REVENUES AND FUNDING OF
FIRST NATIONS AND THEIR AGENCIES
A Discussion Paper
Prepared by the
CREE-NASKAPI COMMISSION
Ottawa, Ontario
January, 2013
Revenues and Funding of First Nations and Their Agencies
Background
Most First Nations in Canada today are dependent on the federal and (to a much lesser extent) the provincial governments for the revenues to fund their core operations as governments as well as for most of their program costs and capital expenditure needs. This carries with it the need to ask repeatedly for and to justify funding for which the need is both obvious and routine, often on an annual basis. It involves the need for reporting and accountability processes which, as the Auditor General has observed, are often excessive, duplicated, and frequently not used for any purpose by the funding agencies. Terms and conditions concerning the use of these funds are either based upon generally inflexible formulas or “negotiated” under the pressure to provide basic community services that leaves the First Nation with no real ability to ask for anything other than the terms which the bureaucracy has put on the table. They must simply adhere to a ‘one size fits all’ agreement prepared in Ottawa or fail to deliver basic community services. A recent instance of this problem was noted by the Federal Court of Canada in the Attawapiskat decision when Justice Phelan said:
“There is no evidence of real negotiation. The power imbalance between government and this band dependent for its sustenance on the CFA [comprehensive funding agreement] confirms the public nature and adhesion quality of the CFA.”1
Over the years the federal government has developed a variety of funding models which gave some limited flexibility to First Nations as to how they could administer (mainly) program funds. These models were designed by departmental officials usually with little or no input from First Nations. One of the best known examples of a new approach to funding arrangements is the "Alternative Funding Arrangements" (AFA) initiative originally announced in 1986 by the then Minister, Hon. Bill McKnight. In his announcement, the Minister described the "main features" of the AFA initiative as follows:
This Alternative Funding Arrangement, with various modifications, has continued as the basic model for federal-First Nation fiscal relationships in relation to many First Nations up to the present time. As described by Minister McKnight in 1986, it sounded not unreasonable. In practice however the detailed terms and conditions have created a number of concerns. The main concerns have included; attempts by the department to re-open five year agreements to impose terms and conditions other than the ones agreed to, delays in flowing funds on time resulting in Bands incurring interest-bearing debt, delays in projects as well as excessive and sometimes duplicated reporting requirements. Overall levels of funding during the intervening quarter century have also been a problem inasmuch as the ability to transfer funds to other needs is meaningless if the total funding is inadequate in the first place. There has also been an unfortunate tendency on the part of the federal government to negotiate agreements and then represent that unilateral changes after the fact can be made on the say so of Treasury Board.
The result of this type of revenue sourcing year after year is a paternalistic, often adversarial relationship which is undesirable for both the First Nation and for government. Long term sole dependency of one level of government on another is dysfunctional, degrading and incompatible with mutual respect, positive collaboration and full self-government. In addition there is an understandable tendency on the part of government, whenever it is under fiscal pressure, to cut its expenditures in any way that it can. There are years of examples of how this sort of budget cutting has impacted First Nations. This has not only been an issue with Aboriginal Affairs and Northern Development Canada but also with Health Canada and many other departments. While "political" objection to cuts in government funding is a normal part of democratic politics, the situation is more serious when defaults in funding for legal obligations are involved. First Nations have consistently asserted that certain types of funding which they receive (e.g. health and education etc.) are legal obligations under Treaties, land claims settlements etc. which cannot be unilaterally abrogated because the government has deficit problems. The courts have given general support to this view on a number of occasions. For example the Supreme Court of Canada said in the Badger decision:
"Treaties are analogous to contracts, albeit of a very solemn and special, public nature. They create enforceable obligations based on the mutual consent of the parties."3
In the Kruger case, the Federal Court of Canada said:
"The Governor in Council is not able to default its fiduciary relationship to Indians on the basis of other priorities and considerations."4
In the case of the Cree Canada New relationship Agreement, the Treasurer of the Cree Regional Authority, in his section of the CRA's Annual Report for 2012 says:
"Negotiations with Canada in 2011 - 2012 were stalled throughout the year as a result of Canada's failure to participate. As Treasurer, I must report to the Cree Nation that the failure of Canada to engage will prejudice at least the timing of the final payment of $200,000,000 which was scheduled for release in 2013. The receipt of this payment within the time frame contemplated is fundamental to ensuring Cree Nation capacity to assume the responsibilities of Canada over the balance of the term of the Cree Canada New Relationship Agreement.5
"In addition to these delays, Canada has failed to provide indexation on one of the Base Funding Agreements relating to Human Resources Development, which will erode the purchasing power of the funding to be received over the life of the NRA by a projected amount of $30,000,000. This shortfall will also affect Cree capacity to implement these responsibilities. This is deemed to be a breach of the Agreement and will result in an appeal through the Dispute Resolution Process."6
Clearly it is both dysfunctional and conflict-inducing to have one order of government almost entirely dependent upon another for its costs of operation and its most basic services. This dysfunction and conflict are intensified when one party asserts that its rights are being violated while the other party denies that rights are even involved.
