Proceedings of the Standing Senate Committee on
Aboriginal Peoples
Issue 12 - Evidence - March 24, 2015
OTTAWA, Tuesday, March 24, 2015
The Standing Senate Committee on Aboriginal Peoples met this day at 9:30 a.m. to study challenges relating to First Nations infrastructure on reserves.
Senator Dennis Glen Patterson (Chair) in the chair.
[English]
The Chair: Good morning. I would like to welcome 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, via CPAC or the web.
I am Dennis Patterson from Nunavut and I am the chair of this Standing Senate Committee on Aboriginal Peoples. Our mandate is to examine legislation and matters relating to the Aboriginal peoples of Canada generally. This morning we are 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 and innovative opportunities for financing, as well as more effective collaborative strategies.
We have completed our hearings on housing and are now focusing our study on infrastructure, although those two issues often overlap.
Today I am pleased we will hear from four witnesses representing two departments: Aboriginal Affairs and Northern Development Canada and Treasury Board of Canada Secretariat.
Before proceeding to the testimony, I would like to go around the table and ask members of the committee to introduce themselves, bearing in mind that winter weather has resulted in some of our members not being able to be here today.
Senator Dyck: Senator Lillian Dyck from Saskatchewan.
Senator Beyak: Lynn Beyak from Ontario. Welcome.
Senator Enverga: Tobias Enverga, senator from Ontario.
The Chair: Members of the committee, I know you will help me welcome our guests this morning. Today we have some familiar faces from Aboriginal Affairs and Northern Development Canada: Karl Carisse, Senior Director, Strategic Policy, Planning and Innovation; Andrew Beynon, Acting Assistant Deputy Minister, Lands and Economic Development; and Rob Harvey, Acting Director General, Corporate Accounting and Material Management. Thank you for once again appearing and assisting the committee. Joining our AANDC officials at the table and representing the Treasury Board of Canada Secretariat is Brian Pagan, Assistant Secretary, Expenditure Management Sector.
I understand that Mr. Pagan will speak first on behalf of the Treasury Board Secretariat, to be followed by Mr. Beynon, speaking for AANDC. We look forward to your presentations, which will be followed by questions from the senators. Please proceed.
[Translation]
Brian Pagan, Assistant Secretary, Expenditure Management Sector, Treasury Board of Canada Secretariat: Thank you, Mr. Chair. Good morning everyone.
I will begin with an overview of the expenditure management system.
[English]
Also there will be bit of an overview about how Aboriginal programming is reflected in the estimates of the Government of Canada. I understand that there is a particular interest on the part of the committee with regards to how ministerial guarantees are accounted for in the books of the Government of Canada. I will conclude my presentation with a specific illustration of that process. But first it is very important to provide a context for the committee in terms of the government's Expenditure Management System and the way in which Parliament reviews, approves and controls spending of government departments and agencies. I'll take a few minutes to present to the committee that overview of the estimates process.
I have a presentation, a deck of slides that I will speak to, and where appropriate I'll refer to a page number. I believe this presentation has been shared with the committee in advance.
Basically what I want to speak to now, turning to slide 3, is an illustration of the parliamentary reporting and the supply cycle. As the committee is aware, the government runs on a fiscal year that concludes March 31, beginning April 1. Within that fiscal year there are prescribed rules about the way in which the executive will present its estimates to Parliament and the way Parliament will review and approve those appropriations. I wanted to begin with an overview of that process.
In the slide in front of you, you'll see the cycle, and it is broken out into the Parliamentary supply periods. These are a creation of Parliament; under House of Commons Standing Orders, three supply periods have been designated, ending June 23, December 10 and March 26. According to those supply periods, the executive will develop and table in Parliament its estimates documents and allow committee review. They'll call departmental witnesses to understand the spending plans and requirements of departments, and based on that study of the estimates, they will approve appropriations and the parliamentary vote.
Within these supply periods, there are four key deliverables — from my perspective at the Treasury Board Secretariat — and those are the estimates documents that my team prepares and provides to the President of the Treasury Board for tabling in the house.
We begin the fiscal year, of course, with the government's Main Estimates, and these were just recently tabled in Parliament at the end of February. In fact today the house will be voting on supply for Main Estimates. By House of Commons Standing Orders, the Main Estimates must be tabled on or before March 1. I brought a copy with me. This becomes the basis of departmental program spending for the fiscal year. It is regularly updated or added to throughout the year, as new spending plans are developed, as new government commitments come to fruition, be they budget announcements or other policy announcements of the government.
So we have a Main Estimates document that starts the process for March 1, and then we'll have regular periods during the year to present Parliament with supplementary estimates. Generally these are presented chronologically: Supplementary Estimates (A) in the spring; Supplementary Estimates (B) in the fall; and Supplementary Estimates (C) to conclude the fiscal year. It's very important to understand that process and the accompanying documents that help explain departmental programs. These are the departmental Reports on Plans and Priorities, which gives a great deal of detail about a department's specific programs and objectives, and then the Departmental Performance Reports at the conclusion of the year that summarizes progress against those plans.
Turning to slide 4, there is an explanation of the different types of parliamentary approval. As you know, the Financial Administration Act states that the government needs Parliament's authority in order to make payments.
That authority is provided in two ways: through specific legislation or what we know as statutory authorities, or statutory obligations — for instance, Old Age Security, child benefits and certain programming within Aboriginal Affairs; or specific voted authority through an appropriation act.
[Translation]
Approximately two-thirds of government spending is authorized through appropriation acts commonly known as "voted spending.'' Voted spending provides authority for a fiscal year. In the 2015-16 Main Estimates, 119 departments, organizations and crown corporations requested authorization of voted spending.
[English]
To understand this very clearly, this is what we consider to be discretionary spending. It's presented annually to Parliament for an annual voted appropriation. Slide 5 explains the way in which Parliament provides this authority through an appropriation act. We use the organization's legal name, the one given in the enabling legislation, to assign votes in a supply bill. The document that is tabled in Parliament is also organized in the same way.
[Translation]
That is why the main estimates still refer to the Department of Indian Affairs and Northern Development rather than Aboriginal Affairs and Northern Development Canada.
[English]
The bills present amounts by vote within each organization. The vote wording in the bill sets broad criteria on how the funds can be spent — typical votes, as operating or program expenditures, capital, as well as grants and contribution. Organizations may not spend more than the limits approved, but there is no requirement to spend all of the funds.
