in the pool at the end, where they need a lot of help to start their local economies?
Mr. Calla: Thank you for that question. What we see as the great opportunity in this country is that the major resource development is occurring in the North, where we have always faced the challenge of the chicken and the egg. How do you develop an economy?
Many of those communities that may not have as developed economies as some in the South will now have an opportunity, through these major projects, to start developing some wealth and be in a position where they can begin the process. I think that provides the greatest and most exciting opportunity.
Currently there are between 135 and 140 First Nations scheduled under the act of the 630-some-odd First Nations in this country who have said they want to begin this process. We have, at the financial management board, approved 51 financial administration laws and 45 financial performance certificates. So there are now 45 eligible members to be considered for the borrowing pool.
We are probably going to do, in my estimation, 20 to 25 a year from now on, because we now have momentum and people are beginning to better understand. That's what I see as being the opportunity. We are much more spread out across the country now, and it's not just south; it is north and south now, as these communities are seeing opportunity.
I'm very pleased by the take-up, if I can call it that, from First Nations communities. That's really been accelerated as a result of the finance authority issuing a debenture. The greatest opportunity for the have-nots is through this major resource development participation, because it will provide them the revenue to develop local economies.
Steve Berna, Chief Operating Officer, First Nations Finance Authority: Four years ago, prior to completing the second part of our legislation that allowed own-source revenues to be leveraged, we asked that same question: What do you do with 633 from east to west, north to south, and how many can participate?
We hired a gentleman who looks after statistics, and he did what was called regression analysis. He looked at the revenues of communities by geographical area provincially and also in other areas urban-rural to find out if we are excluding most or including most.
His findings were quite surprising. We were surprised. This was in 2010. In 2010 it was estimated that own-source revenues were around the $6 billion area for First Nations. That surprised us because we didn't think it was that high.
The second question was of that $6 billion, how many communities are involved? Of the 633, he estimated about two thirds have revenues that can be leveraged into projects that would supply infrastructure or needs to communities. That was a really happy story because it meant that the majority could access the act. They may not right now pass the internal test, because we do have tests prior to getting in because we borrow as a group, but they are lined up. That was an extremely important question.
We had to answer that question because when you get a rating from Moody's or Standard & Poor's, if you've ever worked for an organization that had an audit, well they audit us. They audit us based on our risk for investors to lend us money and whether we're going to pay that money back plus interest.
That's what a rating agency does. They look at how risky we are to go out and borrow $90 million and then pay it back over 10 years. They asked that same question because our credit rating is set right now at a certain level. The two rating agencies said the more First Nations that can access you, the bigger you are going to be. The bigger you are going to be, the more you're going to climb up that credit rating scale.
That was an absolutely essential question — thank you for asking it — because it was fundamental to us in order to achieve what we wanted to do, which was build the act, get two credit ratings and get investor comfort. We're pretty comfortable right now whereby about two thirds can access it through time. The other one third may need what we're proposing today, that being forms of revenue sharing that will allow them to leverage into building their economies.
The Chair: Mr. Berna, would you be willing to share that information with the committee?
Mr. Berna: Yes, absolutely. We'll send it out. It is a study done by a gentleman named Don Allen, and we would be happy to send it out.
The Chair: That's very useful. Thank you very much.
Senator Enverga: Thank you for the presentation. We have heard so many great things about the possibilities. One was a suggestion to develop a loan guarantee for this. I would think that for anybody to get a loan, they would need a guarantee.
Will it be possible to do this? Can you describe the loan guarantee that you have mentioned?
Mr. Calla: The two institutions here are both going to take a run at that question, senator.
First of all, we recognize that this is a Government of Canada conversation. They will determine the criteria. Likely, projects of national interest will play into it, much like they did at Churchill Falls.
In this case we understand that it would be directed towards projects of major significance, whether you are talking about mining, oil and gas, wind farms, electricity, those kinds of projects.
The concept here is that where First Nations would be engaged in a conversation on the duty to consult and accommodate, part of the benefit agreement would consider an equity position and a request for a loan guarantee at that time. That's what we anticipate would trigger this discussion.
