Proceedings of the Standing Senate Committee on
Aboriginal Peoples
Issue 11 - Evidence - February 4, 2015
OTTAWA, Wednesday, February 4, 2015
The Standing Senate Committee on Aboriginal Peoples met this day at 6:55 p.m. to study challenges relating to First Nations infrastructure on reserves.
Senator Dennis Glen Patterson (Chair) in the chair.
[English]
The Chair: Welcome to all honourable senators and members of the public who are watching this meeting of the Standing Senate Committee on Aboriginal Peoples, either here in the room or via CPAC or the web.
I'm Dennis Patterson from Nunavut, and I have the privilege of chairing this Standing Senate Committee on Aboriginal Peoples. Our mandate is to examine legislation and matters relating to the Aboriginal peoples of Canada generally.
This evening we are pleased to be hearing testimony on a specific order of reference authorizing us to examine and report on the challenges and potential solutions relating to infrastructure on reserves, including housing, community infrastructure, innovative opportunities for financing and more effective collaborative strategies. We have completed hearings on housing and are now focusing our study on infrastructure.
I'm delighted tonight we will hear from a panel made up of four financial institutions that offer services to First Nations. They are RBC Royal Bank, Bank of Montreal, or BMO, TD Bank Group and the First Nations Bank of Canada.
Before proceeding to the testimony, I would like to go around the table and ask the members of committee to introduce themselves, please.
Senator Moore: Good evening. Wilfred Moore from Nova Scotia.
Senator Ngo: Senator Ngo from Ontario.
Senator Beyak: Senator Beyak from Ontario.
Senator Raine: Senator Greene Raine from B.C.
Senator Enverga: Tobias Enverga, a senator from Ontario and a retired banker.
The Chair: Thank you.
Members of the committee, I know you'll help me to welcome our witnesses. From RBC Royal Bank we have Doris Bear, Head of Regional Aboriginal Banking Strategies, and Harry Willmot, Senior Manager, Aboriginal Markets. With them at the table, from the Bank of Montreal is Mr. Stephen Fay, Head of Aboriginal Banking, Commercial Banking Headquarters; Mr. Clint Davis, Vice President of Aboriginal Banking at the TD Bank Group; and Mr. Keith Martell, Chairman and Chief Executive Officer, First Nations Bank of Canada.
I would like to thank all of our witnesses for appearing today on fairly short notice. The clerk told me that several of you rearranged your schedule because you wanted to contribute to the work of the committee and felt that you could provide a valuable contribution. We very much appreciate your efforts.
We'll hear from each financial institution and then, if it's agreed, colleagues, we'll follow up the four presentations with questions from the senators.
I understand we are going to be starting with RBC, Ms. Bear.
Doris Bear, Head of Regional Aboriginal Banking Strategies, RBC Royal Bank: Good evening, Mr. Chair and committee members. My name is Doris Bear and I'm a member of the Peguis First Nation. As head of Regional Aboriginal Banking Strategies with RBC, I am accountable for building out regional banking, financing and credit strategies to serve the unique needs of Aboriginal communities. Prior to this role, I was Vice-President of Aboriginal Banking and led a team of commercial account managers dedicated to the Aboriginal market.
With me today is my colleague Harry Willmot, who is the Senior Manager for Aboriginal Markets development for RBC. Harry has extensive experience, having been in the industry for about 40 years now and serving the Aboriginal community since 1989.
On behalf of RBC, we are pleased to join today's discussion on challenges relating to First Nation infrastructure on reserves and to explain what we're doing to serve the needs of First Nation communities.
RBC has a proud history of strong relationships with Aboriginal peoples. We are committed to working with Aboriginal communities, organizations, businesses and individuals to create opportunities for sustainable development.
In the spirit of collaboration, RBC and the Assembly of First Nations signed a memorandum of understanding in 2007 that outlines our commitment. We provide support for these communities in four broad areas: access to banking and capital; community and social development; employment, education and training; and procurement. For the sake of brevity, I will focus my remarks on the first area, access to banking and capital, but we will be more than happy to answer any questions that you have when we have the open discussion.
RBC is the market leader for Aboriginal banking in Canada. Market research indicates that almost 20 per cent of self-identified Aboriginal-owned businesses have their loans with us. We have a national team of dedicated banking account managers, trust and investment advisers, and risk managers specialized in the Aboriginal market across the country.
Our general approach and focus is on helping to build up the economic capacity of communities and their ability to generate income-earning opportunities that contribute to the quality of life. In short, we aim to provide financial expertise and resources to enable success and to help build a more sustainable economic future for the communities that we are in.
With respect to housing, options to provide financing on reserve in Canada in the past have been limited due to section 89 of the Indian Act. As Harry mentioned previously to the committee, by engaging our clients, we were able to come up with a solution. In 1996, RBC was the first financial institution in the country to develop an On-Reserve Housing Loan Program that allowed band councils to guarantee housing loans. To date, there are 72 First Nations participating in the program and $131 million in authorized credit. It has been a great success and it is important to note that we have never called upon any of the guarantees. If clients experience challenges in making payments, we work with our clients to help them keep their homes.
RBC has always been successful over the years in supporting larger infrastructure projects as well, including roads, schools, water systems, health centres and bringing power into the communities. This is critical infrastructure that serves as the foundation of a community's path to greater prosperity, and we play a major role in financing that infrastructure.
As mentioned, every year since our partnership with the Assembly of First Nations, we provide a progress report which lists some of the financing we are doing in the communities.
In addition to our economic responsibility to provide access to banking services and capital, we also take our community and social development responsibilities very seriously. We provide donations and grants that support Aboriginal interests in three areas: the environment, specifically water; youth literacy and education; and culture and heritage. In 2013, we provided over $2 million in donations, sponsorships and grants to indigenous communities.
We are proud of the over 100 years of partnership that we have had with indigenous communities in Canada, and we look forward to continuing to work in partnership to build a positive legacy for future generations.
On behalf of RBC, I'm pleased to be here today and I would be happy to answer any questions you may have.
Stephen Fay, Head of Aboriginal Banking, Commercial Banking Headquarters, Bank of Montreal: I'm Steve Fay, Mr. Chair. I'm Head of Aboriginal Banking for BMO Financial Group. On behalf of BMO Financial Group, I'm pleased to join today's discussion on issues relating to First Nations infrastructure on reserves and innovative opportunities for collaboration and financing.
It was just under a year ago that my colleague Jason Cameron appeared before you. I'm honoured to have the opportunity to reinforce the message provided to you by him, that BMO is here to help Canada's Aboriginal communities.
The BMO Aboriginal banking unit was formed in 1992 to serve the unique banking and financing needs of First Nations communities. We opened our first on-reserve branch within Akwesasne traditional territory in 1993, and we now have 14 Aboriginal branches and community banking outlets across Canada.
We understand the fundamental importance of housing and infrastructure in Canada's Aboriginal communities, and that's why we created the first — there could be a debate here — the first On-Reserve Housing Loan Program. We also became the first major financial institution, although there are other financial institutions involved now, with the First Nations Market Housing Fund. A few years later, we opened up a new program called the On-Reserve Home Renovation Loan Program because we found a great need for renovations with less dollar amounts, and we were able to figure that out.
We've also developed a lending directive that clearly outlines how to get beyond the barriers of the Indian Act with regard to lending, in particular with respect to infrastructure loans. Together, these programs provide innovative on- reserve housing financing alternatives without the need for government guarantees or involvement.
BMO has been at the forefront of offering innovative solutions for community infrastructure projects. This is particularly important given the shift we've seen over the past 10 years in the way Aboriginal people and communities generate revenue streams from business. These businesses are becoming very diverse. A wide range includes wineries, construction companies, farming, fishing, power development, forestry, medical facilities, and the list goes on. It's very diverse.
As well, the option for Aboriginal governments to become members of the First Nations Finance Authority provides another option for their governments to gain access to borrowed funds on similar terms as other governments in Canada.
As a result of these new realities, Aboriginal people have access to unprecedented financial resources, a lot more than you would have seen 10 years ago. This means that communities are better positioned to improve their services and infrastructure.
