Membertou First Nation sits on a single square kilometre reserve on the outskirts of Sydney, N.S., on Cape Breton Island. It’s home to fewer than 1,000 people, and has nowhere near the kind of oil or gas resources common among many wealthy First Nations. But these days business is booming. The nation runs a conference centre, gaming operations and a renewable resource company. Its latest plans include building a new school, highway interchange and more housing. What Membertou needs, however, is money to fuel further growth, and Chief Terrance Paul believes the answer lies in something never before attempted by an Aboriginal government: selling bonds.
Along with at least 19 other First Nations, Paul hopes to raise $150 million in total on capital markets in a bond issue expected this fall. If successful, it will make “a tremendous difference,” he says, putting First Nations on even footing with other levels of government, which rely on bonds to access low-cost, long-term financing for infrastructure and other major projects.
“A lot of First Nations are going to expand,” says Ernie Daniels, president of the First Nations Finance Authority (FNFA), the non-profit body tasked with bringing the bond issue to market. He predicts a spike in economic activity on and off reserves. “[Bands] may invest on their own reserve lands, or if there’s a pipeline that would go through parts of their land, they may invest into that [in an equity stake].” It would mark a fundamental shift away from government funding, and toward economic independence, says B.C. Assembly of First Nations chief Jody Wilson-Raybould, whose We Wai Kai Nation has joined the project.
As of this week, Daniels will have 16 First Nations approved to participate in the bond—with stakes of various sizes. That’s four shy of the 20-plus goal, which rating agencies have indicated would lower risk and keep down borrowing costs. The FNFA expects to reach that number by March, and then it can finalize the details, including an expected 30- or 40-year term, decades longer than bank loans available to Aboriginal governments.
Daniels expects they’ll start with a single-A credit rating. That may sound overly optimistic at a time when fiscal accountability on reserves is a big concern and could scare away lenders. But organizers say the bonds will be secured through existing revenue streams, such as gas and tobacco taxes or gaming. The federal First Nations Fiscal and Statistical Management Act created both the FNFA and the First Nations Financial Management Board (FNFMB), which combs through a band’s finances to certify a nation as fiscally stable. That certification is a prerequisite for joining the bond, and there’s the added promise that if one group fails to pay interest, the rest will step in. (Currently, 95 First Nations are seeking certification, each potential sellers of future bond issues.) Ultimately, the reserves involved may be in far better shape than provincial governments, which have no trouble finding buyers for their bonds despite their serious fiscal troubles.
The Bank of Montreal has already offered bridge financing to the tune of $15 million to Membertou until the FNFA issues the bond. “I know there are other institutions that look at the [FNFA] like they’re in competition and may not have taken the same approach,” says Doug Bourque, of BMO’s Aboriginal banking arm, “but I put them on par with municipalities.” Indeed, the venture is modelled on the Municipal Finance Authority of B.C., which has arranged over $5 billion in financing for municipalities.
“The capital markets have responded to [the bond] well,” says Harold Calla, the FNFMB’s executive chair. He adds the new financing could help alleviate social problems, from housing to health care. “This is about how you can develop prosperity, managing wealth into the future so we can become self-reliant, less dependant and can make a much greater contribution to sustaining the Canadian economy,” he says.
But the option is still out of reach for many poorer First Nations, including the 154 bands under some level of federal oversight for defaulting on government loans. Even among those with solid balance sheets, there is caution. “In Ontario there’s been a mindset that, hold on, we signed treaties,” says Brian Hamilton, general manager at the Curve Lake First Nation near Peterborough. “By us going ahead and borrowing money, we’re letting [the federal government] off their treaty responsibilities.” Still, in his mind, the bond is “definitely a good thing.” Curve Lake needs a water treatment facility, he says, and the long wait for federal funds is starting to change attitudes. “We’re starting to talk now about the risk of not borrowing, or the risk of not doing it.”