Turning to slide 6, information to assist in the consideration of a supply bill, estimates documents are produced to aid parliamentarians in the consideration of the supply bills. The Main Estimates, which I mentioned are tabled on or before March 1, support consideration of two supply bills: interim supply, which allows departments to begin the fiscal year, and full supply, which is the remaining amounts presented in the Main Estimates. The Reports on Plans and Priorities give further details on what organizations plan to accomplish with their funding shown in Main Estimates.
[Translation]
Spending authority is approved by a parliamentary vote. The other plans that are in the estimates, such as expenditure forecasts by program or by standard object, are only estimates, and do not restrict the way in which the funds will be used. You can find information on real expenditures in the quarterly reports and public accounts, and data on performance can be found in departmental performance reports.
[English]
Turning to slide 7, committee review of the estimates, Main Estimates for 2015-16 were tabled on February 24. Upon tabling, estimates documents are referred to the House of Commons committees and to the Standing Senate Committee on National Finance. Committees report on the study of estimates. In the case of the House of Commons committees, they may be deemed to have reported if they have not done so before the deadline.
[Translation]
In this case, Treasury Board representatives appeared before the House of Commons Standing Committee on Government Operations and before the Standing Senate Committee on National Finance to provide an overview of the Main Estimates and answer questions. The committees convene other organizations as needed to obtain additional information.
[English]
Slide 8 is an explanation of spending targeted to Aboriginal people, as identified in the 2015-16 Main Estimates. In the estimates document, you can find Indian Affairs and the Truth and Reconciliation Commission on pages II-140 and II-146 of the Main Estimates. These two organizations are specifically devoted to Aboriginal programming. You will not see the 2015-16 for the registry of the Specific Claims Tribunal as it was amalgamated into the Administrative Tribunals Support Service of Canada in November 2014.
After Indian Affairs, the next largest amount of funds for Aboriginal programs can be found in three Health Canada programs, on page II-134. Fisheries and Oceans also has dedicated programs for Aboriginal strategies and governance.
[Translation]
Organizations may also make provisions for grants and contributions that are expressly designed for aboriginal groups. For instance, in transfer payments, there are grants and contributions to support the Aboriginal Peoples' Program of the Department of Canadian Heritage, as well as the contribution to the Aboriginal Forestry Initiative of Natural Resources Canada. There are other grants and contribution programs intended for aboriginal groups within the Canadian Northern Economic Development Agency, the Department of Justice, the Northern Pipeline Agency and the Canada Public Health Agency.
[English]
Adding up all of the numbers in the 2015-16 Main Estimates totals approximately $10.9 billion identifiable as planned spending on Aboriginal programming in 2015-16. In comparison, the amount in the 2014-15 Main Estimates was $10.8 billion. However, this was subsequently increased to $11.4 billion through the supplementary estimates exercises for 2014-15.
Turning to slide 9, I understand that the committee had some interest, within this appropriations process, in the concepts of carry forwards and reprofiles.
[Translation]
When organizations submit programs to Cabinet and Treasury Board, the required funding, with a breakdown by votes and fiscal year, is included in the submission. In reality, in order to implement a program, estimates have to be prepared on a regular basis.
[English]
A reprofile is the process by which we can adjust the spending authorities to represent or reflect the realities of a program or service offered by a department. When the Department of Finance establishes its budget, it will provide its absolute best forecast of when that spending will occur. We at the Treasury Board will review programs and services proposed by departments according to that spending profile, and we will approve the terms and conditions and reflect that in estimates documents.
If, in the unfolding of that program or service, adjustments are required, if there are protracted negotiations with stakeholders, if there are delays in staffing or disruptions to a contracting process that will change the profile of that program, then two mechanisms are available to reflect that. One is a carry forward, which I will speak to momentarily. The other is a reprofile. The carry forward limits you year by year. A reprofile can span the full horizon of time, many years into the future if necessary.
Basically, a reprofile is the movement of unspent funding or funding that won't be used from one fiscal year to another. In the most common case, program delays lead the department to want to defer funding into future fiscal years. The reverse is also possible, where money that might be allocated into the future might be drawn into the present to allow the department to seek access to funding in an earlier fiscal year or at an earlier time if the program conditions support that.
Because this movement of the funding forward and backwards can affect the government's overall fiscal plan, reprofiles must be approved by the Treasury Board Secretariat and the Department of Finance. Only when the proposed funding profile has been approved by the Department of Finance will it be included in the estimates and subsequently presented to Parliament in a supply bill.
Where possible, operating and capital budget carry forwards are used instead of reprofiling. There is no carry forward for grants and contributions funding at this time, so a reprofile is the only way for Aboriginal Affairs to move their G and C funding between fiscal years.
An Hon. Senator: G and C?
Mr. Pagan: Grants and contributions.
Turning to slide 10, funds reprofiled or carried forward in 2014-15.
[Translation]
As mentioned, with the approval of the Department of Finance, lapsing funds may be reprofiled to the next fiscal year. Roughly $171 million in reprofiling decisions were processed for the department in the 2014-2015 estimates.
[English]
With Finance approval, lapsed funds may be reprofiled into future years. Roughly $171 million in reprofiling decisions was processed for the department in 2014-15.
The operating budget carry forward is the central mechanism by which all departments and agencies may avail themselves of an authority to carry forward up to 5 per cent of their operating budget into future years. Subject to Treasury Board approval, lapsed operating funding may be carried forward to the following fiscal year, so one year only, in an amount of up to 5 per cent of the operating budget at Main Estimates.
In 2014-15, Aboriginal Affairs carried forward approximately $42.8 million from 2013-14 into 2014-15. The mechanism by which this process occurs is through allocations from a central vote that is administered by the Treasury Board Secretariat. The central vote is known as TB vote 25. It is an amount of $1.2 billion, and it is, if you will, the pot or the kitty from which we will allocate to departments the amounts that they are entitled to carry forward from one fiscal year to the next. Again, their entitlement is capped at a maximum of 5 per cent of their Main Estimates operating vote.
The concepts of carry forwards and operating votes were innovations created in the early 1990s. I believe operating votes and carry forwards were introduced in 1993-94. They were designed with the express intent of providing flexibility for departments to better manage their programs from one fiscal year to the next.