BMO is proud to stand with Aboriginal governments and business as they use this opportunity to bring important infrastructure projects to their communities, and we've supported many as well in education and training centres, administration buildings, social services, sports and recreation, bridge projects, water treatment facilities — the list goes on. These are services that Aboriginal people deserve and need.
Mr. Chairman, BMO is a proud of our deep relationship with Aboriginal communities across Canada, and we look forward to continuing to provide high-quality service to our clients.
On behalf of BMO, I'm pleased to be here today and look forward to the back and forth in question period that will follow.
Clint Davis, Vice President, Aboriginal Banking, TD Bank Group: Thank you, Mr. Chair, and members of the committee. It's an honour to be here to provide TD's perspective on issues and challenges facing on-reserve infrastructure financing. By way of personal background, I'm an Inuk from Nunatsiavut, which is a region in northern Labrador. Nunatsiavut was the last Inuit land claim to be settled in Canada.
While I'm the vice president for Aboriginal banking at TD, I also have the honour of serving as Chair of the Nunatsiavut Group of Companies, which is the economic arm of the Nunatsiavut government.
I want to begin by describing to you TD's commitment to meeting the banking needs of First Nations in Canada. TD proudly banks many First Nations and their members across the country. Our goal is to be the bank of choice for Aboriginal families, businesses and communities. We try to be innovative and flexible in tailoring our services around the diverse needs of Aboriginal communities and their peoples. We are working hard to earn the trust and confidence of Aboriginal communities from coast to coast.
TD's original banking strategy diverged from my peers at BMO and RBC in that we didn't initially create an in- house Aboriginal banking team. Instead, we partnered with First Nations organizations to create an Aboriginal bank that would be owned by Aboriginal people, managed by Aboriginal people and serving Aboriginal people. This was First Nations Bank of Canada, which is represented here by my colleague Keith Martell, Chairman and CEO.
Two years ago, TD embarked on a journey to further strengthen our commitment to Aboriginal peoples with the creation of the Aboriginal Banking Group. This group, which I lead, provides specialized banking expertise in support of the commercial banking teams across the country that service Aboriginal communities.
TD is uniquely positioned in that we have a decentralized model for commercial banking. There are 45 TD commercial banking centres or branches in Canada that have the authority to adjudicate and make credit decisions of up to $1 million without going to one of our central risk management groups in Calgary or Toronto. This creates in some cases credit decisions that meet the needs of the customer and are uniquely local.
Wealth creation and accumulation continues to positively impact those Aboriginal communities through successful negotiation of claim settlements and impact benefit agreements. A preferred and very effective solution for managing this new wealth is through the utilization of trusts.
Since 2007, TD Aboriginal Trust and Investment Services have provided support and advice to Aboriginal communities in planning and implementing these trust and investment solutions. TD has over $2 billion in assets under administration and under investment management, making us an industry leader in this sector.
In 2011, TD Economics released a report that quantified the Aboriginal market, which included the purchasing power of Aboriginal people, businesses and government sectors. It is estimated that by 2016 the combined income of those three sectors is expected to be $32 billion a year. I believe this number could be higher if the infrastructure gap was closed in too many First Nations in Canada. Having effective infrastructure is required for growth, sustainability and providing the basic necessities of life — water, shelter, education and health.
We at TD, like my peers, finance infrastructure on reserve. In the last two years, over 40 per cent of the new business that we put on the books represented infrastructure finance. As a financial institution, we are in the business of managing risk, and so unfortunately we are unable to fund every financing request for infrastructure.
When making lending decisions, we look at the strength of the borrower, in this case the First Nations government; the source of repayment; and the availability of security. To put it simply, we look at the borrower in terms of governance and management expertise. We want to be comfortable that the borrower can service the debt which, in many instances, is achieved through having strong financials and the support of a federal government capital program. Normally, since the asset is being developed on the reserve, then security isn't really available.
We're starting to come across instances whereby some First Nations are no longer waiting for federal government funding programs to address their infrastructure needs, and so they are turning to the banks for financing. Unfortunately, these communities are the minority and so the infrastructure gap continues to exist.
I think the two questions this committee needs to ask in the work that's being done on infrastructure is: Where are the infrastructure gaps most dire, and how can financial institutions become involved in light of our need to manage risk? I believe this means that the federal government has a role to play to develop the necessary capacity in the communities to manage these types of projects. Funding levels should be increased with a targeted approach to those communities that are in the most need. Finally, the federal government should consider looking at other ways that would give comfort to banks around risk, such as guarantees for infrastructure or capital projects.
Thank you again. It's an honour to be here, and I look forward to your questions.
Keith Martell, Chairman and Chief Executive Officer, First Nations Bank of Canada: Honourable senators, good evening. It's an honour to be here. I'm Keith Martell, Chairman and Chief Executive Officer of the First Nations Bank of Canada.
I've always been impressed with the well-researched recommendations of Senate committees, and evidenced by the near 24 meetings you've already held on this subject over the last 14 months, it's obvious that this issue is getting similar attention.
I've been asked to be here tonight because I lead an Aboriginal-owned and focused chartered bank, which serves Inuit, Metis and First Nations customers across the country. I'm also bringing the perspective of a person who was born on reserve and has a significant portion of my family, including my father, still living on the Waterhen Lake First Nation in northern Saskatchewan.
I will focus my testimony on the issues that I am best positioned to address: the issues relating to how to best finance the development of infrastructure to support the social and economic development of Aboriginal communities.
The problem we are trying to solve has been articulated by many who have appeared before you at this committee and includes: The social and economic infrastructure in Aboriginal communities is not sufficient to support the existing and fast-growing population to a Canadian standard of living; also, 100 per cent federal funding of infrastructure in Aboriginal communities is not sustainable; and out of frustration with existing infrastructure spending, many Aboriginal communities, as has been mentioned by others, are looking to own-source revenues as a way to finance more of these developments for themselves.
Tonight I would like to address three issues on this topic, including, first, adding my support to some aspects of existing legislation, the First Nations Fiscal Management Act developments for financing infrastructure. I'd secondly like to warn you of some oversimplifications and errors that I believe are being made in the design of innovative financing to address this issue. Lastly, I want to share some examples with you of real financing options that have been applied more regularly to address this problem for Aboriginal communities and how chartered banks, such as those here today, are facilitating this financing.
So to my first point, I agree with all the issues identified in the problem as I outlined it and as observed by others, and I do believe that finding innovative financing options to address this infrastructure deficit is critical. I was in fact heavily involved in the early stages of development of the First Nations Fiscal Management Act. My support for this development was based on my belief that there are many First Nations in Canada who have government-like sources of revenue from taxation, royalties and land leases, but unlike Canada, Saskatchewan, or even the city of Saskatoon, they are unable to leverage these revenues with bond-like financing to finance infrastructure development. These First Nations are left to either wait for oversubscribed federal funding or the unfavourable option of having to use their commercial credit capacity to support commercial loans for public infrastructure, instead of using commercial credit capacity to invest in businesses on top of the infrastructure.
The institutions created by the First Nations Fiscal Management Act were developed to address this issue. I still firmly believe that these institutions, which were designed to help leverage government-like revenue into government- like financing, are definitely needed. The securitization of government-like revenue into government-like bond financing is what the First Nations Finance Authority, management board and taxation commission were designed to do.
I continue to support the aggregation of government-like revenues of many First Nations into a homogeneous pool for issuing bonds, similar to what many provinces offer through their municipal bond financing authorities. This method is cost effective. The rates and terms match the government-like sources of financing, and the commercial credit capacity of the Aboriginal community is not reduced but is left intact for them to invest in commercial enterprise. So I do support the First Nations Fiscal Management Act development for the purposes that they were originally developed for.
My second point is that some of these innovative financing options have somehow become a panacea to address all problems, and the fundamental realities of financing have been forgotten. Sometime after the First Nations Fiscal Management Act institutions were created, their mandate was expanded, and they are now aggressively lumping all other revenues into their lending models, including those from business enterprises owned by First Nations.