What is essential in terms of fiscal resourcing in the long term, is for First Nations to have “own source revenues" for the basic costs of their governmental operations as well as for most of their core services. It is critical however to re-define "own source revenue" as a broader and far different concept than the one currently being put forward by the federal government. The on-going obligations of the Crown under terms of the Treaties and Agreements perhaps need to be honoured through permanent transfers of revenue generating capacity, based in most cases on the traditional lands of the First Nation in question, from government(s) to the First Nation. This would have the effect of making First Nations fiscally independent, putting into practice the treaty promise of "sharing" lands and resources, and removing one of the most stubborn obstacles to mutual respect, reconciliation and collaboration between First Nations and the Government of Canada.
Own Source Revenue Proposals
There are many proposals for First Nations "own source revenue" being discussed, and in some cases negotiated, at the present time. They include:
Each of these options deserves to be considered. Each approaches the issue from a different perspective and each raises a number of questions that need to be answered.
Resource Revenue Sharing and Related Proposals
First Nations have lived, for the most part, on their traditional territories for thousands of years. They and their governments derived their livelihoods, their income and their revenues from their land and its resources. In almost every instance when Treaties were made, the Treaty Commissioners gave assurances that the land would not be lost to First Nations but was only to be "shared". They also promised that First Nations' use of the land for their own economic benefit would continue largely as before. These promises were essential in most cases in order for the First Nations to agree to treaty. Today these promises are the principal basis upon which the assertion is made that First Nations should receive a share of the resource revenues generated on their traditional lands. Usually the discussion of this issue centres on the exploitation of traditional territories which are considered by government to be "Crown land". The revenues under discussion are often limited to those currently accruing to provincial governments as stumpage fees from forestry companies, royalties from mining, oil and gas companies etc. While negotiations within this limited parameter are perhaps a step in the right direction, if real fiscal independence is the objective, all governmental revenues generated in the traditional territory should be on the table. An arrangement in which all resource revenues are available via a sharing formula could be similar to the one employed in the Cree Quebec New Relationship Agreement 2002 (the Paix des Braves).
Beyond the types of revenues typically generated on "Crown lands", there are of course questions about whether any comparable source of revenue exists in relation to traditional territories in areas which are now held by third parties. This question needs some detailed research but some of the more obvious possibilities arise when one asks the question: "What revenues does the Crown derive from third party-occupied traditional territory?" In discussions on this topic it will be important that the rights and interests of third parties currently using the land in good faith are not negatively impacted. This leads to possibilities including examining revenue sources such as land transfer taxes, rights-of-way (hydro transmission and distribution, highways, gas and oil, railways, canals etc.) Crown uses (federal facilities, airports, military bases, national parks etc.), and such "natural resource" use as there may be (e.g. sand and gravel etc.). Provincial Crown land uses must also be considered. It is also reasonable to include land itself when third parties are willing to sell their interests at market prices.
It seems clear that if First Nations are to be fiscally independent and if they are seen as being guaranteed by Treaty the right to continue to benefit economically from their traditional lands, then they need to have either the direct ownership of land where available or a reasonable share of the Crown revenue derived from those lands where third parties have established interests. First Nations revenues from these types of sources should not be deemed to be federal or provincial transfers, but rather as own source revenues derived from sharing lands and resources.