We anticipate that the Government of Canada would have the opportunity to respond. If they chose to respond positively to the request, then we would begin a process of working with those individual First Nations under the model that we're proposing to begin to assist them in developing their financial management capacity and understanding what it is they're getting involved in.
At that point, we would look for the finance authority to be in a position where, with that federal guarantee, they go to the capital markets with a separate credit rating, and they would look at a program that would provide them with the resources that would flow through to the First Nation or First Nation entities.
Understand that in many cases here, particularly in what I call linear projects, such as pipelines and projects that have different infrastructure components along a corridor, many First Nations will be impacted by these opportunities and will participate in the impact benefit agreement negotiations. Some of those communities will be in a position where they might readily be able to qualify for debenture financing from the finance authority today, but some of those communities may not. They could be in third-party management, for all we know. We recognize that that is going to present some challenges under the existing approaches and that we're going to need to look at amendments that would deal with that reality.
The fact is, you can't have a linear project that impacts 20 communities and have five communities not able to be certified under the current approach and, therefore, the project doesn't proceed. We have to avoid that. So we would be looking at how we would flow those funds through an entity in a manner that I'm going to get the finance authority to describe, which would protect Canada and the taxpayer from being called upon. If I might, Mr. Chairman, they have the second answer to the question.
Mr. Berna: I think most people are aware that when a bank lends money, they will give you a loan, but how they protect themselves is they put a security assignment around the asset that you are getting the loan for. If you have a house, they will put a lien against it; or if you have a car, they will secure it. So if something goes wrong with that loan, they will either grab your house or they will grab your car. That's how a bank protects itself. We don't do that.
Keep in mind, prior to coming in front of you talking about this, we have talked to both the ratings agencies and the investors and asked, ''Would our model work?'' We don't want to propose something and then go to the capital market and they say, ''Nice try; it doesn't work.'' What we're talking about today is something that has been vetted by the rating agencies and by the investors who would lend the money.
The structure that we have come up with is if you provide support for something like a linear project that Harold mentioned, such as a pipeline, that pipeline has a company that looks after it. If something goes wrong, the company manages the pipeline. It could be a limited partnership. In most cases, where a First Nation has a share in a limited partnership, money would pay from the limited partnership down to the First Nations chief and council; spend it how you want.
We have devised a slightly different structure. The limited partnership agrees to transfer the First Nations' share not to the First Nation but into a shared bank account. It is called an intercept mechanism. The intercept mechanism sets up a bank account that has only two simple purposes. It is to pay, first, monies to the FNFA to cover the debt payments. Investors are happy and comforted and you get the very low rates. Second, a minute later, it transfers the balance of those monies to the First Nations chief and council; spend how you want. Pipelines have never failed in Canada.
An intercept mechanism protects all taxpayers in the fact that the first claim on the revenue stream is to support the debt: ''Canada, thank you, but we don't need your guarantee this year.''
Second, it absolutely protects the revenue stream to ensure that the First Nation is making the loan payments. It is a very simple mechanism. It doesn't have any cost to it. I think it costs us $67 a year to maintain each bank account, but the process provides investor comfort to provide rates way below what a bank can provide. It gives us two investment grade credit ratings and allows the First Nation to get access to loan rates down here, which means that their profits can be used for their community.
An intercept mechanism is a simple process, but it is one that meets all capital market requirements and also protects taxpayers.
Mr. Daniels: To add to that, this is where the amendments to the act come into play. We would need amendments for sure to do this because what would need to be created is a special purpose vehicle, FNFA 2 or something like that. That's acceptable practice in the market today.
Senator Enverga: As a follow-up question, are there risks involved here for the government? Could you describe a possible risk?
Mr. Berna: Sure. If anybody has a finance or law background, you will realize that if something goes wrong with a project, there are two people lined up in front of a court to try to get money. There are the ones that provided the debt, who are the investors that gave money to us. They stand in front. Behind the investors are the equity owners, because if you own a company, you are always paid second to the ones that have supplied the debt. It is the same as if you bought shares in Apple. If something goes wrong with the company, anybody that lent them money gets in first. If you own shares, you are in second.