These other revenues are often not government-like revenues and have been specifically defined by FNFA to include revenues from everything including forestry operations, oil and gas developments, hydro, convenience stores, hotels and gaming operations. Their definitions do not include only the government-like taxes or royalties from these businesses but the actual equity-like returns from these businesses. They are effectively institutionalizing the commercial borrowing of First Nations for commercial purposes into a government financing model, and I think this is a big problem.
Some witnesses have noted that FNFA receiving an investment grade rating from rating agencies is an endorsement of their business plan, including other revenues. As I am sure the committee has read these rating agency reports, you will have seen that the ratings received are heavily based on the belief that the federal government will continue to cover the First Nations Finance Authority deficits. They also note the strong likelihood, which in the rating agency's "speak'' is defined as 51 to 70 per cent, that the federal government will use extraordinary support in the event of a default of any of these bonds. One rating agency specifically noted that the First Nations Finance Authority rating would move up or down with Canada's rating or with any change in the assumption of extraordinary support by the federal government.
I know commercial lending because commercial lending for commercial enterprise is what we do very well, and the loan losses of our customers and of our bank are very low. Our bank, along with all the institutions represented here today, do a good job of underwriting this kind of debt, and we compete with each other on price of debt, on the terms and on the conditions of all of these loans that we provide to First Nations customers. This isn't an easy process and should not be taken lightly.
What First Nations Finance Authority is proposing by lumping government revenues into commercial revenue for borrowing purposes is like a for-profit commercial business teaming up with a province or a city to jointly issue a 30- year bond to finance capital spending. This is simply not done because even if economies of scale would apply to such a bond, there is no appreciation for the difference in risk, the time frames and the cycles of each borrower in this pool. Just because many First Nations collectively own business enterprises does not mean the revenues from these very dissimilar enterprises are government-like or are homogeneous and warrant joint financing.
The danger of this amalgamation of this government and non-government-like financing is that the underlying risk of all the entities is not reflected in the borrowing rate, the terms of the loan or the conditions of the loan. The default risk of some of the participants in such a pool are much greater than others, and with joint and several liability, the good credit in the pool may end up carrying the cost for the bad credit in the pool. Also, the best credit in the pool would very much likely be able to get similar or better rates if they weren't in the pool, and you're going to be left with a situation where the best credit will not participate in such a pooling.
If defaults happen in this borrowing pool, two things are going to happen. First of all, it will become infinitely more difficult for even the best rated First Nations credit to get future bond financing. Second, everyone who ends up carrying the cost of the losses in the pool is going to be looking for someone to blame, and the federal government, without any independent advice on this structure, is going to be left really holding the bag on this development. This will definitely make future federal funding participation in the financing of infrastructure much more difficult.
Lastly, I want to advise you that when it comes to financing commercial enterprise of Aboriginal communities by commercial banks, a lot is being done, and the institutionalizing of all First Nations financial services in order to accomplish infrastructure financing is not a good idea.
Our bank was created to address a niche in the market for a bank that was focused on Aboriginal communities. A vast majority of our shareholders and our Aboriginal organizations and a vast majority of all the financial services we provide are offered to Aboriginal communities and Aboriginal markets. While I think we have an advantage because of our focus and ownership, these other banks are very competitive. They have teams also focused on this market and are getting much better at serving the needs of these customers.
There are also many large and very successful First Nations commercial developments which have found correctly priced and termed bond financing. I've personally been involved in the last two years in three large bond financings, one for a hydro project, one for a hydro transmission line, and one for a hotel gaming facility. These developments attracted institutional financing at rates sometimes lower than the rate that the First Nations Finance Authority bond contracted, and with terms of 25, 15 and 8 years. The rates, the terms and the conditions of these three developments were competitively quoted by institutional investors and banks, based on the underlying business and the conditions required to protect the bond holders and the First Nation borrowers. Also, each of these enterprises with very different business risks was not going to be jointly liable for each other's debts.
I hope this presentation has been helpful and that the recommendations of the committee take a balanced and informed approach to this issue that don't create new larger problems for the future social and economic advancement of Aboriginal people.
I thank you and look forward to any questions.
The Chair: Thank you, Mr. Martell.
Senator Enverga.
Senator Enverga: Thank you for your presentations. This question can be answered by anybody. It's about a written submission to the committee on March 4, 2014. The Director of Aboriginal Banking at BMO Financial Group noted that their Aboriginal banking unit "developed a lending directive that clearly outlines how to get beyond the barriers of the Indian Act with regards to lending, particularly with infrastructure loans.'' The question is: Does the Indian Act present barriers for infrastructure funding, and if so, what are they?
Mr. Fay: I would be happy to answer that question. The correct interpretation is that the lending directive enables bankers to understand the risk better. We're not going to be able to take a mortgage on a property or a piece of infrastructure in an Aboriginal community, so we really have to understand the nature of the management, whether it's the leadership or the underlying management of the community, and we have to have a real good handle on what the income streams are and the first and secondary source of repayment.
How we analyze the financial health and income streams from the First Nation enables our lenders to go forth and do a deal or put a transaction together. The Indian Act is a distraction. You really have to think about it in terms of whether you would do this deal whether or not the Indian Act exists. We made a business decision to take a look at how we could enable our people to do this kind of work. It just kind of pushes it aside; and we don't look at it.
I hope that answers your question.
Senator Enverga: Do others have a response? Do you have anything different to say?
Mr. Martell: Probably half our lending is on reserve, so the Indian Act would apply to about half the customers we make commercial loans to. Effectively, as Stephen said, you look at cash-flow lending and character lending and the conditions and terms we set up. Our last interest is in taking security of land or buildings on reserve. It's not a lot different than lending to municipalities, hospitals or universities. You're not going to foreclose on a university if there's a loan. You have to look at the cash flows and the management of the institution, and that's similarly how we look at First Nations.
Senator Enverga: We have the First Nations Land Management Act. Does it address any of the barriers that we are talking about here?
Mr. Martell: It addressed some of the barriers. For example, where a First Nation establishes a commercial development on a reserve, like a strip mall or a hotel operation, under the First Nations Land Management Act they are effectively able to enter into long-term leases that are under control of the community. They are effectively able to have a borrower on the land developed under the First Nations Management Act to assign occupation and use of that commercial asset, which makes it a much more financeable situation. The First Nations Land Management Act has been a big help for those who can use it.
Mr. Davis: I was going to mention that the legislation provides more authority on the part of the First Nation with respect to the development of its lands as opposed to having it dictated under the Indian Act, which is what Mr. Martell was referring to as well. It resulted in almost greater self-government for First Nations with respect to that. There isn't any sort of rise of additional security or anything of that nature in terms of taking the land, per se. We don't see that with the First Nations Land Management Act.
Mr. Fay: It can lead to a greater ability to take a mortgage of lease, for instance. As opposed to actually holding onto the land, you can attach yourself to the potential or real income stream from that.
As Mr. Martell mentioned earlier, cash flow is really key to us. So having those leases and being able to take a debenture of the lease is a big deal for us, but it's not everything. It's just one more way of addressing the concern.
Ms. Bear: We would agree that leasehold development is key in the communities, and we've done a lot of them. It gives the communities access to commercial and residential development. We can take security on those types of lands. Many communities are engaging in it. Its looks like fee simple land for us when we do the financing. We treat it in a similar way.
Senator Enverga: We are trying to repeal or maybe make some changes to the Indian Act. What could the federal government do to minimize these barriers? We're asking for your suggestions. What can we do as a federal government?
Ms. Bear: You could do more partnerships and collaborations with the private sector, as well as with other levels of government and also communities, and invite everybody to the table to talk about solutions and how we can work together. As we've all said, we're all looking for innovative ways to do financing in communities. We welcome the opportunity to explore what that might be.
Mr. Martell: I hate to state the long-term and not-easy-to-accomplish-overnight objective here, but frankly the biggest impact the federal government could have on the future economic health of First Nations is to concentrate on K to 12 education. The largest correlation between economic well-being and any other factor is achievement of education.
The federal government still has a key role to play in education on reserves. The more we can get that accomplishment completed and get those people educated and effective, the more likely we're going to have real economies in these communities that will be effective and we can lend to. That's the biggest impact you could have on that outcome.