You can well imagine that in the context of the expenditure management cycle I presented earlier, with a Supplementary Estimates (C) process presented to Parliament in the spring and approved by Parliament only late in March, with a fiscal year that ends March 31, there can be some considerable difficulty for a department to get parliamentary approval to spend money in the last week of a fiscal year and actually be able to spend all that money in the week remaining in the fiscal year. That construct and some of the processes and restrictions around staffing and contracting and working with third parties create some very real program dynamics in any department that can limit flexibility and interfere with even the best plans in a fiscal year.
Way back when, there was a concept known as March Madness — use your budget or lose it: The fiscal year ends March 31, and if you don't spend your money, it's not available to spend anymore. So there was a lot of pressure to get money out the door. That process was quite criticized by the media, by the Auditor General and by parliamentary committees, and in looking at the drivers of that process, it was determined that our own rules were contributing to that. The introduction of operating budgets and operating budget carry forwards was, I believe, a very sensible way of taking away some of those negative incentives and creating better conditions and flexibility for a department to properly manage their programs.
That was introduced in 1993-94. It was originally at 2 per cent. It proved to be a very positive tool that was well used, with good benefits to programs and to recipients of programs. It was increased in 1995 to 5 per cent, and it has stood at 5 per cent since that time.
That is the process by which Aboriginal Affairs and other departments can carry forward up to 5 per cent of their operating budget from one year to the next.
Another example of carry forwards is with respect to capital budgets, and in the case of capital programs, we are looking generally at much bigger projects, often tens, hundreds and even billions of dollars in programming. Again, delays in staffing and negotiations with third parties in a contract can have detrimental impacts on even the best plans and forecasts of a department.
So the idea of a capital budget carry forward was introduced in the estimates process in 2008. Again, subject to Treasury Board approval, lapsing funds may be carried forward from one fiscal year to the subsequent fiscal year in an amount not to exceed 20 per cent of the total authority of the capital vote. For 2014-15, Aboriginal Affairs carried forward $2.6 million of their capital funding.
Finally, and in conclusion, I know that the committee is interested in the issue of accounting for loan guarantees, so I've got a very specific example for Aboriginal Affairs. Mr. Chair, I'll conclude with an outline of how the Ministerial Loan Guarantee program is accounted for on the books of the Government of Canada.
Ministerial Loan Guarantees provide security to obtain loans for housing projects. The Crown ownership of First Nations land can make it difficult for communities to borrow from lending institutions to finance housing construction or mortgages. Parliament began authorizing Aboriginal Affairs to provide Ministerial Loan Guarantees in 1966 in order to address this loan problem associated with seizure of reserve lands.
The program has a statutory authority of $2.2 billion and is classified as a non-budgetary item, as it is a guarantee that impacts the composition of the financial assets of the Government of Canada. This guarantee of $2.2 billion represents the contingent liability of the program and is reported in Volume I of the Public Accounts of Canada. For those interested, you can find that specifically in Volume I at page 11.34.
As noted I believe by this committee in their report and by an evaluation of the program in June 2010, the Ministerial Loan Guarantee program has a very low default rate, with a forecasted cost of less than $2 million. The forecasted cost of default is reflected in the estimates as a budgetary item in the department's statutory authorities for 2014-15, which is found on page II-140.
The Main Estimates present Parliament with forecasts of voted and statutory budgetary and non-budgetary cash requirements, as I mentioned in the introduction, so the actual use of these authorities is presented in the public accounts at the conclusion of the fiscal year.
For the Ministerial Loan Guarantee, the department reported use of this authority at $1.5 million in 2012-13 and nil in the 2013-14 public accounts. Reporting on the use of that authority is found in Volume II of the public accounts at page 16.8.
Mr. Chair, I've given you a brief overview of the process and the expenditure management system and the government's budgeting and estimates program, with a specific reference to the way in which Ministerial Loan Guarantees are accounted for on the books of the Government of Canada. That concludes my presentation. I would be happy to respond to any questions that the committee might have.
The Chair: I think we will wait until Mr. Beynon makes his presentation before we go to questions.
[Translation]
Andrew Beynon, Acting Assistant Deputy Minister, Lands and Economic Development, Aboriginal Affairs and Northern Development Canada: Mr. Chair, honourable senators, I am pleased to be back before the committee to speak on the important topic of First Nations infrastructure.
As a senior public servant responsible for helping to improve economic development of aboriginal communities across the country, I know all too well the foundational role that infrastructure plays in helping foster long-term economic success.
[English]
Aboriginal Affairs and Northern Development Canada supports First Nation communities in establishing and maintaining infrastructure on reserve through direct funding support. Increasingly, the department is also using innovative approaches such as optional legislative and regulatory tools that allow First Nations to take greater control of financing their infrastructure. I will begin by discussing direct funding.
While First Nations are the owners and operators of infrastructure on reserve, Aboriginal Affairs and Northern Development Canada works with communities by providing financial support and assistance to acquire, operate and maintain community infrastructure. The ultimate goal for the department is to support the development of safe, healthy and thriving First Nation communities comparable to what is enjoyed by Canadians living off reserve. I will recognize for senators that of course many communities off reserve face infrastructure challenges as well. I experienced some of those driving through the potholes on the way to the committee this morning.
The Government of Canada provides approximately $1 billion each year in funding for community infrastructure on reserve through Aboriginal Affairs and Northern Development Canada's Capital Facilities and Maintenance Program. Funding is allocated for the construction and maintenance of infrastructure to First Nations. Through this program, the department invests in four main areas, including water and waste water, education, housing and other infrastructure.
While Aboriginal Affairs and Northern Development Canada provides First Nations with up to 100 per cent of the funding for the construction of most community infrastructure projects, the majority of departmental funding is actually dedicated to the operation and maintenance of existing assets. Therefore, Aboriginal Affairs and Northern Development Canada is heavily reliant on targeted funding announced in various federal budgets to fund new infrastructure.
Off-reserve municipalities tend to spread the cost of an asset over its useful life, due to the fact that they have access to stable, long-term revenue sources such as property taxes. These revenues are leveraged in global capital markets to extend further the value of each dollar.
In contrast, Aboriginal Affairs and Northern Development Canada typically works with First Nation communities to fund the cost of community infrastructure over the short construction period rather than over the full life cycle of the project. Short-term, targeted funding initiatives limit project financing approaches to a mostly pay-as-you-go construction project approach.
