Government bond could give millions to reserves

OTTAWA - The Harper government is setting the stage for a landmark move that could pump millions of dollars worth of investment into reserves across the country and mark a change in the relationship between Ottawa and Canada's First Nations, iPolitics has learned. It would also pave the way for the first First Nations bond issue.

"It's about time," said Jean Crowder, NDP First Nations critic. "We have had this paternalistic, colonialistic attitude that says that First Nations aren't capable of managing money.... This is a step towards self sufficiency."

"It's a game changer in that it is evidence that the relationship is changing," said Robert Shepherd, a professor of public policy and public administration at Carleton University in Ottawa and a former official at Indian and Northern Affairs.

"You have now got a public sector willing to use private sector vehicles to assist with very public sector problems. "

Mr. Shepherd warns it could also be a risky move if too many First Nations default on their payments or if investors decide to sell off their bonds.

While the bonds will likely benefit more prosperous First Nations which will be able to borrow money at a much lower interest rate and manage a more sophisticated financial instrument, he said it might not do much to help some of the poorest First Nations, which are often those who most need to invest in infrastructure such as roads, sewers and water treatment plants.

The key to the move lies in a regulatory change the government is proposing that is designed to help the First Nations Finance Authority launch an $85-million bond issue.

Many First Nations have difficulty borrowing money from banks to finance infrastructure investment in their communities. Those that are able to get loans often face crushing interest rates 30% to 50% higher than those paid by other orders of government.

The FNFA wants to raise money through a bond issue to allow First Nations to obtain the financing at much lower interest rates.

Currently, however, the First Nations Fiscal and Statistical Management Act only allows First Nations to put property tax revenue up as security for a bond--something the government estimates is worth $3-million. The proposed regulatory change would allow First Nations to use a much wider list of revenues to secure financing-- revenues it believes are worth $82-million.