Mr. Davis: I completely agree with what Mr. Martell said. There really is no silver bullet in terms of saying in five minutes of testimony what the federal government can do to address issues of the Indian Act. That's probably a 48- hour discussion.
My community is Inuit, so one thing I've seen, and I know Mr. Martell works extensively with a number of these First Nations, is self-government. Self-government ultimately is the ability clearly to make decisions over the well- being of your citizens and the activity on your lands and in your respective communities.
Under the Harvard Project on American Indian Economic Development, which many people have heard of, they did a study to see where there was true success with some tribes in the United States and what some of the commonalities were around that. One was real decision-making power. With the Indian Act, I think we're all probably in agreement that it is very prescriptive and something that essentially puts ultimate authority in the hands of the minister as opposed to where it should be, which is in the hands of the First Nation.
It's not necessarily just in communities that are not covered by numbered treaties. We see self-government agreements in other parts of the country as well. Ultimately, that should be a long-term goal for many Aboriginal communities across the country.
Senator Raine: It's interesting that you brought up education, Mr. Martell. This committee worked long and hard on K to 12 education. You know that an education bill was developed after a lot of hard work.
Mr. Fay: Yes.
Senator Raine: In your opinion, looking back, was it going to work or was it set aside for good reason? We were all a bit mystified.
Mr. Martell: That's a good question. My father went through residential school. For a lot of reasons, he wasn't high on education, but thank God my mother was. Frankly, in terms of the achievements that my brothers, my sister, my kids and I have made, we have depended on the federal government for almost zero social and infrastructure funding because of education. So it has been important to families, but it's a huge issue even in my community. People who know the value of education still have a lot of mistrust around the federal government saying you should do this for education. The last time they heard that, their kids disappeared for eight or nine months.
You can appreciate that First Nations are a little touchy about this issue and have concern over one-sided development: Thou shall do this. I would challenge both First Nations leaders and the federal government, and, frankly, provincial governments, to come to the table and figure out how to solve the problem. I'm not the guy who will do that, but I challenge you to do your third of the part, because without it we're not going to have many economies or developments in communities that will work.
Senator Raine: We have some very good examples of where it is working, so I think it's just a question of time before more First Nations will take up the challenge.
Mr. Martell: I agree.
Senator Raine: One size does not fit all. Thank you for your comments.
The Chair: Mr. Martell, you gave us some pretty pointed advice in your presentation. Some of it was about the operations of the First Nations Fiscal Management Act. As I understand it, you felt that some revenues from First Nations were improperly applied to justify bond financing, some non-government-like revenues. But you support the First Nations Fiscal Management Act. Are you recommending to us that we should do something about this or that the lending policy should be changed, tightened? I'm wondering what we do with this important advice you have given us.
Mr. Martell: I will use an example. I'm quite supportive of the First Nations Fiscal Management Act and the First Nations Finance Authority as it was originally intended to structure the loans based on government revenues. For example, my First Nation effectively has a stumpage-like relationship on forestry. They get a certain amount of forestry revenue just like a provincial government would from forestry operations. Those are very government-like financings. They come in long term and are very cyclical. You can count on them like government revenues. Just like the provincial Governments of Saskatchewan, Alberta or Manitoba, those could be effectively structured in a financeable bond that would secure a bond you could use to build roads that lead into the forestry operation, for example. You are using the revenue that's government-like to finance the infrastructure that supports government revenue.
My community also owns a forestry company. They cut and sell logs to pulp mills and sawmills. That is a business and it is very cyclical. There's no government-like structure to that revenue. It goes up with forestry business and it goes down with forestry business, to some extent like the stumpage but not to the same extent and with much more volatility.
To lump together the government-like revenues in my community with the business-like revenues and put them into one bond is just like I said earlier, it is like putting a business bond and a government city bond into one facility.
I think that was an expansion that was added on to the First Nations Finance Authority's mandate, the other revenue, and that's really the concern I have. They're really trying to institutionalize what would be commercial lending. It is going to prevent those First Nations from really getting the right financing that addresses the risk of that business. I don't think it's going to serve either infrastructure lending very well or the commercial lending very well.
The Chair: Have you raised your concerns with the FNFA?
Mr. Martell: I've raised my concerns with FNFA. I've raised my concerns with the Minister of Indian Affairs. I've raised my concerns with the deputy minister. Everybody seems to be enthralled with the idea of having financing that's somehow magically going to fund all infrastructure deficits. I think that's where everybody has lost their focus, on the fundamentals of credit.
I hate to tell you, but as a banker, the fundamentals of credit work like that. You look at the risk, the term, the business cycles and you make loans that fit those. By lumping every single Aboriginal business into one massive bond, some for 30 years, I would ask any banker at the table whether they would give a 30-year loan to a forestry company. Forestry business goes up and down. It's got cycles. You would never do a 30-year loan on a forestry business. That's effectively what they're trying to do with the FNFA. By lumping all other revenue into these 30-year bond lendings, they're going to mix that with a whole lot of structural government-like revenues, like tax revenues from land, which is steady, long-term. It is a much different kind of lending.
The Chair: That's very helpful. Thank you.
Senator Moore: Ms. Bear, I was looking at your comments. You said:
In 1996, RBC was the first financial institution in the country to develop an On-Reserve Housing Loan Program that allowed band councils to guarantee housing loans. To date, there are 72 First Nations participating in the program, and $131 million authorized credit.
You said that you have never had to call upon the guarantees.
You referred to $131 million being authorized, I guess since 1996. How much of that was actually taken up and how many housing units were created? I assume this is for new construction and not for renovation. Is that true?
Ms. Bear: Yes, it is. Any individual can come in from the community and want to build a home, so it would start right from the construction until its finished stage. They can go into any of our branches and get financing just like anybody else off the street, and we then work with the communities.
Of the authorized amount that we have out there, it is more than 50 per cent, I believe, that is being drawn on it. Again, we work with the communities, and if the amount reaches that amount, we will increase it and look forward to future financing of these homes.
Senator Moore: How many houses were built using that line of credit?
Ms. Bear: I don't have that number, senator, sorry. We can get that number for you.
Harry Willmot, Senior Manager, Aboriginal Markets, RBC Royal Bank: We can get that number for you, senator. I don't know it off the top of my head, but clearly this program continues to grow year over year. When I think back to when we first started in 1996 with the pilot, I think we had $8 million out to communities on a pilot perspective. We quickly moved to about $60 million, to $100 million. About three years ago we moved to $120 million, and today we're at $130 some-odd million, and it continues to grow.
Not only do we add more communities to the mix, but those communities that have adopted the program continue to grow the program within. Without naming specific communities, often they will start out with a small amount, gain confidence and comfort with it, and then expand the program. We grow with the community as they grow the program.
Senator Moore: You have increased the authorized credits annually, so you must be anticipating a growing market for the funds.
Of the participating 72 First Nations, are they concentrated in one province? Are they across the country?
Mr. Willmot: They are across the country, but the bulk of those communities are in the provinces of Ontario and British Columbia. We have this program in each province across the country and in the territories.
Senator Moore: I was interested in your community assistance. In 2013, you provided over $2 million in donations, sponsorships and grants to indigenous communities. For what purposes, Ms. Bear? What would those monies be used for?
Ms. Bear: They could be used for community support.
Mr. Willmot: Senator, we did provide Our Chosen Journey. It's our report to the Assembly of First Nations. In it are a number of examples. Specifically, Blue Water projects, youth education and small business are the specific focus we put into those donations. They come from a host of revenue streams, whether from the RBC Foundation directly, or our various provinces have sponsorships and donations that we do specifically to particular communities.
Ms. Bear: Right. We cover off the areas of health, social service, housing, arts and culture, and environment, and on an annual basis we report the various sponsorships and the donations we put forward in Our Chosen Journey.
The Chair: On the subject of the On-Reserve Housing Loan Program, and we had a description of that from RBC and also from BMO, I believe, this program which allows band councils to guarantee housing loans sounds a bit like the First Nations Market Housing Fund. I'm not saying it is, but as I understand the First Nations Market Housing Fund, it was established with a pool of capital and they certify bands as to their creditworthiness. What we have learned, though, is there hasn't been much use of that fund.