A major contributing factor to this reality is that, unlike municipalities which raise the vast majority of their revenues through taxes, First Nations tend to rely disproportionately on own-source business revenues as well as government transfers.
For example, in British Columbia, municipalities raise roughly 77 per cent of their revenues from taxes and 23 per cent from other sources, such as governmental transfers and business revenues. In contrast, First Nations in British Columbia raise approximately 4 per cent of their revenues from taxes while 96 per cent comes from government transfers, their own business revenues and other sources.
It is important to further disaggregate this data with respect to taxation. About 20 per cent of First Nations across Canada generate property tax revenues, and most of this at levels below $200,000 per year. In British Columbia, five communities account for over half of all the tax revenues raised by First Nations in the province. None of the remaining 193 communities account for more than 5 per cent of the total tax revenues generated. In fact, 123 communities in British Columbia raise no tax revenues. So increasing tax revenues on a broader basis in the near term is constrained by low levels of economic activity on reserve lands, in some cases the quality of the land base, and policy or political barriers to increasing tax revenues, such as a fear that implementing tax powers might lead to a decrease in federal transfers.
However, investments in infrastructure can increase the capacity for First Nations to raise tax revenues by laying the foundation for economic growth, improving productivity, complementing employment growth and opening access to new markets.
Where Aboriginal Affairs and Northern Development Canada has had access to long-term, stable funding, the department has been able to support a number of First Nations by working with them to securitize funds to allow First Nations to acquire private financing for various projects.
I'd like to highlight two specific examples where security of private sector financing led to successful infrastructure projects.
One example is in Ontario, the community of Kasabonika. In 1994, Kasabonika First Nation needed a school, but the department did not have enough funding at that time to complete the project. The First Nation, the department and the Royal Bank of Canada worked together to establish an agreement to secure immediate financing for the school. This was a major success. The school project did go forward in 1994 with funding from the Royal Bank with the agreement that the department would assign future funding directly back to the bank. Between 1996 and 1999 the project was completely reimbursed.
Another example is in Quebec, the community of Pessamit. Our Quebec region has been very proactive in developing multi-year funding agreements where First Nations have secured bridge financing through financial institutions.
For example, innovative financing was used in the Quebec region for a water intake line and treatment plant for the Pessamit First Nation. The project's costs were estimated at over $14 million, and there would have been significant delays if the community was required to wait for federal funding. The First Nation was able to secure credit through a letter of comfort from Aboriginal Affairs and Northern Development Canada, and funding is being reimbursed through the First Nations Water and Wastewater Action Plan as a contractual obligation. This project is on schedule for completion in the coming weeks.
These projects represent some of the many creative solutions to financing challenges faced by First Nations across Canada. To take the next step, more comprehensive solutions rather than these one-off approaches are required.
One such vehicle, and the second way in which the department supports First Nation communities in establishing and maintaining infrastructure on reserve, is through optional legislative and regulatory tools available to First Nation communities, and in particular the First Nations Fiscal Management Act.
The First Nations Fiscal Management Act regime in particular is considered to have achieved an effective balance between affirming First Nations jurisdiction and providing appropriate institutional capacity. The act not only enables participating First Nations to collect property tax and access pooled borrowing but also creates an integrated system whereby the institutions created to oversee the regime provide considerable ongoing support that indeed reinforces their respective mandates to ensure the integrity of the system.
For example, the act requires a First Nation to process a certificate from the First Nations Financial Management Board in order to become a borrowing member. Similarly, for the First Nations Finance Authority to issue a long-term loan backed by property tax revenues, a First Nation must have a borrowing law that is approved by the First Nations Tax Commission. This is an integrated system that enhances investor certainty by certifying that participating First Nations have the financial capacity and financial systems in place to manage large economic development projects.
In 2012, a legislative review of the First Nations Fiscal Management Act was tabled in both houses of Parliament. This review identified a number of suggested changes to the act, including various administrative and regulatory improvements and the potential expansion of institutional powers.
To date, nearly one quarter of First Nation communities in Canada have chosen to participate in this regime, which offers not just access to capital but also access to low-cost capital on a basis similar to that available to other local governments in Canada. Under the act, the First Nations Tax Commission has now approved over 760 taxation laws, with First Nations generating over $42 million in real property tax revenues annually. These revenues have an obvious and tangible impact, and when leveraged for long-term borrowing, the impact increases exponentially.
By strengthening financial management, First Nations that are certified by the First Nations Financial Management Board under the act have more, and less costly, access to capital, both through bonds that are issued by the First Nations Finance Authority and from commercial lenders, many of whom use First Nations Financial Management Board certification as one measure of credit risk. This in turn results in lower interest rates for certified First Nations.
Financial certification has also increased the accountability and transparency of participating First Nations. To take an example, St. Theresa Point First Nation, a small fly-in community in northern Manitoba, has been able to use its First Nations Financial Management Board certification to significantly reduce borrowing costs to less than 4 per cent, which helps to ensure that it remains in strong financial condition.
By providing a means to engage in pooled borrowing through the First Nations Finance Authority, First Nations have access to significant private financing in global capital markets. This has only begun, and the inaugural bond was issued in June 2014. This was able to raise $90 million from banks, insurance companies, pension plans and other large private investors from Canada and the United States for 14 First Nations located in British Columbia, Manitoba, Ontario and Nova Scotia. This financing is being used by the First Nations to build or improve schools, community housing and other infrastructure in their communities.
For example, the community of Membertou, a prosperous First Nation with a very diversified economy located in Cape Breton, Nova Scotia, raised $21 million through this inaugural bond, and by using the proceeds to refinance existing commercial loans through a more appropriate infrastructure financing tool, they are able to save nearly $1.7 million in annual interest costs. These savings are, in turn, being reinvested in this successful community.
With the success of the inaugural bond, interest in this regime from First Nations has grown across the country. Over the past 12 months, more than 40 First Nations have passed band council resolutions seeking to be added to the schedule to the act. Currently more than $200 million in unused borrowing capacity can be deployed over the next two to five years among the current 38 First Nations Finance Authority members.