Own Source Revenue Agreements and the Federal Fiscal Harmonization Initiative
In February of 2012 Aboriginal Affairs and Northern Development Canada released a discussion paper entitled Toward a New Approach to Aboriginal Self-Government Fiscal Arrangements in Canada. The paper includes what it has termed the "fiscal harmonization initiative" including the "own source revenue agreements" that are expected to become a standard component of federal-First Nation fiscal arrangements.
While many of the ideas contained in the paper are useful, there are also a number of ideas that are unhelpful and indeed counterproductive. In broad terms, four areas stand out as serious conceptual problems:
There have been widespread concerns raised by Aboriginal groups about the Fiscal Harmonization Initiative. Those concerns are expressed succinctly by the BC Assembly of First Nations in their May 14, 2012 letter to the federal Cabinet in which they say:
"In our assessment, the proposed federal initiative would be extremely damaging to fiscal relationships between self-governing First Nations and the Crown:..."7
Federal Efforts to Encourage the Collection of Taxes on Reserve
Over the past decade the federal government has approached a number of First Nations with a proposal to collect income tax, GST etc. from "status Indians" who would otherwise be tax exempt by virtue of federal legislation. These proposals provide for remitting the tax collected minus 5% to the several First Nations who have opted into this arrangement. Clearly the advisability of this sort of arrangement is a matter of political judgement for First Nations. Among other things they would likely consider such things as:
Impact Benefit Agreements (IBA's)
Many First Nations are entering into or considering entering into Impact Benefit Agreements with a variety of private business enterprises from resource development companies to shopping mall operators. Such agreements typically provide for a range of benefits such as employment and contracting opportunities, lease payments, taxation-type payments, capital contributions to infrastructure, special projects etc.
These IBA's are a good thing overall. They must be seen however as business opportunities and not as offsets to either Treaty obligations or normal government programs. When they are seen as methods of providing community services or as meeting long term revenue needs, four issues need to be kept in mind;
The Need for a Treaty-Based, Nation To Nation Approach
A letter of May 14, 2012 from the BC Assembly of First Nations to the federal Cabinet concludes with two alternatives to the current Fiscal Harmonization Initiative. The proposed alternatives say in part:
"We propose a joint working table, with federal officials and First Nations representatives, to work towards a new proposal for an effective fiscal relationship. This table should be resourced with sufficient capacity to undertake research, should have ministerial-level oversight, and should have a clearly defined terms of reference and reporting deadline. Alternatively, we propose that the federal government consider an independent expert review panel."8
These alternatives deserve serious consideration.
Ultimately, we believe that the Crown-First Nations fiscal relationship, in order to be effective and lasting must be based upon four principles:
Conclusion
Clearly there is a need to have effective and practical means of enforcing compliance with the terms of Treaties and Agreements without the need for adversarial, expensive and time consuming recourse to the courts.
It has been the experience of the Cree-Naskapi Commission that a comprehensive Treaty or Agreement when fully respected in letter, spirit and intent, is the basis of effective and successful self-government as well as of an effective and successful economy. A critical element in this is a long term, effective fiscal relationship based upon a negotiated arrangement which fully respects that Treaty or Agreement.
Notes
1. Attawapiskat v. Canada, 2012, FC 948.
2. Indian and Northern Affairs Canada, (Hon. Bill McKnight, Minister), A Guide: Alternative Funding Arrangements, 1986, Ottawa.
3. R. v. Badger, [1996] 1. S.C.R. 771, para 41.
4. Kruger v. Queen, 1985, D.L.R. [4th].
5. Grand Council of the Crees (Eeyou Istchee)/ Cree Regional Authority, Annual Report 2011 - 2012, page 72.
6. Ibid, page 72.
7. Letter dated May 14, 2012, from the BC Assembly of First Nations to the "Canadian Ministry (Cabinet)", page 1.
8. Ibid. page 3.
See also: Aboriginal Affairs and Northern Development Canada, Toward a New Approach to Aboriginal self-Government Fiscal Arrangements in Canada, February 2012, Ottawa.