Can a bond offering help cure poverty on Native reserves?

Why it may be a win-win solution for Aboriginal communities and Ottawa

www.fnfa.ca

Money, goes conventional wisdom, comes with strings attached. Especially other people’s money. Especially when it comes as lump-sum transfer. And, as the ongoing Attawapiskat saga shows, the strings tie both ends of the money chain, with receivers accusing Ottawa of stinginess and neglect, and lenders always keen to point to suspicious accounting practices–or at least maladministration.

Yet, there’s a smart way around all this: borrowing from the markets. Though few seem to have noticed, First Nations are working on it. They plan to issue their first bonds in the fall of next year, in a collective offering worth at least $100 million. The money raised will serve for things like housing and to build badly needed infrastructure, which will create jobs and the conditions for banks and private business to set up shop on Native reserves, says Steve Berna, chief operating officer of the First Nations Financial Authority, the voluntary not-for-profit organization tasked with issuing the bonds.

Financing pricey public projects by borrowing on the market is common practice for governments at all levels, from federal to municipal, notes Berna. But it wasn’t until 2005 that Parliament empowered First Nations to do so as well, passing a grass-roots bill that had been at least six years in the making. Initially, the First Nations Fiscal and Statistical Management Act allowed First Nations to issue bonds backed only by their tax revenues.  Thanks to an amendment approved in September of this year, though, they’ll also be able to back debentures with revenue streams from things such as royalties, government transfers and interest earned on deposits, investments or loans.

South of the border, Indian tribes have long been issuing bonds, mostly backed by casino money. The Navajo Nation, the largest American Indian tribe, is expected to sell its first bonds in a $120 million offering using revenues from oil and gas royalties–and it has a better credit rating than the government of California.

But what about small, resource-poor communities that just don’t have the numbers to issue a debenture? Here’s where the Canadian approach is innovative. Canada’s First Nations opted to pool their revenues rather than going it alone, which allows smaller communities to access the bond market as well. But a bigger, collective offering means that even large, wealthier bands will benefit from lower rates and more advantageous conditions than they would have been able to obtain on their own. First Nations took their cue for this from B.C.’s Municipal Finance Authority, whose cooperative borrowing model allowed all 210 of the province’s local governments to issue bonds on the global market, with an AAA rating. Tellingly, FNFA’s Berna used to be the MFA’s CEO.

The setup may also represent an incentive for some band chiefs to finally get their books in order. In order to participate in the collective debenture, in fact, First Nations must qualify for it. The First Nations Financial Management Board, which operates independently from the FNFA, manages the vetting process, looking at financial administration practices, executing liquidity tests and demanding to see at least five years of audited financial statements, among other things. Those that don’t meet the bar get a do-list to fix their financial management and can try again later. It’s peer pressure at its best with no easy scapegoats.

Can a bond offering help cure poverty on Native reserves?

  1. Fantastic!

    Thanks for posting this!

  2. Fast forward to year 2025, Indian bands are in debt to the tune of billions and Canadians will be on the hook for it.  I’m not seeing debt – secured by a stream of government handouts – as a solution here.

    • FN have treaty rights guaranteed by the crown…they are not ‘govt handouts’.

      • You put your finger on it nicely – govt handouts are not treaty rights.  There is nothing in Treaty 9 – you can read the text here 
        http://www.aadnc-aandc.gc.ca/eng/1100100028863 - which guarantees them quarter million dollar houses on the Canadian taxpayer dime.    

        Maybe they can use some of the fifty million dollars given to them by the freaking diamond mine they are beside to buy some houses.  

        What you don’t understand, Emily, is that the CPC has polled Canadians on the issue and we are overwhelmingly sick and tired of being shaken down by racist, hateful Indians.  Harper will move to put an end to the status quo at the next First Nations conference and he will have broad and deep support from the Canadian people to do so.

        • “sick and tired of being shaken down by racist, hateful Indians”

          You need therapy not policy ideas.

        • You are totally confused.

          Treaty rights are not govt handouts.

          And since they are FNs…there is more than one treaty.

          What Canadians are sick of is racist nonsense like you’re spouting.

          Harper cannot move unilaterally on this….he is bound by the constitution.

  3. Attawapiskat is a governance issue, not a financila one. They have the money, from the feds, the provs, the mine, the casinos. What they do not have is any idea of what to do with it and so even if they were to get far more money from such an arrangement as mentioned here it would not make any difference. The CFO of the band sleeps with the chief!….in fact they have three chiefs, all on the payroll, the hereditary, the retired and the current…go figure. Wake up Canada…this is a good idea, but it must be done only when a band can demonstrate the expertyise needed to be able to control spending properly..

    • No, they don’t have the money, that’s the problem

      But they know exactly what they’d do with it if they did….there is a long list.

      The co-manager…who was appointed by the govt….is living with the chief.

      The band financial statement is online….the ‘expertyise’ is there.


      • No, they don’t have the money, that’s the problem”

        They get money from Casino Rama, the feds, the diamond mine they shook down…it might actually be easier to list the entities they don’t get money from and if they don’t like it they should join the vast majority of Indians in Ontario who have left reserves for the cities and consequently enjoy significantly higher standards of living and health outcomes.   

