Native bonds

Bill C-23 would allow First Nations to issue debt to fund municipal projects

When a newspaper columnist recently asked a federal cabinet minister about the government's priorities for the upcoming session of Parliament, the answer was health care, child care and aid to cities. Which is reasonable. But those issues can be readily dealt with through regulation or in the budget. When the columnist pressed for an answer about what legislation would actually be debated when MPs return to the Hill in October, the answer was disheartening. "You know, I hadn't thought of that," the cabinet minister was quoted as saying. Here's an idea: what about Bill C-23, the First Nations Fiscal and Statistical Management Act, which was killed when the Liberals shut down Parliament in the wake of party infighting and the subsequent election? It may not play in the media like decriminalizing pot does, but Bill C-23--which would allow First Nations to issue bonds to fund municipal infrastructure projects--is far more beneficial to the health of the country.

The bill, which was in third reading before the election, would see the creation of a group of institutions--a finance authority, a tax commission, a financial management board and a statistical institute--that would act much like the Municipal Finance Authority of British Columbia, which is the central borrowing agency for municipalities in B.C. By pooling their tax revenue under the authority, small municipalities in that province are able to leverage economies of scale into a better interest rate. A similar scheme would benefit native bands, which now typically go to banks for money and pay rates above those found in debt markets.

Bill C-23 aims to correct that sad state of affairs. The First Nations Financial Management Board would carry out assessments of those seeking entry into the pool, the tax commission would train tax administrators, set rates and settle disputes over the tax streams to be scrutinized, and the statistics institute would keep data on the municipal projects. Funds raised would go to provide infrastructure on native reserves as well as a debt reserve fund, which would act as a guarantee for creditors in the case of a default by one of the borrowers. Unlike Government of Canada bonds, the capital raised would not be available to make up budget shortfalls. "We hope this bill goes through because there is a lot of interest in the debentures that would be issued by the finance authority," says Tim Raybould, senior policy adviser for the First Nations Finance Authority (a body that advises on financing issues on reserves). "They will be investment grade, so pension funds will be interested in them."

Conceivably, there could even be a premium on First Nations-backed bonds, which should appeal to the ethical investing crowd. Raybould says he's had interest from European money managers who say the story--natives achieving economic self-sufficiency through capital markets--is perfect for them.

The bill isn't without critics, however. When it was originally drafted, some suggested it was a way for the federal government to abrogate its responsibilities toward First Nations, some of which are so impoverished that debates about property taxes and bonds are pie in the sky. In response, the bill was rejigged to emphasize the voluntary nature of inclusion in the pool, meaning First Nations that don't think they would benefit from it will not have to join.

But backers of the bill suggest this is exactly how First Nations will come into the economic mainstream, by promoting local fiscal responsibility and generating demand on reserves for skilled professionals. "This is the bedrock on which you can break the dependency cycle," says Manny Jules, a member of the Indian Taxation Advisory Board and a driving force behind the bill. In fact, it was his father, Clarence, who was instrumental in the First Nations fight to gain control over their property taxes, which was the first step toward Bill C-23. (Meetings on the property tax issue began in the 1960s.) "We've been dealing with this issue for 45 years," says Manny. "I feel the government would be sadly remiss if they don't reintroduce this bill."

Article written by Jeff Sanford and appeared in Canadian Business magazine, August 30, 2004.