New Borrowing Powers for First Nations Put in Motion

By Heather Exner-Pirot

The First Nations Fiscal Management Act was established in 2006, and over the past ten years has moved from being fairly controversial to quickly gaining momentum and buzz, with proven benefits for communities.   It was initiated with the goal of promoting the following:

  • strengthening First Nation real property tax systems and First Nations financial management systems
  • providing First Nations with increased revenue raising tools, strong standards for accountability, and access to capital markets available to other governments
  • allowing for the borrowing of funds for the development of infrastructure on-reserve through a co-operative, public-style bond issuance; and
  • providing greater representation for First Nation taxpayers.

To help accomplish these things, three organizations were created: (1) the First Nations Finance Authority (FNFA); (2) the First Nations Financial Management Board (FNFMB); and (3) the First Nations Tax Commission. Last week, the FNFA and FNFMB presented on their services and activities to a small group at the University of Saskatchewan office at the English River Business Complex.

The FNFA can best be described as a “Treasury Board” for First Nations: it provides access to capital markets that allows its pool of certified First Nations to borrow at lower interest rates than would be available commercially at the bank. This puts First Nation governments on par with the financing abilities of other levels of government, and makes it much more feasible for communities to amortize infrastructure costs over a long term; in the case of the FNFA, up to 30 years.  In addition to infrastructure, bands can also borrow money to invest in other activities.  Common acquisitions include rolling stock (things with wheels), housing, land, and infrastructure. They have funded solar farms, schools and grocery stores. Closer to home, Peter Ballantyne Cree Nation has accessed FNFA financing to build 52 housing units.

The credit rating of the FNFA and its members is very good: Standard & Poor rates it at A-.  To put that in perspective, that is currently the same as Malaysia, and higher than Russia, Ireland and Iceland.  This is partly due, as stated by FNFA’s Frank Busch, to the fact that no First Nation has defaulted on a commercial loan since 1990.

In one of its best examples of the benefits of borrowing from the FNFA, Membertou First Nation in Nova Scotia refinanced a commercial loan and was able to save over $140,000 a month from the difference in interest rates.

The FNFA has lent $297 million to 35 First Nations since 2014.

How Do I Sign Up?

If having access to more capital at lower interest rates sounds good to you, the next step is to get certified by the First Nations Financial Management Board (FNFMB).  To do so, a First Nation has to send a letter of cooperation inviting the FNFMB to work with the community and pass a BCR to give them access to five years of financial records and proceed with certification. Part of what certification achieves, which is of benefit separate from the ability to access financing, is to outline and institutionalize processes, for example though manuals; and provide and ensure cross-training of staff so there is redundancy in the case of employee turnover.  Standardized and transparent processes also ensure more stability in local governance.  This is encompassed in a band’s Financial Administration Law, which must meet the standards of the FNFMB to become certified.

If a band achieves certification and becomes a member of the FNFA financing pool, the FNFMC is authorized to intervene in band administration if there is a risk of default.  However this is limited only to FNFA loans, and would not affect other loans or unrelated activities.  This protects the other First Nations in the pool however by preserving the credit rating.

So far, 220 First Nations have become scheduled to the First Nations Fiscal Management Act; 85 have developed Financial Administration Laws; 75 have earned Financial Performance Certification; and three have Financial Management System Certification. The numbers have ballooned in the past three years and continue to grow.    Currently, only 581 First Nations in the country are eligible, but modifications to current legislation is being proposed so that those under modern treaties or self-governing agreements can join the FNFA.  In addition, changes are being sought that will allow legal entities other than First Nations – e.g. Economic Development Corporations – to borrow as well.

Barriers to Uptake

 Why haven’t more First Nations taken advantage of these opportunities?  The FNFMA and its three institutions were initiated under a haze of mistrust about the federal government’s true intentions and suspicion about the unknown and unintended consequences.  Some of this mistrust remains.  But as more First Nations have benefited, these concerns have been assuaged.

Particularly important is to emphasize community engagement and education, so that there is broad support and understanding of the benefits and obligations FNFMB certification and FNFA membership bring before the formal process begins.

The best part of all: these services impose no cost on the communities.  Representatives of these institutions pay their own travel costs and charge no fees to provide you with these services. It is non-profit and First Nations government-owned and controlled.  Hopefully more Saskatchewan First Nations will start taking advantage of this important opportunity.