The reason we've set up the intercept mechanism is how do you minimize risk if you are an equity owner and you are second in line should something go wrong? That's why we intercepted the revenues. By intercepting the revenues for pipelines that have never failed in Canada — they're like utilities; they have a wonderful profit margin — that intercept mechanism absolutely protects to make sure that the debts are paid and, therefore, there is nobody standing in front of a judge. So I would say pipelines are probably about as safe a project as you can get into.
The Chair: We have two former bankers on our committee.
Senator Tannas: Just to be clear, the intercept mechanism that you are talking about, is that in play right now with the existing $90 million loan?
Mr. Berna: Yes.
Senator Tannas: In that same vein, Mr. Calla, you were talking about the potential for this kind of a mechanism to be used for the investor as well that isn't approved but could share in the revenue on, say, a pipeline. How would somebody that doesn't have own-source revenue, maybe in third-party management, et cetera, participate? Is that part of what you're suggesting here?
Mr. Calla: Yes.
Senator Tannas: If so, are we looking at some kind of a back-in potential, almost like Petro-Canada years ago where there was some ability to come in as owners, with a right to own? Is that what you're talking about?
Mr. Calla: Senator, what we're hearing from the engagement that we have had with First Nations as a result of the encouragement of the minister and the department around major resource developments is that they want to have the option of equity acquisition as part of the consideration. There are a couple of reasons for it. First, for the ability to ensure that agreements reached around matters, say, for the environment, you are far better to be in the boardroom than on the street with a placard. First Nations are awakening to the opportunity that ownership provides in order to provide some direction to the operations and to ensure that those things that we believe were agreed upon at the time these projects were commenced are, in fact, being done. I think they understand that.
I also think they have historically seen third parties come in and harvest resources in their traditional territories, gotten little for it, no ownership and no lasting benefit, and that has happened for mining, fishing, forestry, you name it. I think they see ownership today as being something that they are interested in to ensure that there's a long-term benefit.
To respond to the challenge that this faces and the risk element to it, we expect the Government of Canada will do its own risk analysis on a project-by-project basis to determine whether these projects are viable or not.
In many cases today, First Nations are starting to move away from the sole consideration of a proponent, which is what has been the case in the past. A proponent will come and say, ''There's a duty to consult; can we cut a side deal here so you get on side?'' First Nations are moving to a position where they recognize the strength of their claim, particularly on ceded territories in their traditional territories, and are beginning to look at impacts on the traditional territory, perhaps through corridors and those kinds of measures.
Their engagement is not specific to a proponent necessarily, although they will engage with proponents, but as Senator St. Germain always says, ''If you are coming through my ranch, you had better pay.'' That's what we're getting to now. If you are coming through our traditional territory, what will the business terms be? What will the arrangements be? How will we deal with cumulative environmental impacts and those kinds of matters? I'm optimistic that it will lead to some really fruitful discussions to allow some of these projects to be considered more fully. It will be on the part of Canada to determine which projects are viable that it will support. That will reduce some risk.
It will also provide, through a limited partnership, the opportunity to deal with economies in some communities that are not yet evolved. It will provide the benefit of a shared experience of a collective of First Nations to allow those who are developing economies to gain from the experience of others, including the private sector. We are hoping that the business capacity of the private sector, through the engagement of First Nations on their board of directors, will provide a capacity development that would take years.
I personally benefited from my years in CMHC, Partnerships B.C. and now Fortis B.C. Had I not had those opportunities as an Aboriginal person, I would not be able to stand and speak to the issues that I speak to today. We need more people exposed to those opportunities, and these projects provide that.
Senator Sibbeston: My question follows up what Mr. Calla said. I appreciate that everything in the future turns on the possibility of First Nations being involved in major projects. I appreciate we have been making progress in this. At one time in our country when Native people said, ''That's our land and resource,'' it was not taken too seriously. Now, it is being taken more seriously, in part because of the decisions of the Supreme Court.
What do we need to formalize that situation? How can First Nations be more assured or more secure in terms of their rights so that companies and government know definitely, at the moment they are thinking of doing a project, that they must finalize an agreement with the First Nations and recognize that the land and the resources belong to First Nations? How can that be formalized and strengthened so that it becomes a way of doing business in Canada?
Mr. St. Germain: The formalization aspect of it, Senator Sibbeston, is that First Nations are starting to organize. They recognize that they have Aboriginal title and rights as a result of the court cases. This is about business. We want to become part of business.
