When the City of Vancouver needs money for a major infrastructure project, it can tap capital markets by issuing bonds that are sold to investors.
Moody’s Investors Service, Standard & Poor’s and other rating agencies assess the investment quality of these debt securities based on the issuer’s financial management and economic prospects.
Finally, after more than 15 years of often rancorous discussion and debate, first nations communities can do the same thing.
The First Nations Fiscal and Statistical Management Act, which received royal assent last week, gives aboriginal groups the authority to pool property taxes they collect to use as collateral for bond issues, virtually assuring that they will obtain an investment grade rating on par with Vancouver or Montreal. Property taxes are considered by securities analysts as one of the most stable sources of income.
This long-overdue legislation is a big step in the right direction, but it’s not without flaws.
Perversely, the majority of bands across the country have opposed it on the fatuous basis that — as one chief put it — Canada “is cunningly divesting itself” of its constitutional and treaty obligations to finance native groups.
To the contrary, that it is unlikely to do any such thing is one of the problems with the legislation.
Ottawa will continue to pour taxpayers’ dollars into aboriginal groups — to the tune of $8.8 billion this year alone.
The revenue generated from property tax will not be deducted from federal transfers to first nations. The new legislation is an expansion, not a derogation, of the Indian Act.
The Canadian Taxpayers Federation said it created a “have your cake and eat it too” environment. As long as the Indian Act stands as the law that defines the relationship between Canada and its aboriginal population, native Canadians will neither enjoy all of the rights nor assume the obligations of citizenship.
Fewer than 100 of Canada’s 614 aboriginal groups actually levy property tax, which is largely paid by non-aboriginal leaseholders on the reserves, so not all bands will be able to access capital markets to the same degree.
Some native groups will also have to overcome an indelible image of corruption and financial mismanagement to sell bonds to institutional investors at favourable rates.
To that end, the federal government is stepping in to backstop an insurance fund designed to protect the new borrowing agency against default.
Finally, the cumbersome bureaucracy established by the new legislation is a recipe for inefficiency. Four separate agencies will be set up — a finance authority to issue bonds, a tax commission to manage band bylaws relating to property tax, a management board to set financial standards and a statistics agency to meet local data requirements and encourage participation in Statistics Canada’s national systems. None appears accountable to anyone.
There is no practical need for this structure, which is expected to cost up to $30 million a year to administer.
Ottawa could have simply delegated to the provinces the authority to include native bands under existing regional financing bodies such as the Municipal Finance Authority of British Columbia, which acts as the central borrowing agency for all municipalities in B.C., with the exception of Vancouver, and on which the new legislation was modelled.
Political sensitivity appears to be the only reason aboriginal communities couldn’t become part of such a system, which in B.C.’s case boasts a successful 35-year track record.
But native leaders are wedded to the notion that their relations with Canada are nation-to-nation and refuse to be lumped in with municipalities.
Despite all of these deficiencies, the new legislation offers a glimmer of hope that aboriginal communities will be able to dramatically reduce borrowing costs, while providing the same level of infrastructure enjoyed by mainstream municipalities.