A Report to Parliament on the Legislative Review of the First Nations Fiscal and Statistical Management Act - March 2012

1.1 Purpose and Objective of this Report

The Minister of Aboriginal Affairs and Northern Development is required under section 146 of the First Nations Fiscal and Statistical Management Act to conduct a review of the Act, after consultation with the four institutions created under the Act.

146. Within seven years after the day on which this Act receives royal assent, the Minister, after consultation with the First Nations Tax Commission, First Nations Financial Management Board, First Nations Finance Authority, and First Nations Statistical Institute, shall review the provisions and operation of this Act and the operations of these institutions, and submit a report to each House of Parliament on that review, including any changes that the Minister recommends relating to the evolution of the mandate and operation of these institutions.

The following report is the result of over a year of consultation with the four institutions created under the First Nations Fiscal and Statistical Management Act - the First Nations Tax Commission, the First Nations Financial Management Board, the First Nations Finance Authority, and the First Nations Statistical Institute.

This report outlines key issues and challenges related to the operation of the Act, and is submitted for the consideration of Parliament.

1.2 The Institutions

The First Nations Fiscal and Statistical Management Act created the legislative framework to establish four national Aboriginal institutions – the First Nations Tax Commission, the First Nations Financial Management Board, the First Nations Finance Authority, and the First Nations Statistical Institute. Together, they work to improve the ability of First Nations governments to address the social and economic well-being of their communities, while providing the practical tools available to other governments for modern fiscal management.

• The First Nations Tax Commission is a shared-governance corporation that regulates and streamlines the approval of property tax and new local revenue laws of participating First Nations, builds administrative capacity through sample laws and accredited training, and reconciles First Nation government and taxpayer interests.
• The First Nations Financial Management Board is a shared-governance corporation which assists all First Nations in strengthening their local financial management regimes and provides independent certification to support borrowing from First Nations Finance Authority and for First Nation economic development.
• The First Nations Finance Authority is a non-profit corporation that permits qualifying First Nations to work co-operatively in raising long-term private capital at preferred rates through the issuance of debentures, and also provides investment services to First Nations and First Nation organizations.
• The First Nations Statistical Institute is an autonomous, First Nations-led Crown corporation established to increase the quality and accessibility of First Nations statistics to improve planning, decision-making, and investment for all First Nations as well as federal, provincial, and territorial governments.

1.3 How the First Nations Fiscal and Statistical Management Act Works

The First Nations Fiscal and Statistical Management Act was designed to improve certainty, confidence and infrastructure for participating First Nations, taxpayers and investors. It does this by strengthening First Nation real property tax systems and First Nations financial management systems, providing First Nations with increased revenue raising tools, a new standard for accountability and access to capital markets available to other governments, while providing greater representation for taxpayers. It encourages the use of appropriate financial standards, improves financial management, and assists in developing statistical management capacity while encouraging First Nation participation in national data collection activities.

Participation in the Act is optional. Individual First Nations choose whether they will participate in the taxing and borrowing regimes created under the Act and subsequent regulations. To participate in the Act, a First Nation must first request that they be added to the Schedule of the Act. Scheduled First Nations have the option to use the services from any or all of the four institutions. "Becoming scheduled" requires a Band Council Resolution from the First Nation, and a subsequent regulatory amendment managed by Aboriginal Affairs and Northern Development Canada.

Once a First Nation has been scheduled to the Act, it can begin working with any or all of the First Nations institutions.^{Footnote 1} Primarily, First Nations opt-into the Act in order to establish property tax jurisdiction under the Act’s authority, to access financial management advisory and capacity development services from the First Nations Financial Management Board, and/or to participate in pooled borrowing through the First Nations Finance Authority.

