Indigenous and Northern Affairs Committee on May 28th, 2009

[Dr. Tim Raybould]

Yukon would be another, and that's where we've been focusing our attention in the north so far, the Yukon, where those communities have been self-governing for a number of years and see the benefit of pooling with communities in the south and other northern communities.

[Jean Crowder, NDP, Nanaimo—Cowichan, BC]

What could the committee do that would be helpful to you? This all seems practical good sense, especially since it's modelled on other models that have been so successful, like the MFA. What can the committee usefully do to support you?

[Deanna Hamilton]

There are two things we need. We need to be able to complete that regulation as quickly as possible, because we do have first nations right now across the country, as we've said, who are willing to use this now and leverage their own source revenues.

The second thing we need is the stimulus fund. The stimulus fund is a very good investment, because it will not only encourage first nations to take a hand in their economic development and their own infrastructure, but any time you have something to manage, such as economic development, you will also grow your capacity in your governance.

[The Chair, Conservative, Bruce Stanton]

Thank you, Madam Crowder, and thank you, Ms. Hamilton.

Now we'll go to Mr. Duncan.

[John Duncan, Conservative, Vancouver Island North, BC]

Thank you, Mr. Chair.

To build on what Jean Crowder was saying, page 10 of your document, with the pie chart, demonstrates quite clearly why you want to expand beyond the property tax regime into other source revenues, because of the dramatic expansion of revenues in the other source category. That's quite a stark contrast.

I did hear you make an earlier presentation in which you talked about--I guess this question will be for Steve--how you went to the financial marketplace and designed a way in which this scheme would operate in reverse, as opposed to.... I wonder if you could describe that again for the benefit of us all.

[Steve Berna]

Sure.

I've dealt in the financial market since 1991, and it's very clear to me that when you're building regulations you'd better build something that the end-users--the rating agencies, the investors--like. We did not build this upon our dreams in the hope that the end-users liked it. I started almost a year ago, last June, contacting the rating agencies, Moody's, Standard & Poor's, contacting the banking syndicate--which are departments of the chartered banks who are the sales staff who go out and sell to the investors, Great West Life, pension funds, etc. I also talked to the investors and said, “What do we need to make this successful, so that when we go to do our first debenture, you will buy it?“

The feedback that we received was incorporated into building the regulations. They build in very specific controls that ensure that when we make a loan, the moneys to repay the loans will be captured, put into accounts where they cannot be accessed for inappropriate purposes, and when it's time to pay the investors back, the money will be there.

We started with the end-users and incorporated their needs and worked forward from there.

[John Duncan, Conservative, Vancouver Island North, BC]

For clarity, the $100 million stimulus fund.... Let's assume there was a default and money would come out of that fund. Is there a built-in mechanism to top that up from the borrowers?

[Steve Berna]

The rating agencies will always look at what you have as security or equity. The second thing they will look at is what happens when something goes wrong. Is there a mechanism in place that will rectify the problem?

If we have a member who defaults on a loan payment to us, the first thing we will do is make sure that the bondholders get their money. No default happens. The second thing we will do is work with the first nation that defaults. Step number one is to identify the problem and ask if they can solve it themselves within a short period of time, if they can pay us back so we can replenish that equity fund. If they can't, the act gives us the powers to get into either co-management or third-party management of their revenues. That parallels the models in B.C. and Alberta, where if a municipality defaults, the minister of municipal affairs has the power to become the mayor in council to look after the revenues.

So we have very strong powers to co-manage or third-party-manage the revenue streams to make sure the moneys are repaid.

[John Duncan, Conservative, Vancouver Island North, BC]

Can we assume that FNFA would not necessarily lend to any applicant? Would there be certain governance or other provisions that you would like to see in place before you approve an application?

[Steve Berna]

The FNFA's board has the final vote or the right to say no to a loan request. When you have a cooperative borrowing model you are only as strong as each member within that cooperative area. The revenue streams that a first nation will identify to repay the loans are not in shadow. They are looked upon by their auditors, and there is a stringent test in section 9100 of the handbook for auditors, the CICA, that outlines the steps that must be followed to make sure the strengths and weaknesses of that revenue stream that they're going to use to repay the loan are looked into. The auditors will provide a report to the board saying that these are the strengths and weaknesses. Our board will then have the right to say yes or no to that loan request based upon what the report says.

[The Vice-Chair, NDP, Jean Crowder]

You're out of time. Thanks, Mr. Duncan.

[John Duncan, Conservative, Vancouver Island North, BC]

Oh, I wondered where you went. You've been waiting to say that.

[The Vice-Chair, NDP, Jean Crowder]

I have been.

We'll go to the Liberals for five minutes.

[Mauril Bélanger, Liberal, Ottawa—Vanier, ON]

Chief, or Madam Hamilton, I would just like to further explore one of the questions I raised in a previous meeting earlier this year. It was regarding the capital budget of the department. Today I got the whole list. It's about a billion dollars of annual capital expenditures. Are you expecting to tap into that in any way, shape, or form?

[Deanna Hamilton]

The figure that we've given you with this pie chart is actually a percentage of the total. We did it as an example of what we would be able to do with say 20% of that budget. But it's more than what you could do with the budget, because now it's being spent on shovel-ready projects and in cash on a yearly basis. You'd be able to actually take those dollars now, today, and put in ten schools instead of one school, ten community centres instead of one. You'd be able to multiply those. You wouldn't be paying any more; you would just be able to leverage and pay for that yearly over the period of the loan.

[Mauril Bélanger, Liberal, Ottawa—Vanier, ON]

I understand that.

First of all, when this was set up in 2005, we weren't into the situation we're in today around the world. So it wasn't created for a stimulus objective. Do we agree on that?

[Dr. Tim Raybould]

From a first nations perspective, we are catching up. So we're looking at doing things that would actually create a stimulus. We've always been looking at ways to stimulate economies on a reserve.

[Mauril Bélanger, Liberal, Ottawa—Vanier, ON]

I understand that, but it's not a stimulus to try to counter a recession. It is an attempt to do more, to have a better infrastructure across the country on reserves.

[Dr. Tim Raybould]

Absolutely, and--

[Mauril Bélanger, Liberal, Ottawa—Vanier, ON]

It's not an emergency situation driven by a recession.

[Dr. Tim Raybould]

That's right.

[Mauril Bélanger, Liberal, Ottawa—Vanier, ON]

Okay.

So to what extent are you hoping to tap into this billion dollars annually?

[Steve Berna]

I can provide the numbers.

The $1 billion in capital that INAC spends is not what we're tapping into. They have a subheading called “major capital”. The major capital fund has $240 million in it as of last year's budget. That fund is not stable, because it is accessed for emergency issues. So what we said to INAC is our act allows us to securitize federal moneys. If you took 20% of that $240 million, or $48 million each year, you could borrow nine times that amount in today's bond market. That's based on the current interest rates and current principal amounts you have to repay. So what we're looking at is $48 million from INAC, not anywhere close to that billion-dollar mark. Forty-eight million dollars every year would provide enough money for us to pay the principal and interest payments on about $432 million in bonds at today's rates.

[Mauril Bélanger, Liberal, Ottawa—Vanier, ON]

Will the various communities across the country be obliged to deal with you, not the banks?

[Deanna Hamilton]

It will be by choice. It will be for the ones that want to do this.