Let us borrow so we can build.
That’s one of the messages from some 30 First Nations leaders travelling to Ottawa March 21 to push the federal government for more power to borrow money to finance infrastructure projects.
The group comprises employees and members of the First Nations Finance Authority (FNFA), a non-profit, Indigenous-owned corporation that works with 151 individual nations to access capital markets to finance major projects that contribute to their economic development.
The authority has a loan portfolio of close to $2 billion and has financed some of the largest commercial transactions that First Nations have completed. Those include the acquisition by the Membertou First Nation and other East Coast Mi’kmaq communities of a 50% interest in Clearwater Seafood along with the fishing licences held by the corporation.
However, FNFA’s financial capacity is limited by federal regulations that prevent First Nations from borrowing against future revenue that is owed to them by the federal government.
The authority is asking Finance Minister Chrystia Freeland to include a pilot project in her upcoming budget, due out March 28, that would allow it to leverage up to $200 million in future revenue for investments in infrastructure.
Such “monetization” is the same process used by provinces and municipalities to fund infrastructure and was endorsed by the House of Commons finance committee in a report last April.
FNFA estimates that $200 million in annual federal funding could finance a $3.6-billion debenture (a debt instrument not secured by collateral) monetized over a 20-year term.
First Nations face a growing infrastructure gap compared to the rest of Canada when it comes to housing, schools, energy systems and internet capacity, FNFA chief executive Ernie Daniels said in an interview prior to the Ottawa visit. “Every First Nations community wants a better quality of life for their people – every community,” Daniels says. “They’re going to build infrastructure where they can finance it themselves because they can’t wait [for] government.”
A member of the Salt River First Nation in the Northwest Territories and Alberta, Daniels is a certified public accountant and was appointed last year as a board member for the Bank of Canada.
First Nations infrastructure gap
An independent study from more than a decade ago found that First Nations endured a $30-billion infrastructure gap compared to the rest of Canada. That gap has since expanded tremendously despite a promise by the Liberal government to close it by 2030. The Assembly of First Nations now estimates it to be a staggering $349 billion.
Ottawa is currently allocating roughly $2 billion annually to fund infrastructure projects in Indigenous communities, but Daniels argues that, at that rate, the gap will continue to grow.
The FNFA has already leveraged the “own source” funds of its members – proceeds from First Nations’ businesses and benefits agreements – to provide interim financing for revenue-generating infrastructure projects. It also works with the communities to access capital markets for full project financing.
If it was able to leverage long-term, committed government transfers, the corporation could dramatically increase the scope of its borrowing and lending, helping to close the gap, Daniels says. The difference, he explains, is like a couple trying to save enough money to buy a house for cash, versus acquiring a mortgage from a bank on the strength of the buyers’ current income projected into the future.
Every First Nations community wants a better quality of life for their people – every community. They’re going to build infrastructure where they can finance it themselves because they can’t wait [for] government.
-Ernie Daniels, FNFA chief executive
An increasing number of the 600 First Nations across Canada are applying to be members of the FNFA. But the rigorous certification process can bog down as the federal government is slow in “scheduling” First Nations as candidates under the First Nations Fiscal Management Act, which established the FNFA in 2005. Following that scheduling, each community must comply with certification conditions set out by the First Nations Financial Management Board. These include whether a First Nation has both the financial and management capacity to participate in large capital projects.
As a result of the rigorous process, economic opportunities are sometimes missed.
The FNFA is currently working with 20 First Nations that are keen to take an equity stake in TC Energy’s Coastal GasLink natural gas pipeline in British Columbia. That project has generated considerable controversy as some First Nations leaders and non-Indigenous activists are trying to block its construction over environmental concerns. In an emailed comment, FNFA spokeswoman Naomi Mison said the authority is aware of the controversy surrounding Coastal GasLink. “We are speaking with many communities and will work with them to address any concerns that may arise,” she said.
The authority also helped finance Henvey Inlet First Nation’s partnership with Pattern Energy in the 300-megawatt Henvey Inlet wind project and associated transmission lines on the northeast share of Georgian Bay.
“To me there is [a] really good story here,” Daniels says. “First Nations are getting involved in these large projects that are generating cash. And every dollar that a First Nation generates from these economic development opportunities is going back into more infrastructure.
“Every loan tells a success story in a First Nation, and we hope those kinds of stories will encourage other First Nations to follow this path.”