According to an independent, third-party forecasting study completed for the First Nations Finance Authority, there is an estimated $5.8 billion in own-source revenues collected by First Nations across Canada annually. The potential of the regime to help First Nations grow their economies and offset the demand for limited federal infrastructure dollars is significant. Therefore, we are looking forward to the First Nations Finance Authority issuing its second bond, and this is expected as early as this summer.
To build on this success, the department and the three institutions have been working to accelerate and streamline participation in the act, reduce the administrative burden on participating First Nations, and strengthen investor and capital market confidence in the regime.
In conclusion, honourable senators, direct funding from senior levels of government will remain an important ingredient in financing infrastructure, and this is true in both the on- and off-reserve contexts. However, the First Nations Fiscal Management Act provides an important vehicle for First Nation communities to leverage the many forms of revenue that are not currently being used to their maximum potential, notably transfers from other levels of government. In fact, the Financing Secured by Other Revenues Regulations, which operate under the First Nations Fiscal Management Act, allow federal transfers to be securitized if the agreement governing the transfer specifically permits such a use.
A number of years ago, the First Nations Finance Authority presented a proposal that would effectively allow it to use federal funding to securitize debentures for the construction of infrastructure projects, including water systems, housing, public buildings and roads. The First Nations Finance Authority estimated that, based on the risk profile of the revenue stream, every dollar of secured federal funding could generate $13 in immediate capital. For example, if just $250 million of federal infrastructure funding were to be used for this purpose, more than $3 billion could be raised, and very quickly.
While federal transfers can be used under the regime, there are barriers currently in place that prevent this from occurring now. One barrier is that our funding agreements typically do not permit a stream of funds to be used to support borrowing for immediate needs.
Also, funding agreements, including longer-term block funding agreements, contain clauses that make funding conditional on parliamentary appropriations, which my colleague spoke to earlier. This means that funding is not guaranteed for future years, and, therefore, it is more difficult to use these funding agreements to support long-term, low-cost borrowing. We would be interested in the recommendations of this committee on how we could better use revenue streams to meet the infrastructure needs of First Nations.
It is recognized that challenges remain for financing infrastructure on reserve. However, important steps have been taken. The First Nations Fiscal Management Act is no longer a concept but a success in practice. With the issuance of this first-ever inaugural First Nations Finance Authority bond, there is demonstrable market acceptance of low-cost private lending to First Nation communities for infrastructure. The First Nations Finance Authority model of aggregation, where credit risk is spread across many borrowers, also offers potential in other areas to help communities reduce their borrowing costs.
Before I end, one message I would like to reinforce today is that there is significant variation, of course, amongst First Nation communities across the country with respect to their preparedness to take advantage of innovative financing solutions, so one-size-fits-all solutions simply would not work.
I appreciate the opportunity to speak before this committee today on this important issue, and my colleagues and I would welcome questions from the honourable senators.
The Chair: Those were helpful presentations, gentlemen. Thank you.
Senator Raine: Thank you very much. It's become obvious to us in our studies that the issue of limited access to long-term funding, which becomes also very necessary for long-term planning, really makes it hard for First Nations to figure out what to do next.
I have two questions. I understand how the certification of financial management works through the FNFMA, the First Nations Fiscal Management Act, and the First Nations Finance Authority. There are ways in place of making sure First Nations have the capacity to do this.
We have seen several examples where there's a lack of funding and almost encouragement of developing long-term planning, because you can't even go and look for the financing if you don't have a plan. Where does the planning side of things fit in the funding envelopes for First Nations? How does that fit in there?
I'll give you an example. On Vancouver Island, just outside Victoria, there is a very beautiful area of the Saanich Peninsula. On one side of the street are homes worth over half a million dollars, very desirable real estate. On the other half is a First Nation that can't get the financing to do the planning to move forward. To me that's illogical.
Mr. Beynon: I'm very glad you raised that example. I know the communities you're speaking of. I used to be a lawyer on Vancouver Island, and I guess one of my comments would be to say, yes, there are examples like that where you see this great disparity. On a more optimistic note, I think some communities have really been able to move that yardstick dramatically forward.
I'm glad that you raised this question because I think planning is indeed one of the ingredients in the solution. It's not just a question of dollars and funding.
We recognize more and more that there is a gap for First Nation communities in planning compared to communities off reserve. As I think all of you know, municipal legislation in particular and legislation governing regional districts has built right into it comprehensive requirements in respect of planning. So that's an intriguing point that, first of all, there isn't that legislative base. I think this is an area, ultimately working with First Nations, that some of them may be coming forward on in future to say, "We want to have stronger legislative vehicles for planning.''
But putting that aside, we've been recognizing more and more and actually financing some pilots to work on stronger planning. Many communities want to work on comprehensive community planning because there is a wide array of issues to deal with: elder care, youth programs, education and so on. But if I may, what I find intriguing is sort of a mighty handful in terms of economic development, and that's planning for economic development, lands issues, environment, infrastructure and emergency management.
We've had some pilot funding across the country to try to better invest in this, and one of the interesting areas is that we've actually done that sometimes in partnership with local governments that are neighbours. So a few First Nations communities have come forward with their municipal neighbours and said, "We want to try to undertake some planning together because we recognize that we have some overlapping areas.''
I think this sets the groundwork very well for much more effective infrastructure management, emergency planning and so on, but it also sets the stage potentially for better financing of the infrastructure.
Now, I know that there are always gaps in terms of the level of infrastructure investment, but I would certainly agree with you, senator, that investing in the planning up front can ultimately much better set out the anticipated long-term needs for infrastructure and making sensible and high-quality investments over time.
I would be pleased to provide some further information to the committee separately on successful examples of the planning initiatives that have been undertaken working a bit with the Federation of Canadian Municipalities and the Council for the Advancement of Native Development Officers.
Karl Carisse, Senior Director, Strategic Policy, Planning and Innovation, Aboriginal Affairs and Northern Development Canada: I think the only thing I can add, as Andrew mentioned, is that part of the whole planning scheme for the community touches on infrastructure. So we do have planning right now, and I've talked about this before the committee here, in regard to infrastructure, based on the availability of funds, which is our First Nations Infrastructure Investment Plan. That is there. It starts at the community level — the community approaching our regional offices, and they are sharing with them their needs for infrastructure. That's rolled up to a regional plan, which is based on the availability of funds and on priority ranking for what projects will get funded. Then we roll that up in a national plan.