        Don’t waste your time defending racists, Emily, they hate your white ass more than you hate Stephen Harper, trust me, and racism aside, you are part of a tiny, dwindling minority of “poverty pimps” who want to continue segregate Indians in apartheid-like “Bantustans”. We, the vast majority of Canadian people, oppose that.

        • Well now that you’ve totally confused the situation, it’s clear who the racist is….and it ain’t the Natives.

          Perhaps you could start sorting out the mess in your mind by remembering whose land you’re on….and by reading the relevant part of our constitution.

          And no, your KKK is not part of the ‘vast majority’ of Canadians….you must have missed the uproar and the help from all parts of Canada after that video was shown.

          PS…you might also want to look up the cost of water and sewage plants

          They simply don’t have enough money.


          • Perhaps you could start sorting out the mess in your mind by remembering whose land you’re on”

            Her Majesty Queen Elizabeth II, Queen of Canada.  Even Indian chiefs concede crown sovereignty, they just claim title over certain parts.   It’s pretty obvious native affairs are not your specialty; perhaps if you put in the time I have you’ll do better.

            Incidentally, Indians routinely renege on treaties, for example Parliament Hill is on Rideau Purchase land, yet at least 2 Algonquin groups are still contesting that treaty land.  So if Indians are already ignoring treaties I’m not going to get worked up about their claims that we are.

            KKK this and racist that all you want Emily, it doesn’t work.  It’s Harper Time, sweetie, and we the Canadian people will no longer be guilted by Indian shakedown artists.  Immigrants don’t move to Canada so they can be the economic slaves of ungrateful racist Indians and I for one support our immigrants and their children in their bid to break free from the chains of Indian Act bondage and servitude.

          • Um no….it’s native land…and used by you only  by virtue of the treaties FN has with the Queen. The Queen, not Harper’s govt.

            Lots of treaties aren’t yet settled….even after 3 centuries.  We’ve dragged our feet a bit. They’ve been very patient….far more patient than I would have been.

            You think Harper is a dictator?  Sorry, but he’s not.

            He doesn’t have much elbow room on this

            You seem to be in the wrong country.

          • Whoaoh that is one off the wall remark i think you may want to do some real research outside of google, sounds a little crazy…. With the info you leave out

          • Your white

          • Anna list you discust me

  4. Interesting article in last weeks Forbes – good comments too.  Issuing bonds may be another way of raising money except it seems that there are reserves that have a hard time budgeting/allocating funds.  2012 should be a very interesting year!!!
     
    “Why Are Indian Reservations So Poor? A Look At The Bottom 1%
     
    Canada faces the same issues with its 630 bands—as tribes there are called—but thanks to the effort of a dogged reformer, there’s a push to allow reservation land to be privatized. Manny Jules, a former chief of the Kamloops Indian band in British Columbia, is lining up support for the First Nations Property Ownership Act, which would allow bands to opt out of the government ownership of their land and put it under tribal and private ownership. Reserves would become new entities that would have some of the powers of municipalities, provinces and the federal government to provide schools, hospitals and other services, and to enact zoning laws. He expects that the bill will be introduced in Parliament early in 2012 and is confident of approval by the end of the year. What’s forcing the issue is an acute housing crisis on the reserves. Without private property rights, little housing is being built even as the Indian population grows, and the Assembly of First Nations estimates that the reserves need 85,000 new houses immediately; the government is building only 2,200 a year.
     
    “Markets haven’t been allowed to operate in reserve lands,” says Jules. “We’ve been legislated out of the economy. When you don’t have individual property rights, you can’t build, you can’t be bonded, you can’t pass on wealth. A lot of small businesses never get started because people can’t leverage property [to raise funds]. This act would free our entrepreneurial spirit, but it’s going to take a freeing of our imagination. We have to become part of the national and global economies.”
     
    http://www.forbes.com/sites/johnkoppisch/2011/12/13/why-are-indian-reservations-so-poor-a-look-at-the-bottom-1/  

  5. Sounds like a great idea, until about year 6 when all the consturction projects and easy money is spent and there is a noticable decrease in the money availible for basic services due to large interest payments.

    This is a terrible idea. I mean, the conservatives are complaining about mismangement of money and graft and the policy solution is to give them a credit card?

    This can’t end well for anybody but the current management of reserves and politiicians looking to say they “solved” first nations problems.

  6. Interesting article,but I can’t help but wonder if the more successful and organized Nations would thrive from this above other nations? Kind of defeats the purpose? What about the small bands that are not self governing? I smell debt.

  7. For heavens sake, can this site be better moderated? Im all for open discourse and divergent ways of thought, but can we lose the hateful bigoted and racist comments???

    • Was native land long before other influences came along,in fact all the luxuries we enjoy are in fact borrowed or stolen if we were really honest about the history of canada.peace

  8. What happens when the governments turn out to be no better than the ones which run Canadian municipalities, provinces, and the country at large, and the “royalties, government transfers and interest earned on deposits, investments or loans” are all earmarked for spending so that nothing is available to settle the bonds at end of term?  More taxation of the governed to meet their obligations, I must suppose.

  9. Great just what we need more Indian Affairs experts you all come from a loooong line of exerts that FNs have had to put up with. Most funding that is allocated to bands i.e. 50 million (pfft) is reduced after it gets funnelled through the federal INDIAN AFFAIRS office and the provincial (regional) INDIAN AFFAIRS offices. Those employees are not FNs at all.

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