Yet I hear from the banks tonight that you've found a way to do the same thing with great success. I believe you said, Ms. Bear, that you never had to call a loan or get a guarantee, and we have heard how a program like that has been expanded with BMO.
Are you familiar with the First Nations Market Housing Fund? Could you tell us how you are making it work and why it doesn't seem to be working so well? The program has $300 million that doesn't seem to have been utilized very much. I would appreciate your candid thoughts on that.
Mr. Willmot: I would like to respond to that if I could.
The First Nations Market Housing Fund is another way to accelerate the constructions of homes in their communities. Really what I'm looking for from this is to have a little patience. I believe the First Nations Market Housing Fund will continue to grow. I know in talking to the leadership there, they continue to add loans to their books. It may be growing slowly, but I think it is just a matter of patience and pickup.
Even our program, and BMO's too, is just another way to build homes. We're looking for the councils to have options available to them.
I believe strongly in the First Nations market housing. I think they provide, first of all, some of the tools required for a First Nation to be able to build a proper housing authority. Once that's established, then they can draw upon the pool. I think where our success has been is we have specifically chosen communities that want to be in homeownership and are successful. I think all of my colleagues across the panel have talked about strength in the community, talked about revenue streams. Clearly there are First Nations out there that really want to take on home ownership and have made those options available to them.
I really believe that First Nations market housing has a future. I just think we need a little more patience.
The Chair: Would you say that the First Nations Market Housing Fund will help the communities that have capacity issues and need to get their governance improved in contrast to some of the communities that undoubtedly the bank has identified who are fine without any development support?
Mr. Willmot: That's a fair statement, yes.
Mr. Martell: I agree with that. We have both a private program for on-reserve housing not involved with the First Nations market housing and we do First Nations Market Housing Fund. I agree with all the other presentations that it does take a while for either program to catch on.
The biggest advantage of the First Nations Market Housing Fund is the capacity development side of it, because frankly the guarantee is not really as much as it appears to be. If you look at how it is structured, the guarantee in the First Nations Market Housing Fund pool is the last dollar in to any loss. So if you have a home that's $100,000 loan and for some reason the mortgagee, the homeowner, defaults, the First Nation has to make good on the first 75 per cent of the loss before the market housing fund makes good on the last 25 per cent.
Effectively, what we have seen from every single First Nation that has talked about this program is they would probably make good on the house long before they would lose 75 per cent of the value. Really the loan guarantee is unlikely to almost ever get called. The biggest advantage to that program is really its capacity building.
Mr. Fay: I wanted to add a couple of comments. We have been with the fund right from the beginning when they were figuring out how to analyze the financial health of a First Nation. Our original program, which is based on the strength of a First Nation and more importantly the strength of the individuals borrowing the money, is not very much different from our colleagues at Royal Bank.
When the fund came along with this $300 million set aside, it was important for us to take a look at why. It was opening up capacity-building dollars for communities they would not otherwise have access to. It has been an interesting journey. We have probably only done about 70 loans utilizing the fund for backstop.
As Mr. Martell pointed out, the guarantee is really not the reason we're doing it. In fact, we don't give it any lending value, in "bank speak.'' It is only 10 per cent of the overall portfolio if everything went sideways at a given time, which is not going to happen.
The good thing about it is I really do see a change in the quality of the capacity within communities that work with the fund. I think, as Harry said, that is really the long-term benefit.
The other nice thing about the fund is it has allowed us to be a little more creative. This is public knowledge. We have been able to work with a couple of communities in Quebec and utilize the fund to produce more than just one house at a time, to get a bunch built, maybe 20 or 30 in a block, so individuals aren't faced with the risk of construction. We all know what that's like if you are building a new house. They can buy a completed product with some finishing touches put in.
It has been a long journey. Getting signed up for the fund, they want you to use their documents as opposed to bank documents, which cost money and time. So it was kind of difficult to get set up, but once we got past that hurdle, it is working. I share Harry's optimism for the long haul.
Senator Raine: There might be people watching that don't quite understand when you talk about building capacity and capacity development. What exactly do you mean at the community level? What are those components that are so important, if you could just describe that?
Mr. Fay: I will give you an example. Joe comes in and he wants to get a lot; he wants to build a house. He's got to talk to somebody about where he is going to get this lot and how it is going to be surveyed. What is the process for inspecting that house when it is being built? What is the value of that house? How are we going to control the quality of homes that are being built in a community?
Unless you have a housing authority with those skill sets established — and that's a very brief number of skill sets — it is not going to happen effectively. So those dollars coming in — and they're substantial — can help get those people trained and get those policies written so that when Joe comes in people know what they're talking about. Because he just knows he wants a house. He's got a job and X number of dollars a month. "I want to build a house; I want to put it there,'' but it is not as simple as that.
Senator Raine: So the community, the First Nation, the band council, has access to financing to set up the housing authority?
Mr. Fay: Correct, with all the intricacies that are required.
Mr. Willmot: Remember, the authority manages the day-to-day operations of not only the construction and monitoring the construction, but rent collections, subdivisions, infrastructure. The authority would be responsible for a variety of things, and also to separate it from chief and council to make it independent.
Senator Enverga: You mentioned, Harry, a while ago that all we have to do is just be patient. What can we do to make it faster? I know we have been patient all along. It has been so many years. Do we need a lot of marketing? Is it an educational problem? How could we expedite it a little bit to help our First Nations?
Mr. Fay: I would be happy to answer that. Make the application process simpler so that if a bank wants to sign up and become an authorized part of the First Nations Market Housing Fund, let's not force the banks to design all new forms. That costs a boatload of money when we're using lawyers, et cetera. That would make it easier. Streamline it.
The banks have been lending money for years and years; we know how to do it. We have documentation in place. I think that the administration could be reduced, and that would encourage more banks to come on board and take advantage of the fund. That's number one.
Number two, a movement has been afoot to involve CMHC in a lot of these communities that have the fund. The advantage of CMHC for the community is that if Joe defaults on his mortgage, CMHC will pick up 30 per cent of the loss before the band has to pay. Unfortunately, that cost is off-loaded on to the individual band member in the form of a CMHC insurance premium. It gets added to the mortgage. They may not see it because it's baked into their monthly payment, but over a 25-year amortization it can amount to a significant amount of money.
Personally, and my colleagues within the bank agree, that if we're doing our job as a banker in advancing money to the individual based on their ability to pay and we have the five Cs of credit, which are what all bankers look at, that is, I believe, a bit of a stretch, maybe an unnecessary expense. Let's not necessarily involve CMHC every time.
Mr. Davis: We can't lose sight of the fact that this is about an individual who has to qualify in order to service the debt for the home. At TD, we don't have a program like this. We're in the process of analyzing it, trying to determine the business case, and we're getting very close. But one thing we talk about is that not every single First Nation across the country is going to be experiencing this, because unfortunately in some communities you see 60 to 70 per cent unemployment. You don't have a core group of individuals who can actually service a mortgage. It starts first with the individual, and that individual normally would have to be gainfully employed, either in their own business or maybe working off reserve and coming back home. So that's absolutely key.
One of the things we should be doing is, first of all, making sure that First Nations people are participating in the economy, getting jobs and being able to service their own debt.
The second piece goes back to why we're here tonight, and it is what we can do to accelerate it. Well, as Steve said, we have a plot of land; well, that land has to be serviced. So it goes back to the First Nation to have the capacity, funding and financing to make sure that it is investing in water, sewer and all those sorts of things, that it has serviceable lots, so that when Steve or Joe comes in to build their home, they can identify where those lots are.
Mr. Fay: Correct.
Mr. Davis: I think those are some of the challenges that we have seen from some of our customers. They're saying that this is great. There has been this delayed pickup because they're trying to catch up as well making sure that they actually have the land ready to go in terms of being serviced and things of that nature.
The Chair: I think that's why we decided that if we were going to study housing, we would also have to study infrastructure, because they're intertwined. Thank you for that point.