Andrew touches on a good point. In the community there are needs for infrastructure, but the need for planning is where do you put that infrastructure. How does that infrastructure coincide or potentially work with some economic development ventures that the community wants to move forward with? You see that integration a lot more, and it's by working with and within the community to look at that plan.
We have the capital/infrastructure planning. We don't have the authority to fund for any commercial development. If a water treatment plant and pipes are needed, that's really for the public's use. So it is going to the houses, to the schools and the other infrastructure that's public.
If there should be a business development somewhere else in the community, it's the community that would have to find the availability of funds for that portion of that project working with our economic development. What is essential there is having that plan to begin with. What is the vision of the community? The funds may not always be available; we know that. But different pockets of funding are available to the community, and if there is a good plan then they might have better opportunities, rather than to approach establishments, like financial establishments, to try to cover that delta that's missing and to cover that within the community itself.
The Chair: On that point, economic development opportunities to create own-source revenues, the committee did hear from Harold Calla of the First Nations Financial Management Board, who said that AANDC's infrastructure funding does not cover infrastructure for economic development, such as water and waste water systems for an industrial park or for a shopping centre.
Is this accurate? Mr. Carisse, you were just mentioning that, because as we've heard this morning, it's own-source revenues that can help fund capital projects. It would seem that economic development opportunities would be a natural way of getting own-source revenues.
Does the department pose barriers to accessing those kinds of funds for capital infrastructure?
Mr. Carisse: At the present time, the authorities for the infrastructure program, as I mentioned, are for public infrastructure. With the availability of funds that we have right now, the priority is to look at health and safety, to make sure that community members' homes have access to potable water, for the schools or if there's other public buildings in the community.
For an economic development opportunity, at that point, we would be looking more towards that opportunity itself, the business case that is there to absolutely put up the funding to be able to do that infrastructure. Either it's an upgrade, or there are some communities that I know of where they have commercial buildings that have their own water treatment plants. That was part of the whole business case. It's part of that business to get that financing.
I bring it on to Andrew because we do have parts of the department that do have some programming to help in those situations.
Mr. Beynon: Yes, my area of responsibility is Lands and Economic Development, including environmental issues. We do have economic development programming which is designed in part to assist communities with seizing economic development opportunities. Through this programming, we've been able to fund, for example, sometimes, the infrastructure being put in place, which lays the foundation for building an industrial park or a commercial shopping centre.
We don't do it perfectly yet, but over time we're working much more with our colleagues in infrastructure to also look at situations where, for instance, our colleagues in infrastructure may be putting in an investment in the infrastructure that is required for health and safety purposes or housing. If we can bring some economic development together, we may also be able to extend that servicing to facilitate the development of an industrial park and so on.
Now, having said that, the economic development programming is about $21 million per year, and so it is not a huge amount. I agree with Mr. Calla that there are significant opportunities for trying to make investments in what can generate the own-source revenues within First Nation communities. We're trying to do our part through this program, but it is a limited amount of dollars.
The Chair: You cited some examples of Kasabonika and Pessamit, where there was a creative agreement that the department would assign future funding for Kasabonika to a bank to allow a project to be financed by a bank loan, and the project was completely reimbursed.
In Pessamit, a letter of comfort was given from Aboriginal Affairs and Northern Development Canada to allow the Water and Wastewater Action Plan.
Now, we've heard from Mr. Pagan, and I thank you for being here, of the strict controls on funding to the department, the annual appropriations authorities and the limited ability to carry over and carry forward, but we all know these capital projects need longer-term funding. Probably five years is not really enough. It's typically over longer periods of time in the private sector.
It's encouraging that you've reported ways that have been found to get around these strictures.
How can we encourage this to happen elsewhere? How did you do it, and how can this happen elsewhere? This letter of comfort is something that I'm not sure we've heard about before. There was a deal made with a bank, which seems to make a commitment beyond Parliament's annual appropriation authority. I may be misstating that, but this is what we've heard over and over again: It's so hard to build on year-to-year funding which is not secure and sometimes gets interrupted or delayed. How can we get around that for capital infrastructure?
Mr. Beynon: Well, I think that the opening comment I would make is to say, yes, we have some examples like that where we've tried to issue letters of comfort or better information with banks where the First Nation is willing to do that. In the cases that I cited, of course, it's extremely important that it's led by the First Nation. We as a department would not want to be interacting with the bank without their direct participation.
I think in those particular cases that the letter of comfort or the indication from the department of what was likely to be expected over several years managed to be satisfactory to the banks, but quite frankly, that took some creativity on the parts of the bank as well. These are not the kinds of financial instruments that banks typically rely upon to have the certainty that they can lend at a low rate.
Maybe I'll ask Karl to comment on that further.
Mr. Carisse: Yes, we've had those opportunities in the past. They are few and far between, but where it has worked is where the key is the letter of comfort, to give the financial institution that assurance that the payments would be made by the Government of Canada. There's only I think a few cases where it wasn't, but often the carrying costs were incurred by the First Nation itself. Therefore, we were able to do it over a number of years, but there's a certain carrying cost. The First Nation would take care of those, that interest, the carrying costs, and the department, by letter of comfort, would tell the financial institution that repayments would be made for X amount of millions of dollars for a number of years.
It has been done in certain instances for schools, for water and waste water. We had an opportunity that came to us, a few years ago, from SaskTel, in Saskatchewan. They were doing a big connectivity project in the province. They approached us and we could go and connect all the schools and health facilities in the province to fibre broadband, which we thought was a great opportunity. On our own it wouldn't be viable as a project. But since they were already going throughout the province, there was a cost to do this. We were able to negotiate with them a repayment over five years, I think it was.
In Ontario, when we brought the transmission line to the communities around James Bay — Kashechewan, Fort Albany, Attawapiskat and a couple more — that was also an agreement that was made with Ontario Hydro at the time and Five Nations Energy Inc. to do the payments over 10 years. Often, in these situations, you look at the costs associated for these communities that were, like many still are, 100 per cent reliant on diesel for their energy needs, those costs on a yearly basis, compared to the cost of extending the grid to those communities over time. It just made a lot of sense.
Again, it's not the long-term financing, as you would see off reserve for 25 years or more for infrastructure. I think the idea there, in the long term, is that, as Andrew mentioned, you have the issuance of bonds. That's what municipalities do, and now First Nations are getting into that market. There are some tools out there. I know that the committee has heard about public-private partnerships. They're not the panacea. They are a tool, but, at that point, in the design-build-finance-maintain-and-operate public-private partnership, you do have the financing involved. Therefore, in that agreement, you can have the costs of that infrastructure over 25 or 30 years.