Working with Harold and others at this table, we have convinced them, to a degree, that you can't let perfection become the enemy of the good. You have to move ahead slowly. As I said earlier, trust and respect have to be earned. They're formalizing by way of setting up a steering committee that represents a series of bands, or a secretariat or whatever you want to call it. That's a clear indication, mainly on the part of the federal government, but also the provincial government. I wouldn't be sitting here if I didn't believe there was an opportunity and a possibility of this going forward.
This isn't partisan. I have talked to former prime ministers from both sides. I see this as above and beyond partisanship, just working with First Nations so that they see the world from that business perspective.
Senator Sibbeston, we need everybody pushing in the same direction. That's why we made this trip here today — this 16-hour turnaround from Vancouver; but I'm not complaining. I really appreciate the opportunity for us to address a group of distinguished people such as you. I respected the position when I was here, and I know what you can do if you work together. It is going to happen. It's going to be led to an advanced degree, senator, by First Nations given that they are organizing.
Senator Raine: It is good to see you back, Senator St. Germain. You are in a unique position because you have backgrounds in the federal government, private business and on the Senate committee.
How do you see the big picture going forward? We all know that AANDC is a bit of a silo. These issues we are dealing with go way beyond the capacity of one ministry or department to deal with them. This is an all-of-government thing. These issues are of major importance for the whole of Canada, not just Aboriginal people. To unlock the potential of Aboriginal people will be huge for our country.
How do you see it playing out? How will all of you work together to get these decisions made in a timely fashion?
Mr. St. Germain: Senator Raine, there are no shortcuts, but there is an urgency. The train is going by. If you don't get on the train, that's what we're speaking to First Nations about.
We have covered the north of British Columbia. We've been in Alberta to meet with the premier. The only way that this will take place is if First Nations come together as a unit. I said to them that if they organize in a professional manner, which they are capable of doing, and set aside all differences amongst themselves, industry and proponents will say, ''Holy smoke, this is happening.'' There is politics, too, like there is everywhere. However, if you set aside your politics and organize, industry and the proponents will be there.
I honestly think it is a concerted effort, and that's where I compliment the First Nations Financial Management Board, which I have always admired. I was here with some of you when we passed this legislation. It was brought forward by Harold and others from British Columbia and right across the country. You need a vehicle, and this is the vehicle; but we have to work and develop the will.
We have received support to be able to help First Nations organize. That in itself will perpetuate the entire initiative and move it forward, senator.
Mr. Calla: Thank you, Senator Raine. That's the first time, I have to say, that I have heard the reality of the scope of the issue: It's not an AANDC problem; it's a government problem. Once we start to realize that, we will find the solutions, because it is in all Canadians' interests that we do so.
Part of the answer to your question is also part of an answer to Senator Sibbeston's question: How do we, as First Nations communities, gain the confidence that there is a process that can yield results? If you look back at the history of consultation and accommodation, you will find that it has been left to the private sector. All too often it has been a determination of the net present value of the nuisance cost of the First Nation objection as being the offer, and I think we are now at a point where everybody has realized that that is no longer acceptable.
As a consequence, I respectfully suggest that the federal government and the provinces need to engage early, not at the end. They need to step up to the table. If we create these forums, these steering committee tables, industry, the federal government, the provincial governments and First Nations have to be at that table. They have to be in conversations early.
We need to recognize, on the part of the federal government, who have the responsibility for consultation and accommodation, that many communities are small. Many communities have not had the benefit of exposure to these kinds of business transactions. We can't replicate that capacity 200 times in this country. We need to support the development of what we're referring to as a technical secretariat to support this kind of initiative so that we haven't got 60 environmental assessment review processes under way where everybody can come to the table. We need efficiencies in how First Nations are able to arrive at a point where they can make an informed decision because they have the right information. I think the federal government can support and I believe is prepared to support that initiative when we have a circumstance where First Nations have come together to consider a matter — I'm not saying they approve it, but in order to get to the point where the facts can be brought to the table and a decision can be made. I think we need to get to that point so that First Nations are not relying upon scarce or no resources to try to make an informed decision on a major initiative.