Senator Tannas.
Senator Tannas: Thank you, witnesses, for being here. I apologize for being late today. I was travelling with another committee and we just arrived at the airport. I came here as soon as I could, so no disrespect.
I'm excited about the idea of doing everything we can as an important step, not the only step by any means, but an important step to facilitate home ownership for First Nations people on reserve who are working.
As a young married fellow, I was the beneficiary of Don Getty, the former Premier of Alberta, who came up with the idea that if you were working in Alberta — and this was during high interest rates — the government would provide you with a forgivable loan that you could use as a down payment on a house. Do you see a program such as that as a way in which we could encourage working members of the community to move out of band-owned housing and into their own housing? It could be through a forgivable loan or a grant that would be the equivalent of a down payment that could then tie into a normal, conventional mortgage and start freeing up band-owned housing. Or maybe sometimes a band-owned house gets bought, there's an exchange of money, and a brand-new band house gets built. In either event, building on this, is that something that would be, in your minds, helpful or not?
Mr. Martell: Yes, it has actually been done before. In 1968, my family moved from Waterhen Lake First Nation to Saskatoon. At that time, the federal government had a program whereby my parents got a $6,000 forgivable loan that allowed them to buy a $12,000 house, which our family lived in for about 25 years. And that did, as you say, replace our living in a reserve house, and it brought us to an economy where we had more opportunity for education and other things. So it has been tried before.
Some First Nations are doing a similar program. A lot of the James Bay Cree communities in northern Quebec provide a certain amount of the infrastructure for individuals who want to buy their own home. They get some of the servicing costs, the core construction costs such as the foundation, and then the individual purchases the home on top of that. It is very effective in bump-starting housing and private home ownership, and I think it could be an idea that both First Nations and the government should consider again.
Senator Tannas: We're clear that everybody knows it is a menu of stuff we have got to come up with here, not one thing, but would that be part of the menu?
Mr. Willmot: Senator, that is a good question. This program that you are describing exists today off reserve. I'm the director for Miziwe Biik development corporation. We administer housing dollars that flow through the City of Toronto. We administered a $20 million pool about 10 years ago through which we built a number of affordable rental properties. We have probably built close to 300 in the City of Toronto.
On top of that, dollars were put aside for new families under a certain income threshold. It was just over $29,000. It was a forgivable loan that we provided for community members to have home ownership in the City of Toronto. It has worked quite well.
I don't have the numbers in front of me, but we put about 45 families in homes with that particular program. We renewed that agreement with the Province of Ontario most recently and were granted an additional $9 million about two years ago to keep the program going. It is quite a success. In fact, last week we cut the ribbon on another piece of affordable rental property in the city.
Senator Tannas: Do you have an annual report or something you could share with the committee and the clerk?
Mr. Willmot: Absolutely, yes, and that's just the City of Toronto. This program is, to my understanding, right across the country.
The Chair: I will ask one question that came to my mind regarding this business of government-like revenues that Mr. Martell referred to, the predictable kind. We have observed that First Nations have core funding entitlements for services they deliver that are quite predictable and substantial. It's been suggested to us at times that these sources of government revenue for operations and maintenance of band programs and facilities could provide security for financing of infrastructure, provided those funds could be committed on a longer-term basis than one year at a time. Has that issue come up?
We have to decide as a committee whether it's possible for the government to guarantee monies more than from year to year and whether that fits Parliament's oversight responsibility. From your point of view, if we could crack that nut and find a way to get the government to make longer-term commitments for government financing to bands, would that be attractive to banks? Would that improve the situation? I'm thinking of not just individual houses but some of the bigger infrastructure items that communities need.
Mr. Willmot: It's what I call the "Kasabonika model.'' Kasabonika Lake First Nation is a fly-in community in northern Ontario. I don't know the date, but some time ago we sat down with a good friend of mine, Merv Dewasha, and Gord Peters, then Ontario Regional Chief, to try to come up with a model that we could support this particular community with. Once community children reached their teenage years, they had to be shipped south to finish school. They flew in to Sioux Lookout, Kenora and Fort Frances; and they were disappearing.
The federal government was scheduled to build a school. They put out a major capital plan. It usually stretches out 10 years. We could see Kasabonika school on the plan five years down the line. With the support of our regional chief and Merv, we found revenue streams that Kasabonika had so that we could build that school today. We built it five years in advance with the understanding that when the capital date came five years down the line, we would be paid out — and we were.
We used that same model for years. In fact the last school Royal Bank built under that particular model was in Fort Albany in 2006. We were told after that that we weren't able to use that particular model again. It is something that I would advocate, for sure.
We also know there's a capital spend on an annual basis, so I don't see why we don't put down some type of securitization model and take advantage of that capital to spend and build these infrastructures, whether water and sewer, schools or health care centres. These are the builds needed today. I don't see any reason that we can't securitize that spend and build these structures in advance.
The Chair: Did RBC finance the school in Kasabonika?
Mr. Willmot: Yes. We used that model for years, and then we told suddenly that we could no longer use that model.
Mr. Martell: We still lend on a similar model. For example, some of our customers would have an allocation for an infrastructure facility of some kind, such as a school or clinic. RCMP barracks are often built now in many communities. Sometimes the capital being offered to them by the regional AANDC is over three years; so effectively you could build a third of the school this year, a third of the school the next year and a third of the school in the third year, which doesn't make any sense whatsoever. Effectively in a remote community you're bringing up construction crews to do a third of the school each year. We're often looking at lending for the second and third years, building it all in the first year. Of course, they have to take some of what would otherwise be capital funding and use it to finance the loan, which moves it back to square one, but they reduce the cost by doing it all in one year. We still do that, but we are limited by the five-year outlook of the capital plan because of the Financial Administration Act, which prevents the federal government from going out longer term.
In 2001-02 we worked with the Mushkegowuk Tribal Council in northern Ontario to do exactly what Harry talked about. We looked at First Nations that got capital for one house every year for the next 10 years. However, they have a huge capital need right now as there are a lot of young people without homes. Overcrowded housing causes a lot of issues around health, education, and lack of employment and stability.
They looked at getting a 10-year commitment from the federal government and securitizing that back to square one, which effectively in this low interest environment would make infinite sense. If you could have a longer-term commitment today, only the banks will cry; but the interest rates are way too low. First Nations could borrow at very low cost to put in infrastructure that would be used for a long period of time at a lower cost for larger projects, and it would address some of the social need.
You're right in that you would have to have the government change their rules, because right now they don't allow you to look at the longer-term financing.
The Chair: That's very helpful.
Mr. Willmot, were you told why the Kasabonika model fell out of favour?
Mr. Willmot: Well, I don't know if it fell out of favour. I was given the reason that the government was unable to — what's the term I'm looking for?
Ms. Bear: Their annual appropriations.
Mr. Willmot: Yes, their annual appropriations. They weren't able to guarantee that the funds would flow from one year to the next, so it dried up. It didn't give us the comfort that those dollars would even flow.
The Chair: Well, this is something for us to ponder. That's helpful because billions go out from the government every year. One would hope that there would be some willingness to commit to that. but leave that with us.
Senator Enverga: My question follows the question from our chair. With this guarantee missing, do you have any other options? What are you suggesting? What kind of guarantee?
Mr. Willmot: It wasn't really a guarantee. It was an assignment of revenues already identified in the capital plan. We weren't looking for a guarantee. It was that assignment. You can call it what you like. Maybe it's semantics, but at the end of the day that's what really got our attention.
We had an assignment of revenue stream that was already identified. When our client was able to find resources to cover those financing costs up front, then we were able to hold onto that revenue stream so that when the five years came up, it just flowed and paid us out. Then the community moved on to the next project.
Senator Enverga: How successful was this? Was it a wide-ranging project? Did it work for every community?
Mr. Willmot: It was done for infrastructure specifically, such as schools, health centres, roads, bringing in power, water and sewer treatment plants, and fresh water. They are all under the infrastructure capital plan. Those were the projects we worked on specifically.