So there are those communities, but, up until now, the ones that we've participated in for letters of comfort have been over three or five years. I think the longest was the energy project in Ontario for 10 years.
The Chair: Just before Senator Dyck, a follow-up, if I may, on that letter of comfort: How does it compare to a Ministerial Loan Guarantee, which is used for housing?
Mr. Carisse: The Ministerial Loan Guarantee is basically a backstop, so what Brian was talking about, the $2.2 billion, is a contingent liability. That is the maximum we could go to. The department has issued $1.8 million of Ministerial Loan Guarantees, but it's not actual funding that's provided to the communities for their housing needs. It's a guarantee that, should there be default, the department would be there to cover the cost. There are mechanisms toward going to the community first and then eventually the department. But it's a guarantee, whereas the letter of comfort is actually assurance that the department will be providing the funding for that infrastructure project in question.
The Chair: Is that option well known amongst First Nations?
Mr. Carisse: I'm not sure how well known it is. I'm sure some have heard about it, but it's not every community that can actually cover those carrying charges, and they have to have a certain relationship with the financial institution so that the institution is comfortable working with the community. But, again, it's all pinned on that letter of comfort. The other problem we face at the department is that — and it was mentioned earlier — out of the A-base funding for infrastructure, the bulk of that A-base is already spent, on a yearly basis, just to provide the operations and maintenance, minor capital and housing to communities. There's very little left for major capital, so you wouldn't be able to lock in all that major capital. We still need to have some flexibility in case of emergencies or if some health and safety issues come up to deal with infrastructure in a community.
Mr. Beynon: If I may just add to that, I think your initial question was whether this an avenue that can be explored more. Is there something the committee can consider in terms of how we would do that better? I guess what I would say is that, on these letters of comfort, the department is taking a risk. Therefore, we're only able to deal with this on a small scale, where, in a sense, we know that if something were to go wrong, we may be able to adjust within dollars available in the department in other areas to cover off that risk.
To really respond to the needs of First Nation communities, a stronger approach, for example a multi-year approach, to the funding base would be required, a change from where we are. So I think we've been creative, but it's naturally within limits.
The Chair: On this point, Senator Raine?
Senator Raine: I think it might have a bearing on it. We've heard of what are called "Indian monies,'' which are capital and revenue from the sale of lands, non-renewable or renewable resources, which are held by the Crown on behalf of First Nations. Where does that pot of money sit in the big pile of government money? Is it identified? Is that a resource, a pool of money, that could be used to guarantee some of these things? Maybe Mr. Pagan could explain how that works. Where does that money go, and who does it belong to?
Mr. Beynon: Let me offer this quickly: There's a split, of course. Some of the Indian monies under the Indian Act are individual monies, so, in the legislation, it refers to mentally incompetent individuals or children, and individual accounts. Putting that aside, some of the dollars that are Indian monies are First Nation dollars of their own, as you say, from surrender of lands and so on. Technically, those dollars are in the Consolidated Revenue Fund held by Canada. The Indian Act has provisions that specify under what terms First Nations are able to get access to those funds. It's an interesting area potentially for this committee to consider because, like so many aspects of the Indian Act, much of the language is very paternalistic. There are restricted circumstances and rules under which the minister may decide to permit a First Nation community to have access to those Indian monies in order to use them for various purposes, and it's set out mostly in section 64 of the Indian Act.
Indeed, as you suggest, senator, Indian monies is a growing area. Fortunately, some communities have been able to derive significant revenues. If that area were reformed, potentially those dollars could serve to contribute to driving some infrastructure investments and economic development.
Senator Dyck: I wanted to go back to this concept of a letter of comfort. According to the information you've given us today, under the Ministerial Loan Guarantee, this is approximately $2.2 billion, but it looks as though there is very little uptake and that the uptake is to be used for building houses. Do you think it's possible that that fund could somehow be opened up so that it could be available for infrastructure projects?
Mr. Carisse: The $2.2 billion is not like the Market Housing Fund, where $300 million was set aside to do the backstop for market housing on reserve. That generates some revenue on a yearly basis that the Market Housing Fund is using for capacity development. The $2.2 billion is a contingent liability. It's not an actual number; it's not money that has been set aside. The department can issue Ministerial Loan Guarantees for housing to a limit of $2.2 billion. We're at $1.81 billion of that, so we're getting close to that upper limit. That being said, housing recently has been quite steady in regard to some of the earlier loans under the Ministerial Loan Guarantees that are coming to term, so 25 years. On a yearly basis, some come to term. Others come up. There are new opportunities for housing, such as the Market Housing Fund, so it has been quite steady. There was a bump a few years ago. It was a positive bump, but because of the economic action plan, an additional $400 million was provided for housing. Much of that $400 million to do the housing on reserve needed to access Ministerial Loan Guarantees, so there was a bump at that time, but we're pretty steady at this point. But it's not a fund for which we can actually go and get any type of access to any type of financing. It's just a backstop or a guarantee from the department, and, up until now, we're at $1.8 billion.
Senator Dyck: Okay. In terms of infrastructure, then, is there any way there can be a guarantee for individual First Nations? Could there be a similar loan guarantee initiative set up for infrastructure?
Mr. Carisse: It could be an opportunity. At this point, the Ministerial Loan Guarantee has been exclusive to housing. We would have to look at the amount that you would have to put as a contingent liability on the Government of Canada because the infrastructure, obviously, is much more than the housing. As to the needs, if I just look at water, for instance, further to recommendations from the committee report from a few years ago, we did a national assessment of all the water and waste water in First Nation communities. What came out of that assessment is a need of about $1.2 billion now to address just the standards that are here, and for growth, another $3.5 billion; so just for water over the next 10 years, based on that study, which is class D estimates, you're still looking at multi-billion dollars just for water.
The government would have to look at that and to create another contingent liability on the Crown for upwards of quite a few billion dollars to do infrastructure in the same way we're doing Ministerial Loan Guarantees. The issue with the guarantee is to help communities with their housing needs where the department, at this point for water and for schools, as you know for schools we'll provide 100 per cent of the infrastructure, a hundred per cent of the operations and maintenance. For water it's 100 per cent of the infrastructure, 80 per cent of the operations and maintenance; so there's a delta that is missing there that communities are required to get either from charging utility fees or from own-source revenue, whereas for housing it's just a contribution to the community.