To exercise any of these authorities under the Act, First Nations work closely with the institutions. A First Nation wishing to establish property tax jurisdiction under the Act must pass a property taxation law, and have that law approved by the First Nations Tax Commission. This ensures that taxes are being collected and managed by the First Nation in compliance with requirements under the Act, and, for those First Nations leveraging revenues from property taxation to participate in a First Nations Finance Authority borrowing, it provides assurance and security to lenders that taxation systems are operating properly.

First Nations participating in First Nations Finance Authority pooled borrowing are referred to as "borrowing members". First Nations can borrow against one (or both) of two streams - property taxation revenues or "other revenues" as defined under the Financing Secured by Other Revenues Regulations. To become a borrowing member, a First Nation must pass financial performance tests and eventually receive certification that their financial management systems comply with First Nations Financial Management Board standards.

The approval of First Nation property taxation laws by the First Nations Tax Commission and the certification of First Nation financial management systems and performance by the First Nations Financial Management Board provide layers of assurance to lenders that systems are operating properly. The Financing Secured by Other Revenues Regulations establishes mechanisms for investor protection for First Nations using other revenues to support financing. These layers were created to allow First Nations to access financing at lower interest rates and longer terms than they could access when borrowing independently (i.e. apart from the pooled borrowing system of the First Nations Fiscal and Statistical Management Act).

1.4 Implementation of the Act to Date

The Evaluation of the Implementation of the First Nations Fiscal and Statistical Management Act^{Footnote 2}, completed by Aboriginal Affairs and Northern Development Canada in 2011, confirms that the Act

addresses a continued need by providing a choice to First Nations wishing to improve capacity and to have access to financing tools used by governments to advance economic development. It also addresses longstanding issues related to the timeliness and completeness of Aboriginal statistics.

The Evaluation found that the First Nations Tax Commission and the First Nations Financial Management Board were each delivering on all their mandated services, but in the case of the First Nations Statistical Institute, did not find sufficient evidence to assess measurable progress towards the achievement of its outcomes. It also found that the First Nations Finance Authority was implementing its responsibilities under the Act as intended, but noted that the issuance of an inaugural debenture will determine the ultimate achievement of intended outcomes. With respect to delays in the institutions becoming operational, the Evaluation referenced delays in the appointment of members of the Boards for the First Nations Financial Management Board and the First Nations Statistical Institute as a mitigating factor.

Highlights in the implementation of the Act are summarized below.

Uptake by First Nations

At the end of 2011, 70 First Nations had been added to the Act’s Schedule, representing six provinces across the country.^{Footnote 3} An additional eleven First Nations have forwarded Band Council Resolutions requesting addition to the Schedule, and are in the process of being added^{Footnote 4}.

Transparency and accountability

The First Nations Financial Management Board has developed standards for First Nations financial administration laws, financial management systems, and financial performances. These standards assist First Nations to produce multi-dimensional accountability and transparency regimes that instill confidence in First Nations' financial administration and reporting systems for First Nations members, financial institutions and other investors. The Act has also meant increased transparency in property tax systems, through improved member and taxpayer notice provisions and the publication of standards, procedures and approved laws in the First Nations Gazette.

Clarity and consistency in First Nation laws

Compared to similar Indian Act by-laws enacted prior to 2007, local revenue laws enacted by First Nations exhibit greater clarity and consistency as a result of First Nations Tax Commission’s standards and the publication requirements of the First Nations Gazette.

First Nation property taxation systems

First Nations collecting property taxes under the First Nations Fiscal and Statistical Management Act do so under a more rigorous, accountable, transparent, efficient and streamlined system than those collecting property taxes under the Indian Act. Further, the Act provides First Nations with new and expanded revenue options, clear and effective enforcement mechanisms, and the ability to access debenture financing. The Act also addresses a key gap in Indian Act taxation authorities by requiring public notice of local revenue laws and requiring an opportunity for taxpayer input before laws are enacted by the First Nation.