To Senator Raine's comment, it does involve all aspects of government and it will call into question the current approach that is influencing the ability of bureaucrats to respond to these opportunities. There is a vision of where First Nations will be in this country that I think needs to be revisited based upon the fact that since these mandates were established in the early 1990s many court decisions have taken place that should cause these matters to be revisited in some way.
Mr. Daniels: I want to underscore that a really important education process needs to happen here at all the levels. This is from experience, because we are talking to First Nations about accessing finance under certain structures, very formalized processes, and there is a major education process in that regard. I think it's around the players needing to be educated and the dialogue needing to continue. We're doing that. We have actually engaged with the capital markets. They understand the nature of how we get into this. It's really beneficial and our experience is going to help to make this a success.
Senator Tannas: This has been a terrific discussion and it has been an honour to be a part of it. That said, I want to ask a few short, snappy, mechanical questions.
Chief Crate, you mentioned something about an own-source revenue policy that needed to be changed. If it was indeed you who said that, or whoever it was, could you amplify it? We have heard a few times, and we're seeing it play out a little bit with the court challenge at Onion Lake, that there is a real fear that own-source transparency and own- source revenue is going to be the target by which AANDC will diminish their contribution and leave everybody at net zero. I'm opining. Could you tell me about the own-source policy that you referred that needs to be gotten rid of?
Mr. Crate: I was referring to the Indian monies collected from various sources. A good example would be the lease of Indian lands. Right now and for a long time, the money basically sits and very low interest is earned on that revenue. I use the example of the First Nation Finance Authority as a model that potentially could be used or created to generate more revenue, which potentially could create a lot of opportunities.
Senator Tannas: So I misunderstood, but I think I now do understand. Rather than having that go into a fund, use the same intercept mechanism if you wanted to and lever it and turn it back into large capital to the corresponding First Nation. Is that what we're thinking?
Mr. Crate: Yes.
Senator Tannas: I have a second short question, sir.
The Chair: Can I stop there, if I may? We did have testimony from Mr. Allan Clarke, Director General of the Policy and Coordination Branch of AANDC, who told the committee on November 5 of this year that funds collected under the Indian monies provisions in the Indian Act could providing financing opportunities for First Nations. He said that currently First Nations essentially ''have to apply and get permission from the Minister of Aboriginal Affairs to have access to money that is collected on their behalf by Canada, held in trust in the Consolidated Revenue Fund.'' He noted there was $800 million collecting 2.5 per cent interest.
It seemed to us there was an opening there and they just needed to apply to the minister. Why isn't that happening? Can you explain the process and how it could be improved? It doesn't seem to be happening, as you've told us today. What needs to change?
Mr. Calla: Those are tough questions today.
Dealing with the own-source revenue policy offset and the ability to access funds that are held in trust, it's important to appreciate in a securitization approach that you're looking at revenue streams. Capital monies held in Ottawa are a result of certain revenue streams coming in, but they may not be evenly flowed revenue streams. Certainly, the amount that's in capital could be utilized by the finance authority as the basis on which a debt service could be covered, but it would be largely dependent on the sustainability of those continued contributions, as you would appreciate.
To the question on own-source revenue, I think there is a fear in First Nation communities that discretionary programming dollars available from the Department of Indian Affairs will be impacted by the amount of own-source revenue that a First Nation creates. That's real and perceived, perhaps, but it does speak to the issue of an overall fiscal financing framework, and the challenge that we see is that we're not looking at the whole fiscal relationship. We're starting to pick certain elements of it and we need to look at the whole thing. If the issue here is how the services provided to First Nations are going to be paid for, that's a legitimate question. Let's speak to that question, but let's just not look at the cost side of it. Let's look at the revenue side. Will First Nations in this country be in a position where they can exercise taxing authority in the same way that other levels of government do? How will that play into a fiscal financing relationship?
The concern in First Nation communities is that we're not dealing with the entire question; we're dealing with it piecemeal and on a solution that, while it may achieve a politically expedient position, it is not contributing to an overall solution. If it's zero-sum, what are we achieving?
Mr. Daniels: Specifically on the Indian monies, I think the real issue is the mechanism to get it. It seems onerous. Under the act, a number of regulations are in place that really by-pass having the minister to sign off. That's one way to do it. One way to speed up the process is by having a regulation for the leverage of Indian monies.