Senator Moore: Mr. Davis, you said there are two questions the committee needs to ask: Where is the infrastructure gap most dire, and how can financial institutions become involved in light of our need to manage risk?
The four institutions have talked about the work you've been able to do and what you've been able to provide because of revenues that were identified. I would venture to say that most of those situations are in locations where the First Nations either have economic activity within themselves or they are nearby a town or a mill or some sort of economic activity that gives them a chance.
We have visited a lot of reserves across the country. For me, the biggest gaps, the most dire, are in the remote communities. How do we address those? How can the institutions become involved?
There are obvious risks. These communities don't have government-like revenues and so on, but they sure as heck have the need. They have need for sewer and fresh water. Right from the get-go, I found it so sad to look at this in a country like Canada.
I think we could help you identify the gaps, but how do we do this? Because of the risk, do you just not look at those situations?
Mr. Davis: That's a great question. It's interesting, because when we look at the FNFA, when you look at some of the communities that I was alluding to in terms of not necessarily waiting for government financing or government funding to finance infrastructure, these communities are able to do this on their own anyway. The ones when you look at the list that are participating in the bond issuance, they are the ones that could probably raise financing from any one of us without having to go through that particular process. That's great, and I applaud them and I commend them.
There are a couple of ways to address this. One is possibly to accelerate claims. Before coming here I was reading through a couple of the hearings of this committee, and I believe the Chief of Peguis First Nation talked about how they actually worked with BMO. They were able to utilize a portion of their claim settlement to leverage financing from BMO to meet some of their infrastructure needs.
We know that there's probably an excess $4 billion to $5 billion in outstanding claims. A lot of this is probably tied up with various government departments, in particular the Department of Justice. Let's try to accelerate them and reach an amicable resolution so arguably some of these communities can leverage those dollars in order to address some of their infrastructure needs.
Another example — my friend Keith just mentioned it to me — is self-government, and I referenced it earlier. Go to the Cree in northern Quebec. They are probably one of the most successful First Nations in this country, and they're remote. They're fly-in-only communities, and they're able to leverage their own agreements, their new fiscal arrangement and relationship with the federal government in order to address that as well.
Self-government, try to accelerate specific claims or something, that can add additional sources of funding that would be provided to First Nations.
Looking at some of the programs that currently exist, think about increasing funding and targeting those communities that really need this.
Oftentimes for some of these programs there is a very comprehensive application process. Before you know it, I would assume that some of the communities that really need that, they fall off and can't participate, and it's just very unfortunate. Why not take a targeted approach and say, "Here is where we need to be to address the infrastructure needs and here is the capital that's going to go in there in order to do that.'' I would guess that we would support that. We would be on board with that as financial institutions.
Senator Moore: Maybe this exists — a developed inventory of the outstanding claims. Urge that they be brought to settlement. If a band settled a claim and had X dollars, then they could go to one of your institutions and make application using those funds. How do you look at this in terms of risk? They're only going to get that lump sum once; that's it. And that building has got to be managed so carefully. What do you do with it? Do you take it and use it? Do you invest it and use the interest? What do you do?
Mr. Martell: Frankly, it's not so much the lump sum settlement of the claim that a lot of the real positive financial results come out of these settlements. It's really the fiscal relationship that results from this.
For example, the James Bay Cree, it's not so much the large amount of capital they got in the settlement. It's the fiscal arrangement they have with Quebec and Canada that allows them to be, effectively, revenue sharing on the significant amount of revenue that comes out of northern Quebec hydro. So they have annual revenues, just like any other government would have, in a region that produces a lot of capital.
Senator Moore: I know, but that's a remote situation with an economic base within it. I'm thinking of some place where there's nothing. There's an opportunity for a resource in the ground, but you can't get roads in.
Mr. Martell: It's not going to address every community's need.
Attawapiskat is one of the communities that has been in the news a lot in the last few years. Ninety kilometres from Attawapiskat is a large diamond mine. It is paying a lot of royalties to Ontario and Canada on the resources coming out next door to Attawapiskat.
There are a lot of resource developments happening. Northern Canada is our best market. We have branches in every territory, and most of our business is north of Saskatoon and a lot of it is north of 60. Even though they're remote, they probably have some of the best opportunities, but it takes a fiscal finance arrangement with the governments to make it work. If you look at the self-governing First Nations in the Northwest Territories, if you look at the Nunavut situation where there is effectively a territorial government, which is an Aboriginal government, it allows them to have some control over their own destiny and allows them the steady government-like revenues that allow them to do the kinds of things that need to be done.
Senator Moore: Does anybody else want to comment?
Mr. Fay: Yes, I would like to comment on this. We have been involved in a few of these in the past where communities have been not necessarily wealthy, maybe remotely removed or far removed from a city, as you alluded to.
Senator Moore: Economic activity.
Mr. Fay: Really it's all about ensuring that you start working with the community early from the development of the trust indenture, the actual document that guides how the money is spent and how much is set aside to protect for inflation, the type of portfolio that it's invested in, and you can extrapolate a reasonable return off that portfolio. Those trusts can be set up to provide a stream, some of the income. It's not difficult to look at that and figure out how much you can put towards things like schools or other infrastructure, as long as that is baked into the trust indenture, the rule book, if you will, and that we have confidence in who the trustee is or the corporate trustee. So it can be done.
To Mr. Davis's point, accelerating claims to more remote communities will provide additional income streams that could actually help get where communities need to be. We've actually been involved with them in the past.
Mr. Willmot: I'd like to just echo that, if I could. I agree with Steve completely. I'm a little sensitive, though, to the phrase "leveraging the trust itself.'' Depending on each First Nation, they'll determine their expectations for those dollars. Most of the communities we deal with are looking for capital preservation. So it's the revenue streams that they're going to generate from those trusts that we're talking about leveraging, not so much the trust itself.
Senator Raine: This has been a very good session for us.
I have asked this question a lot of times, and I hope you will bear with me. In particular, I would like to ask Mr. Martell because you've been involved — I guess all of you — lending in remote areas in the North.
Do you have to have building inspections and have the houses come up to the Canadian building code before you lend? I've become convinced that the building code is designed for southern houses, and those houses don't necessarily work in the North. We get all kinds of problems and they don't last very long. Would it be possible to draw up some way of having an ability to build more traditional-type homes? I am thinking of the type of housing that will work for that remote climate, with building materials that are more readily available than what you get in the little boxes that come up with the vinyl that falls apart.
Mr. Martell: Yes, it's a real problem. The house my dad has lived in for a long time is just a disaster. It was built under the supervision of Indian Affairs at the time. The electrical servicing is about one foot — I'm not lying — underneath the sandy ground, from a servicing box next to the house. So there are real problems there.
First of all, there was no code followed in a lot of those older homes, and so we're seeing significant problems with these homes not lasting near as long as a home should last because they were built way under standard.
You also have to look at regionalizing and having the code fit. We had one tribal council in northern Saskatchewan which had about four or five communities, and about half the communities had huge black mould problems in the homes and the other half didn't. They said, yes, it makes perfect sense because those communities boil a lot of stuff and have huge humidity in the homes. We knew that right from the beginning, but they built all the homes the same.
You have to ask the locals what will work here and then adjust the code. You can build a home very cheaply and it doesn't last you very long. From a person who's built a couple homes, if you spend a little more when you build it, it will last you a heck of a lot longer and you will get a lot more utility out of it if you do the right things when you build it. Far too often we see First Nations that barely get enough to build a home and they build whatever they can, and it just doesn't last and you have the same problem over and over again.
Senator Raine: If you look around our country, houses built 120, 150 years ago without any codes are still standing.
Mr. Martell: Right.
Senator Raine: So we're doing something wrong with this code. I just hope you'll all keep an open mind towards that and try to get some innovative solutions. When you see houses built where you step from your living room out the door to minus 40 and the wind blowing, no porch, it doesn't make sense.
Mr. Martell: I agree.
Mr. Willmot: I would say that under our On-Reserve Housing Loan Program, we have similar standards that we want to see met. I really believe this is where First Nations market housing provides that additional support, by building those administrations to monitor that and to be able to build a home that's going to last longer than 30 years, in some cases 20 years. To your point, there are some sad situations out there and just little resources to do it and little resources to manage the process.