Number of First Nations collecting property tax

Since the First Nations Fiscal and Statistical Management Act has come into force, a total of 43 First Nations who had never collected property taxes before have begun doing so. 34 of these have done so through the First Nations Fiscal and Statistical Management Act, and nine have done so through the Indian Act.^{Footnote 5} This increase in the number of First Nations collecting property taxes has led to a net increase in property tax revenues collected by First Nations. Supported by the First Nations Tax Commission, First Nations have collected $99.8M to date in property taxation revenue under the First Nations Fiscal and Statistical Management Act.^{Footnote 6}

Certification and professional training

The First Nations Tax Commission has worked with the Tulo Centre of Indigenous Economics and Thompson Rivers University to develop the first Canadian university-accredited certificate in First Nation Tax Administration. Students representing 42 First Nations from across Canada have earned 172 university credits in this unique program. In October 2011, eleven students graduated with a Certificate in First Nations Tax Administration. The First Nations Tax Commission has also developed the Tax Administration Software, a tool to assist First Nation tax administrators through the complete annual tax cycle: assessments, budgeting, rate approval, tax notices, collection and enforcement^{Footnote 7}. The First Nations Financial Management Board has developed a course titled "Navigating First Nations’ Financial Management Systems", and has reached an agreement with the University of New Brunswick - College of Extended Learning and the Tulo Centre of Indigenous Economics and Thompson Rivers University to deliver the course.

Progress towards the issuance of a bond

On November 30, 2011, the First Nations Finance Authority successfully received its amended exemptions from provincial Securities Commissions, applicable to loans supported by both other revenues and property tax revenues^{Footnote 8}. This exemption by all provincial securities commissions across Canada relieves the Authority from the requirements under provincial Securities Acts to file prospectuses in relation to its issuance of securities, and provides assurance to potential debenture investors that proper safeguards are in place in both the First Nations Fiscal and Statistical Management Act and the Financing Secured by Other Revenues Regulations. This should translate into an investment-grade credit rating once the critical mass of certified First Nations looking to borrow on the capital markets is achieved.

The First Nations Finance Authority has also established its Interim Long Term Financing program, with lending rates to borrowing members competitive with lending rates available to other governments. These rates are better than those offered by banks to First Nations. This program will provide Interim bridge and construction loans to First Nations that have been certified by the First Nations Financial Management Board and have joined the Authority as a borrowing member. Once Interim loans grow to a critical mass attractive to debenture investors, the First Nations Finance Authority will issue a debenture to replace these Interim loans.

The First Nations Finance Authority anticipates the issuance of an inaugural bond within the 2012/2013 fiscal year. For the bond to be issued, a sufficient number of First Nations must first be certified by the First Nations Financial Management Board and be ready to borrow from the Authority. The passage of the Financing Secured by Other Revenues Regulations in September 2011 expanded the opportunities for First Nations to raise capital through the Authority, as it permits them to leverage specific types of own-source revenues as a means to secure a First Nations Finance Authority bond. The First Nations Finance Authority estimates these revenues at over $4.0 billion per year. A First Nation could choose to borrow against its portion of these revenues to participate in a First Nations Finance Authority bond.

Operationality of the First Nations Statistical Institute

The First Nations Statistical Institute’s interim Corporate Plan, operating budget and capital budget were approved by Treasury Board in November 2008.^{Footnote 9} The Institute’s 2008-2009, 2009-2010 and 2010-2011 plans have been delayed pending completion of its audited financial statements by the Office of the Auditor General; as such, the Institute’s authorized activities have been limited to those contained in their inaugural Corporate Plan (i.e. largely start-up activities). As a result, the Institute cannot directly access its Treasury Board Vote. Aboriginal Affairs and Northern Development Canada has been facilitating the Institute’s access to funding for ongoing operations on an as-needed basis.

The Evaluation of the Implementation of the First Nations Fiscal and Statistical Management Act, conducted over January to March 2011, characterized the First Nations Statistical Institute as "becoming operational". However, the Institute is reporting that it is now delivering services and targeted products to First Nations as well as federal departments as allowed under its inaugural Corporate Plan from 2008, and has built the internal capacity, secured appropriate resources and established the partnerships and networks to achieve results.