The Chair: Thank you.
Senator Tannas: You've got the mechanism to secure the revenue stream, which would be of great comfort to the investors, and you've got an established ratio and a governance threshold. What is the process for monitoring those over the long term and what level of transparency is there around that?
Mr. Calla: The financial management board's role in this mechanism is to provide certification that gives access to the First Nations Finance Authority. To do that, we require the development of a financial administration law. For every borrowing, we issue a financial performance certificate, which means we take five years of audited financial statements and run them through a series of ratios. If they pass the test, they then move forward.
In addition, we request that they be willing to develop within 36 months a certifiable financial management system that we periodically will go back and attest that they are using the system. The oversight mechanism is that for every borrowing you must have a financial performance certificate. You must also have an operating financial management system, and we do compliance reviews on the operation of that system within your First Nation. That's the mechanism we have.
Senator Tannas: Is there any danger to the bond or to the rating of a particular borrowing? Governments in First Nations change every couple of years. Is there a danger that we could wind up in the back half — five years, six years, seven years — with a problem? What would be the requirement within the mechanisms or within the agreements that you have with the investors to report that there is a problem?
Mr. Calla: Each month, the financial management board reports to the finance authority on whether or not we have revoked a certificate or put somebody in third-party management. That's done every month, so that mechanism is in place right today.
The other thing to understand is that we have intervention authority under the act that First Nations agree to in the agreements with the finance authority and with ourselves. So in some of the mechanisms that Mr. Daniels or Mr. Berna speak to, we have funds, but at the end of day if there is a failure, then the financial management board is ordered by the finance authority to go in and intervene and to search for cash.
Mr. Berna: As a lender, you never want to pick up the phone and call a client to say, ''We have a problem.'' Prior to approaching the rating agencies, we had to set certain safeguards in place that allowed us to lend and gain comfort from investors that the safeguards are good. As an example, when you want to use a paycheque to get a house mortgage, they will not let you use 100 per cent of a paycheque to buy a house because you would have nothing left for groceries, car loans, clothing, et cetera.
We work somewhat the same way. It's called a debt coverage ratio, which means for every revenue stream that comes in, for example, if you have $100 in revenues, we will not let you borrow enough debt that it costs $100 to support the loan because there is nothing left should something go wrong. A debt coverage ratio is where you can borrow enough debt that maybe you can use $67 of that hundred for debt service. The other $33 is a flexible factor. Should something go wrong with the revenues each year, you never impede the ability to pay the loan. So we put in place debt coverage ratios, which means there are always excess monies beyond what is needed to cover the debt, and those do not vary. They have been vetted by the capital markets and checked off.
We also collect up front 5 per cent of every loan that is requested. If you want $100 in cash, ask for $105. That extra $5 we invest to each community's benefit. We'll put it in Canada bonds or Ontario or B.C. bonds. If something goes wrong with the revenue steam to the point where even the debt coverage ratio is not enough, we have $5 sitting there, and $5 right now covers a year and a quarter or a year and a half of interest payments. That means you go through a budget cycle at the community level before we would ask Harold to go in and try to fix a problem. You can see there are different levels of comfort here.
We also have $10 million sitting there that even if the 5 per cent is not enough, we can draw out of that to make interest payments to bondholders.
The way it is established is there is layer after layer after layer of safeguards put in place, and our board has to be unanimous not only when accepting a First Nation as a new borrowing member but it has to be unanimous also on approving loans. This gentleman right here who is not part of our board but is a president and CEO has a vote. Even if our board ever became political and said ''We are going to push this through,'' and staff strongly opposes it, it does not get pushed through.
Lastly we have the payer of revenue streams. Seventy-five per cent of our loans are back up by provincial contracts. Those provincial contracts are for forestry; sharing agreements in B.C.; run-of-river projects; BC Hydro; gaming contracts in Ontario; and tobacco tax in the Prairies. The provinces assign what is called a direction to pay. A direction to pay says that for the length of loan, we promise as a province to send the money to the intercept bank account, and we will not change it. Whether chief and council are unelected and a new chief and council come in, they cannot ask to redirect it. So the province or the payer of the revenue stream will irrevocably redirect it to the intercept mechanism until we say the loan is paid off. If we have done our job properly, the revenue stream is good and stable and our debt coverage ratios are okay, our 5 per cent is enough to cover a year and a half interest of payments, and we have $10 million sitting behind that, then the risks should be quite minimal.