The Chair: I think Senator Greene Raine also asked whether you require inspections. I'm not sure that was answered.
Mr. Fay: Yes, under our On-Reserve Loan Housing Program, and probably very similar to yours, it's very difficult for us to mandate this inspector or that inspector. So what we do is when we're having discussions around the On- Reserve Housing Loan Program, we ask, "Who is your local CMHC-approved inspector?'' We actually have that inspector provide the four or five inspections we need during the construction process.
To answer your concern, if we have concern about variability of quality across Canada, not building a porch where you need that bit of an air break, if we can make sure the CMHC inspectors, who we rely on, have a set of standards that will meet that particular climate where those communities are, that might be a good way to start. That's how we do it right now.
Senator Tannas: Do you have experience across the country with housing co-ops or a co-op? If 20 people get together and build an apartment complex, they all commit to one another what they're doing, usually governments will help guarantee a loan and everybody makes the collective mortgage payments. They're exempt from the landlord and tenant act. I'm not talking about on reserve. They're exempt from the landlord and tenant act, so if there's a freeloader they can fire him out of the complex quickly and deal with it. Would that have any utility or have you seen anything like that on reserve?
Ms. Bear: I haven't.
Mr. Davis: I haven't heard anything.
Mr. Fay: I have not.
Senator Tannas: Do you have any opinions on whether or not that might be a model to look at?
Mr. Fay: I personally don't know enough about it to give a decent answer.
Senator Tannas: I know it works in places like Banff, where there's a shortage of land. You can't have lengthy eviction processes; the federal government won't allow it. Think about it, if you would, and if you see something, let us know.
Mr. Fay: Could do.
Senator Tannas: Thank you.
Senator Moore: Mr. Fay, you mentioned that your bank asks the builder or the band council, "Who's your CMHC- approved building inspector?''
Mr. Fay: Yes.
Senator Moore: Now we've heard some horror stories here about CMHC lending out money and not much on the inspection side, like "Just tell me when the foundation is poured, tell me when the walls are up, tell me when the roof's tight,'' not about the materials, the construction or the design, as Senator Greene Raine alluded to. So how long has your bank been doing that and how do you know if it's being done? Does anybody ever go in and do some random checking?
Mr. Fay: Well, I can tell you that I travel almost continuously across Canada into pretty well every customer we deal with, so I do see the houses that are built. By and large, I'm satisfied.
Now, our program has been around for a while.
Senator Moore: How long, sir?
Mr. Fay: Since 1992, but it really took off probably about 10 years ago. It wasn't heavily used. Now we're north of 80 communities participating in it.
What I have found is the newer houses being built aren't that bad, at least from my untrained eyes, and I'm not a construction guy. I'm a banker, so I have to rely on the experts, and that's why I answered earlier around CMHC. They are the experts, supposedly, and if we need the standards tightened up so we have a better independent view of how these houses are built, the quality, it would be nice if we could tighten that up at that end because it's difficult for us just to send in a totally different inspector.
We do that on infrastructure, by the way. We do have quantity surveyors who go out and do that kind of work on an infrastructure build, but we're talking much larger. On an individual home, we simply rely on the CMHC inspector. Rightly or wrongly, that's what we've been doing.
Senator Moore: Any other comments or do you all pretty much fall in the same place?
Keith, you mentioned the home that your parents went through or had to take over. Now you know why they got it for $12,000. It's been unfair stuff, so how are you making sure that doesn't happen to the loans that you're putting out there today?
Mr. Martell: Well, similar to Stephen, you have to use a local resource. A lot of the tribal councils that we work with had centralized engineering services under the supervision of the tribal council, and we knew we could pretty much rely on them. A lot of those services have been cut back because the regional organizations — tribal councils, provincial- territorial organizations — have been significantly cut in the last couple of years because the funding is needed in the First Nations communities. So the federal government is pushing more the PTO, the provincial-territorial organization, funding that used to provide central services down to communities to provide basic education, health and welfare. That's leaving a lot of these communities without any centralized services. They are having to rely on more purchased services. They come from farther away, with less local knowledge, and I think that's a big problem.
Senator Moore: Okay, thank you.
Senator Enverga: Have you worked with a First Nation that wants to partner with a municipality? Does it work well? How does it work? Would you recommend First Nation-municipality partnerships?
Mr. Fay: I can answer that partially. I've got one client right now who is really interested in seeing not a municipality to partner with but talking about a three-way partnership with the federal government, the province and the First Nation itself.
A lot of First Nations have their own income streams, not all of them, but some of them have pretty good ones. There's something in it for the province and there's something in it for the federal government. Maybe in having less of a spend, the province is going to see infrastructure extending on to the community and the community may only have to borrow a third of the cost.
To me that is a way of the future. Call it a P3, if you will, but I know that one particular client is really interested in that and something that can be explored; not a partnership with a municipality, per se, but certainly with the province.
Mr. Davis: It is interesting because I used to work with the Department of Indian Affairs and Northern Development, and I'm sure Mr. Martell would have a view on the notion of urban reserves.
About 10 to 12 years ago, we started to see a real pickup around this idea of having First Nations that are not necessarily within the city limits of either Saskatoon or Regina or Winnipeg, having settlements utilizing the funding from those settlements to buy land in an urban centre and then turning it into an urban reserve. Initially we would hear a lot of blowback from municipalities. They didn't see it as very positive. They saw it as providing an unfair advantage to First Nations, which is beyond me. I believe when the First Nation was trying to negotiate the necessary servicing agreements, it was very difficult with the municipalities.
One thing I'm seeing now — and maybe this is the reality — that Aboriginal issues, First Nations issues in this country, this is the issue of our day, right? This is the issue of our time. The fact is we have been highly successful in court. If you are doing any resource development in this country, there is a brand new way of doing business. This Prime Minister talks about something like $650 billion in resource projects over the next 10 to 20 years. I would venture to say that every single one of them will require engagement of First Nations.
The smart leaders in municipalities in this country are actually starting to see value in working with First Nations, and some of them are actually starting to do that outreach. For instance, I was in Thunder Bay attending the Metis Nation of Ontario Annual General Assembly, and the Mayor of Thunder Bay, who is non-Native, basically stood up and said that Thunder Bay is an Aboriginal community. I'm not necessarily a student of history. I would be surprised if the mayor 15 years ago would say the same thing.
I think there is a bit of a change in attitude. Tsawwassen, for instance, who settled a land claim agreement in the urban area around Delta, I'm sure they're actually starting to work closely with municipalities as well. I think it is starting to happen, and I don't think there is as much fear of the unknown on the part of the municipalities as to the motivations as to why First Nations are looking at trying to do certain things within the cities.
Mr. Martell: We have seen two examples where a First Nation was looking to build a school adjacent to a non-First Nations community, and instead of building a larger school, they entered into a sharing relationship with the community. They took partial ownership effectively of the schools in town, and the town took effectively partial ownership of the school on the reserve. They share schools with the community, which is an example of municipal- First Nations partnership.
We have also seen another one where a First Nation was looking to put in a water treatment plant, and the neighbouring community was similarly looking to replace a very old water treatment plant. Instead of the non-First Nations community building one and the First Nations building one, the First Nation built one and now sells water to the municipality.
There are a lot of examples, but proximity is a big issue. They have to be beside a non-Aboriginal community, and we think that there's growing take-up from cities and towns to start to include the Aboriginal population, not exclude them.
The Chair: Very good.
I would like to thank the panel on behalf of the committee. I can tell you that having visited a number of First Nation communities and seeing real challenges, but also some successes which lifted us up, we heard good things about banks. We didn't always hear good things about the Government of Canada, but we heard good things about banks. I am sure I speak on behalf of the committee in that respect.
We were very much looking forward to this panel, and you have exceeded our expectations. It has been informative. I do thank you again for coming here on short notice, and congratulate you, as Mr. Davis said, on seeing value in doing business with Aboriginal communities.
On behalf of the committee, thank you very much again. It was very helpful.
(The committee adjourned.)