Chapter 2: Results of the consultations: issues raised and opportunities for improving the operations of the Act

Annex A: Opportunities for improving the First Nations Fiscal and Statistical Management Act

The following suggested improvements are being presented, in consensus by the First Nations Tax Commission, the First Nations Financial Management Board and the First Nations Finance Authority to improve upon the operations of the Act and of the institutions.^{Footnote 12}

Administrative and Legal Requirements

• Clarifying that references in the First Nations Fiscal and Statistical Management Act to "local revenue account" refer to a financial institution account into which local revenues must be segregated and deposited, and clarifying that local revenues are to be reported on separately from other revenues and audited annually.
• Clarifying that the requirement to include an appeal mechanism applies only to First Nation assessment laws, not all property taxation laws as currently suggested under paragraph 5(1)(a).
• Distinguishing between different certificates offered by First Nations Financial Management Board (the financial management systems certificate and the financial performance certificate).
• Clarifying that a First Nation council may make their annual rates and budget laws at least once per year at or before a time prescribed by regulation.
• Requiring that an annual property taxation rate law be applied only to those laws which contemplate an annual rate, and to provide First Nations with the ability to set a tax rate that is not applied to an assessed value.
• Requiring that the reporting and annual audit of the local revenues account must be conducted in accordance with First Nations Financial Management Board financial reporting standards.
• Providing that all financial administration laws developed under section 9 of the First Nations Fiscal and Statistical Management Act must comply with First Nations Financial Management Board standards for financial administration laws.

Jurisdiction

• Providing that the Chief Commissioner of the First Nations Tax Commission may designate panels for section 31 law reviews and section 33 reviews.
• Allowing the First Nations Tax Commission to refer rates and expenditure laws to a Commission panel composed of one or more Commissioners, and to allow the Commission to refer other local revenue laws to a Commission panel composed of three or more Commissioners.
• Clarifying that First Nations Finance Authority financing can be provided for the purposes of building infrastructure on lands that benefit reserve land, not just reserve lands.
• Clarifying that judicial notice of local revenue laws is restricted to those which have been published in accordance with section 34, and to provide that judicial notice be allowed for financial administration laws.

Administrative Burden

• Repealing the requirement that First Nations submit to the First Nations Tax Commission any written representations received by Council during the public input process with respect to local revenue laws.
• Providing those First Nations transitioning from collecting property taxes under the Indian Act to collecting under the First Nations Fiscal and Statistical Management Act with an exemption from notice requirements to their own members under the First Nations Fiscal and Statistical Management Act.
• Shortening the length of minimum notice periods for First Nation local revenue laws, providing for flexibility in the methods of notices, and when notices are required.

Institutional Powers

• Providing the First Nations Financial Management Board with clear authority to revoke a First Nation’s certificate if the First Nation did not provide the Board with correct and complete information when requesting their certificate, or if the First Nation is no longer in compliance with the standards upon which the certificate was issued.
• Allowing all First Nations to request the First Nations Financial Management Board to review their financial administration laws and if they were not made under section 9 of the First Nations Fiscal and Statistical Management Act, to certify that they meet the Board’s financial administration law standards.
• Consolidating and clarifying First Nations Financial Management Board powers in circumstances of imposed co-management and third-party management under the First Nations Fiscal and Statistical Management Act and under the Financing Secured by Other Revenues Regulations.
• Specifying, in the Act, that the First Nations Statistical Institute works to assist the First Nations Tax Commission and the First Nations Finance Authority through the provision of data analysis, development and dissemination, related to their respective mandates.
• Providing that in addition to the seventeen other subject areas specified in the Act, the First Nations Statistical Institute may collect, compile, analyze and abstract data on housing for statistical purposes.
• Expanding the First Nations Financial Management Board’s mandate to include non-scheduled First Nations.
• Expanding the First Nations Finance Authority’s mandate to provide long-term financing to non-scheduled First Nations using other revenues and clarify its mandate for investment services to include non-scheduled First Nations, organizations of non-scheduled First Nations, self-governing First Nations and corporations controlled by one or more First Nations.
• Providing the First Nations Financial Management Board with the flexibility to approve a financial administration law or to certify a First Nation that meets its standards "in all material aspects".