Senator Beyak: Thank you, gentlemen, for a comprehensive presentation. You have answered most of my questions with your responses to Senator Dyck and to our chair, Senator Patterson.
Senator St. Germain, I was delighted to hear about the non-partisan work we do in the Senate, and I was happy to hear you do the same when you're consulting.
My background is economics, business and education, and so Bill C-33, the education act, which provided quality education for Aboriginal kids from sea to sea, signed by our Prime Minister and your former chief, Shawn Atleo, was brought out with wide acclaim nationwide and then put on a shelf because of a disgruntled few who, apparently, were not consulted.
I want to be clear. When you come to us a couple much weeks from now, your groups will have consulted with each other and anybody else that will be affected and will bring us a consolidated list of recommendations and amendments to specific pieces of legislation that affect Aboriginal people, whether it is the fiscal management act or the Indian Act. Am I right in assuming that?
Mr. St. Germain: Yes, Mr. Chair and honourable senators. Working in the field is a lot different from working here. Senator Beyak, you have a background in economics, so when you're dealing with the rank and file who support the chiefs — I can tell you that I grew up in a Metis community where if you talked deficit and debt, they figured you were talking a different language, so the challenge is to have an understandable presentation.
In a lot of cases I recommend to First Nations and to Aboriginal people generally, if you haven't got the expertise, bring it in from the outside, even if it's on a temporary basis, until you build capacity.
If the cat crossed the road, the feline didn't arise from an abyss and step out onto bitulithic.
You have to keep it in plain, ordinary, understandable terms, and this is a real challenge because of the fact that the very complexity of financing is not second nature to everybody. Either you're exposed to it or you are not.
That is one of the challenges that Harold and I and others have had as we've travelled through this. I remind senators that when you go out and speak to people, make certain they are not just going like this, that they really understand because everybody has to push on this cart in the same direction for it to succeed. I just hope that the success of this committee continues on, and I'm sure it is. From what I've heard, the work you are doing is excellent. Just keep it up and hopefully we can support you on our way through.
Senator Beyak: That's a yes? You're bringing us a list?
Mr. Calla: I want to assure the senators that we will consult; we will have our requests known to everyone.
I just want to be careful that we're not putting ourselves in a position where we're only able to act to the lowest common denominator.
I was representing my community when this legislation was developed, and I understood the challenges that we faced in trying to get this legislation because many across this country did not like the concepts that we were proposing at that time. They didn't see economic opportunity and didn't see it as a commitment of government to resolve outstanding issues. The result was that we had to agree to a scheduling program and had to cut an Indian political deal: ''I won't be impacted by this if my name is not on the schedule,'' and we said, ''Fine, those who want to go forward can.''
However, I think the world has changed now. Many of those communities in many regions of the country, Manitoba being one of them, who did not support this legislation — Ontario did not support this legislation when it was being passed except for pockets of it — are now our clients. So I will say we will consult. That does not mean that everybody will agree, and we need to be in a position where those who have opportunities, as those who supported this legislation initially had, are not prevented from moving forward. I haven't been in a political environment yet where we get 100 per cent, so I hope that's not the threshold we are establishing.
Mr. Daniels: Having gone through this, we do have the experience behind us now. We're engaged with First Nations every single day, and so we hear what they like, what they dislike. As a part of the effort and the exercise to get amendments to the act, we're bringing those things into play, whether they are considering a property taxation regime, or whatever you call it. In that process, we break it down into what we see as housekeeping items, things that can be done by regulation, and things that need a more policy discussion.
Senator Beyak: Thank you, that's helpful.
Senator Wallace: Gentlemen, you have all spoken very strongly about the need for First Nations communities to be supported to develop their own economies wherever possible, their own economic development, which would make complete sense. They would have their own-source revenues to supplement or add to whatever otherwise would be provided from the federal government.
