Chair and honourable members, thank you for inviting us back to discuss some of the challenges experienced by first nations communities and businesses in accessing capital on reserve.
I understand that the committee has welcomed some new members since our last chance to appear before you in May, so I would like to recap some of our earlier comments for their benefit, and also to update all of you on our recent efforts to reduce barriers and increase access to capital for first nations communities and businesses.
First nations leaders continue to prioritize economic development as a means to greater self-reliance and improved quality of life for their communities. The sizeable reserve land base in Canada is growing steadily with the settlement of comprehensive and specific land claims, and through additions to reserve.
Since 2006, 873,449 acres have been added to the reserve land base. First nations are seeking to unlock the economic potential of their growing land and resource base. As population centres grow, more reserves are now located within, or very near, urban settings. This is opening up new opportunities for economic development, but also underscores the importance of effective tools for supporting access to capital.
Urban reserves in particular are providing first nations with significant fiscal and economic benefits. A recent study from the National Aboriginal Economic Development Board found that six first nations with urban reserves had collectively created over 7,000 jobs and over $77 million in annual economic activity for both their communities and neighbouring municipalities.
A growing number of first nations communities and business are achieving remarkable economic success. Membertou, Osoyoos, Whitecap Dakota, and Kamloops, among many others, are well-known examples.
Aboriginal self-employment is also on the rise. According to the 2011 census, there were more than 37,000 aboriginal people in Canada who had their own business, which is an increase of 85% since 1996.
Despite these many successes and very positive trends, access to market capital and private financing remains a significant challenge for first nations communities and businesses. On reserve, the limitations of the antiquated Indian Act present particular challenges to creating an environment that is attractive to raising capital and advancing economic opportunities.
I would like to speak a bit about Indian Act provisions that affect access to capital.
First, all first nations communities face obstacles to accessing market capital because of difficulties in leveraging land and assets on reserve. Section 89 of the Indian Act prohibits the mortgage, levy, or seizure of real and personal property of a first nation, or an individual situated on reserve.
This provision of the Indian Act was originally intended to prevent unscrupulous creditors from taking advantage of individuals, but it has now become a key obstacle to raising capital. Under this provision, first nation governments and individuals are impeded from using their assets fully as collateral to obtain access to market capital without the direct involvement of the federal government. We know that off reserve, individuals and businesses very often leverage the value of their property and assets to start, operate, and expand businesses.
Second, the Indian Act designation and leasing processes on reserve present potential structural barriers that impede the development of relationships with investors on reserve.
Leases under the Indian Act are possible if there is both a community vote to designate land and the approval of the minister for the designation. The designation provisions of the Indian Act were streamlined in the Jobs and Growth Act, 2012 by changing the community vote threshold to a simple majority, and by granting the Minister of Aboriginal Affairs and Northern Development the authority to accept designations.
This has assisted some first nations in speeding up development processes. Nevertheless, the Indian Act system, which often requires lengthy and complex lease negotiations involving our department and the Department of Justice, still results in delays, added costs, and missed opportunities.
Third, legislative barriers to moneys management impede first nations' abilities to leverage own-source revenues to access market capital.
Indian band moneys are held in the consolidated revenue fund and, pursuant to sections 61 to 69 of the Indian Act, can only be expended for the use and benefit of the band. Except for bands that have authority to manage their own revenue moneys, all expenditures under this Indian Act provision must be authorized by the minister. These provisions have the effect of delaying the disbursement of a first nation's own moneys, particularly capital moneys, which are generated from on-reserve activities, such as natural resource extraction, or from the sale of reserve lands. Revenues from leasings do not carry the same restrictions but are still subject to certain administrative requirements for their access.
Finally, first nations have limited access to financing and are generally unable to raise the capital required for major projects. Although first nation communities can collect property tax under section 83 of the Indian Act and under the First Nations Fiscal Management Act, only 150 of 617 Indian Act first nations are actively collecting some form of property taxation.
Long-term debt provides many advantages over the cash-based approach to financing infrastructure projects, which is a common practice among most first nations, and which is heavily reliant on federal transfers. Comparatively, off reserve, local governments can use cash financing from significant tax bases, but also have access to public debt borrowing, for example, turning to the municipal bond markets, and project financing opportunities, for example, turning to public-private partnerships. Over the past 40 years, most provincial governments have set up finance authorities that have the ability to issue long-term collective debt on behalf of municipalities.
I'll turn to key measures to address these impediments. I will discuss some of the key legislative, program, and institutional arrangements that have helped reduce barriers for first nations in gaining access to market capital.
One of the key strategies the federal government has undertaken to address structural barriers has been the development of a number of optional legislative tools. These optional regimes, including, for example, the First Nations Fiscal Management Act, the First Nations Land Management Act, and the First Nations Commercial and Industrial Development Act, as well as the First Nations Oil and Gas and Moneys Management Act, provide participating first nation governments with the ability to remove themselves from many of the antiquated and restrictive provisions of the Indian Act. Together, these acts provide ways for first nation governments to leverage on-reserve real property taxation and own-source revenues in order to gain access to capital markets, gain control over their financial management, gain control over the designation of lands on reserve, develop comprehensive regulatory regimes to manage major economic development projects on reserve, and control oil and gas revenue moneys earned on reserve. In total, first nation communities can use such opt-in legislation to remove themselves from 48 sections of the Indian Act that are recognized as barriers to economic development.
The First Nations Land Management Act and the First Nations Fiscal Management Act have been taken up actively, and are reported by first nations who participate to be useful tools in enhancing access to capital. For example, a benefits review of the first nations land management regime completed by KPMG and associates in 2014 affirmed that first nations operating under the regime view their ability to borrow money for capital investments under the act as a significant economic advantage, and they have reported increased attractiveness to investors as well as better partnership opportunities.
In June 2014 the First Nations Finance Authority issued its first bond, which was a major breakthrough for first nations seeking to build both the quality of life infrastructure improvements such as on-reserve housing as well as manage investments and major resource projects. Through pooled borrowing that was secured by projected future first nations revenues to be obtained through property taxation, $90 million was raised on behalf of 14 borrowing members with a competitive credit rating from Moody's of A3. I would note for committee members that this is a higher rating, for example, than those given to pipeline companies like Enbridge and TransCanada.
With the success of this very first inaugural bond, interest in the first nations financial management regime has grown among first nations across the country. As of February 2015, 75 first nations are exercising property taxation jurisdiction under the act; 45 have met the financial performance requirements established by the First Nations Financial Management Board, and 38 are eligible to borrow through the First Nations Finance Authority. There is currently more than $200 million in unused borrowing capacity that can be deployed over the next two to five years among the current 38 finance authority members.