First Nation Powers

• Broadening the definition of "local revenues" to capture a broader range of revenues that could be used as security against First Nations Finance Authority borrowing.
• Providing First Nations with a clear authority to collect fees and other charges with respect to the provision of local services.
• Providing the First Nation with the clear authority to recover the costs of enforcement proceedings in circumstances of property tax non-payment.
• Clarifying that the First Nations Fiscal and Statistical Management Act does not affect the borrowing powers of a First Nation that is scheduled to the First Nations Fiscal and Statistical Management Act but not yet in receipt of long-term financing from the First Nations Finance Authority.
• Clarifying that only those borrowing members who are already in receipt of long-term financing from the First Nations Finance Authority secured by property tax revenues are prohibited from obtaining additional long-term financing secured by property taxes from an outside institution.

The First Nations Finance Authority financing model

• Clarifying that the First Nations Finance Authority will not provide financing to a First Nation secured by property tax revenues unless it is satisfied that the loan will be paid out of the property tax revenues of the borrowing member in accordance with subsections 11(2) and (3).
• Clarifying that a First Nation may cease to be a borrowing member only with the consent of all other borrowing members using the same revenue stream (i.e. property tax or "other revenues" as defined under the Financing Secured by Other Revenues Regulations).
• Clarifying the mechanism for repayment to the Credit Enhancement Fund, following a payment from the Credit Enhancement Fund to a depleted Debt Reserve Fund.
• Clarifying how the Debt Reserve Fund balance is calculated under section 84.
• Allowing the First Nations Finance Authority to invest sinking fund moneys in its own securities as well as securities issued by the Municipal Financing Authority of British Columbia.
• Referencing separate Debt Reserve Funds and separate replenishment charges for property tax revenues and non-tax revenues.
• Allowing for a regulation to provide a general penalty for borrowing members defaulting on a payment to the First Nations Finance Authority.
• Stipulating that the First Nations Finance Authority has priority over all other creditors of an insolvent First Nation only for any debts owed to those other creditors which arise after the date on which the borrowing member receives First Nations Finance Authority financing.
• Stipulating that the First Nations Finance Authority will not, upon payment to a First Nation from the Debt Reserve Fund after satisfaction of their obligations to the Authority, be required to reimburse a member who has already been reimbursed by the Authority for replenishing the Debt Reserve Fund in the instance of a default by one or more members.

Transition from the Indian Act to the First Nations Fiscal and Statistical Management Act (and vice versa)

• Clearly providing for First Nation financial administration laws developed outside the First Nations Fiscal and Statistical Management Act (including under section 83 of the Indian Act) to transition under the First Nations Fiscal and Statistical Management Act, to the extent the financial administration law is not inconsistent with the requirements for financial administration laws made under section 9 of the First Nations Fiscal and Statistical Management Act.
• Providing that a First Nation who has been added to the Schedule of the First Nations Fiscal and Statistical Management Act cannot subsequently request removal.

Institutional Liability

• Repealing the current provision in the Act that contemplates the making of regulations requiring that the institutions maintain insurance coverage, as the marketplace will determine coverage availability.
• Repealing the provision stating that an opinion of the First Nations Financial Management Board referred to in section 50 is final and conclusive and is not subject to appeal, in light of the fact that no right of appeal exists.
• Limiting the obligation of the First Nations Financial Management Board to manage First Nation businesses in circumstances of a default of a borrowing member.