Mr. Calla, in that regard, you spoke in your presentation about the need for the mandate of the government's current infrastructure program to be revisited. You said that it's limited in its effectiveness because it does not support infrastructure for economic development.
You have spoken about pipeline projects, those types of infrastructure projects that could be useful, and that perhaps there should be funding provided or backstop guarantees provided by the federal government to support equity positions that First Nations communities could take in partnership projects.
Coming back to your statement that the government's current infrastructure program does not support infrastructure for economic development, what do you mean by ''infrastructure''? What type of infrastructure are you thinking about? Is it simply being able to take an equity position in a joint partnership project, or are there other types of infrastructure you are considering?
Mr. Calla: What I'm talking about is water, sewer and roads — the infrastructure utilities that are needed for land- based economic development. Whether you're developing an industrial park, a shopping centre, whatever it is, you need the ability for those kinds of services to be available on the reserve because you're competing with properties that are not on reserve, and a local government will ordinarily provide those services and you pay for them through property taxation. If I'm a businessman and want to build a shopping centre, as an example, I don't want to have to pay twice for these services. The infrastructure for that is important.
The challenge for the department isn't that they are prohibited but that their resources are so limited, in my view, that they are responding to housing infrastructure needs and have not been afforded the luxury of the opportunity, based on their resourcing, to be able to look at economic development.
When I refer to the constraints of the department, it's what I see as a practical constraint based upon the fact that there are not resources provided for economic development infrastructure on reserve. Certainly major projects at the downstream revenue can go to the financing authority to provide that, but if you don't have a major project in your area and you will not get the benefits, we cannot just ignore those First Nations and say maybe in 30 years we will deal with your issues. We need to provide the resources that support the development of infrastructure for economic development, and it's generally land based.
Senator Wallace: Thank you.
The Chair: Colleagues, we are near the end of our meeting. I would like to thank the presenters for some very clear and consistent recommendations to us. I think this has been most helpful to us.
I have one quick question before we adjourn. The subject of land tenure didn't come up, if I heard you correctly today. We've heard a lot of issues around land tenure in the visits we made to communities, the challenges of land tenure under the Indian Act. It was not mentioned as an obstacle to investing in infrastructure this morning. Is that because it is not an issue? Could you make a brief comment on that? You know it's a very intense issue under debate, but are there ways of getting around those what-seem-to-be barriers?
Mr. Calla: Yes, there are. There is the First Nations Land Management Act as an example of a way to resolve some of these issues. I think it's important to appreciate that in land-based economics, where you're dealing with a designation of your reserve land base for some economic activity, certainty is required for the length of time that debt will be incurred by the proponent to put improvements on the reserve. So you need to have certainty and financial institutions need some certainty around the lease provisions and the rules regarding it.
Generally I'm not a banker. Both Ernie and I are getting close. We might try to be one day. I think you are looking two to three times the amortization period in terms of lease. Those are the kind of measures.
How you achieve that can be done in many different ways. I think that always raising the value of your land to the point where it would be considered for appraisal purposes is fee simple. I don't want to get into all of that here today because we don't have the time, but it's an important aspect of that.
You can achieve that in a variety of ways. A number of proposals have been presented, but in each and every case, it is not just the land tenure. It is the harmonization of the regulatory environment between on and off reserve, depending on the type of investment you are contemplating. For example, if you are looking at an industrial type of activity, let's take the Fort McKay First Nation as an example as they develop their oil sands. They need a regulatory framework that the province has in place to be able to support their development. I don't think the federal government wants to develop its own.
So these kind of regulatory harmonies are also important to maximize value for First Nations. It is not just tenure but the jurisdiction and authority that rests with the First Nation government that makes the investor feel comfortable. For example, if you were to develop market housing on reserve, having the Strata Property Act in British Columbia, the Tenancy Act and certain abilities for policing, for example, to ensure that local police feel they have the authority to come on reserve, those kinds of regulatory harmonies are just as important as tenure.
The Chair: Thank you.
In closing, we are very grateful for this. I would like to suggest that we continue to engage, because things are moving fast. As Senator St. Germain said, the train is passing us by. I hope, through our capable staff and yours, we can keep engaging as developments occur going forward. Thank you very much.
It is great to see our former colleague again. I am glad you are still with the cause.
(The committee adjourned.)