There's a larger piece there of need, so they have absolutely a need to go and work with financial institutions, with CMHC to get those loans for housing. They need someone to back those loans in regard to how it is with the Indian Act, and under section 89 where you cannot seize the assets; so somebody has to back those loans, and right now, if they're not in the First Nations Market Housing Fund, it's the minister doing it through MLGs. It's just for that purpose MLGs were created.
Mr. Pagan: I want to be clear here: The Ministerial Loan Guarantee program that was created in the 1960s, as Mr. Carisse said, was a backstop. It is a maximum amount against which the government can issue loans or will guarantee issued loans, and I understand that over that 50-year period some $2.5 billion in loans has been advanced, and there has been a very low default of $15.5 million over that 50-year period.
But loan guarantees are simply one aspect of infrastructure. I think the committee is referring to specific initiatives. There has been discussion of waste water and drinking water, and there have been, over the years, a number of dedicated programs to infrastructure components. In Budget 2012 the government announced a $100 million for drinking water and specific funds devoted for that.
Just recently, in November 2014, some $5.2 billion in infrastructure was announced for a variety of needs across the country, including for Aboriginal Affairs and Northern Development, and that as I recall was about $500 million for on-reserve schools over I believe a seven-year period.
The department will work with Treasury Board and the Department of Finance to identify needs, and they will put forward their business case or their plan as to how discretionary funding from the government can be used. The Department of Finance will take that, and all the other requests from various departments, and they will identify those initiatives that can be funded. And there can be specific dedicated programs, be it schools, water, other aspects of community infrastructure. I would invite the committee to explore some of those past programs and some of the activities and maybe some other departments that are the beneficiaries of long-term commitments from the government to support infrastructure needs.
Senator Dyck: One other question to follow up on the Indian monies. According to information that we got from Mr. Crate from the National Aboriginal Economic Development Board, he said that each year about $250 million is collected under the Indian Act Indian monies provisions. My first question is where does that money come from? Is that from own-source revenues? Is there a tax on own-source revenues? Where does the money come from, the $250 million per year?
Mr. Beynon: Again, part of the dollars are individual monies, and the other part, the more sizable part, is First Nations communities as a whole. As the other senator indicated, some part of the monies come from sale of surrendered lands. A few First Nations have reasons why they may want to take a parcel of land and sell it off, and then adjust their land base. Well, the revenue derived from that, often from utilities or provincial governments, would be Indian monies and would go into the Consolidated Revenue Fund. The other major area is revenue monies. So, for example, the sale of timber resources, some limited mining activity. That's what can generate the dollars off of a reserve land base that go into the Indian monies account.
Senator Dyck: You were saying that that money goes into the Consolidated Revenue Fund and there are restrictions in the Indian Act that dictate how that money can be accessed. Let's say I'm from a First Nation that sold some lumber. That money goes into the Consolidated Revenue Fund, but then I can't access it to use for infrastructure. How would I get to it if I need it? It seems like you've generated money, but then it's locked up and you can't use it.
Mr. Beynon: I think we could get back to the committee with some more detailed examples because they are fairly complex rules in the Indian Act. But generally speaking, I would say there are a few mechanisms under which First Nations can escape the constraints of the Indian Act Indian monies provisions. For example, First Nations who opt into the First Nations Land Management Act regime, that switch provides much greater access to revenue monies, the ones that are generated, for example, from timber resources, without having to go through the Indian Act restrictions.
There is also a First Nations Oil and Gas and Moneys Management Act, sometimes called FNOGMMA. At least one First Nation in Saskatchewan has opted into that direct control and authority over any monies. But for those who don't, the current Indian Act provisions, largely in section 64 of the Indian Act, specify the conditions under which the minister is authorized to allow those funds out. In many cases, First Nations do make those applications and have funds that go out into trust.
I'm just offering to the committee members that I agree with the National Aboriginal Economic Development Board; this is one of those old areas of the Indian Act that could benefit from reform.
Senator Dyck: A final question with regard to that: Some of the information we had says there's about $800 million sitting in that fund. I would suspect the amount higher, if it's $250 million per year, but the question really is, could that be used as a loan guarantee, because it's money that right now seems as though it's pretty much tied up. Let's say I'm the First Nation who sold the timber, and I have got so many dollars in this revenue fund; couldn't I use that as a guarantee that I would pay it back as collateral?
Mr. Beynon: Yes, many First Nations are using the assets generated from their reserve lands precisely for that purpose. I guess what I would offer is that I agree with the National Aboriginal Economic Development Board; the Indian Act provisions don't make it easy for First Nations to use their own revenues — it's based on their decisions with respect to leases and so on — as effectively as one would like.
Senator Beyak: Thank you, gentlemen, for your expertise and your knowledge on this issue; it has been very helpful to us today. The question that I hear most in my constituency is, do we know the actual number of First Nations people across Canada, and how much money they receive in taxpayer dollars from all levels of government, all sources, all revenues, natural resources, casinos, land deals, and are we underfunding them?
You mentioned media reports; sometimes there are misconceptions, we're underfunding or mismanaging the money, it isn't going to the people. Has a study been undertaken to see if it is mismanagement or underfunding and why there is the disparity you mentioned in your presentations between some reserves that are so prosperous and some who live still in squalor to this day? Would such a study be helpful, if one has not been done?
Mr. Beynon: I would offer the general comment that there have been a lot of improvements to financial management over time, and I think senators are aware of some of the changes to legislation that provide for greater accountability.
For those who are interested in those questions, there are more and more opportunities to get at the sources of funding and how they are used. I would offer that many of the most successful First Nation communities are well ahead of legislative requirements and choose to be accountable to their membership and to be transparent in their business practices because it's just good for raising revenues.
I'm not sure that a study of the sources of revenue and how they're managed would be the driver, but perhaps what I would offer is that it is useful, as I think we were doing today, to look at some of the examples of major success stories and then drive at the ingredients that contributed to that.
As we've said, and as committee members know, the circumstances of First Nations communities across the country vary considerably. In many cases, communities are able to use the reserve land base as the foundation for economic success, so investments in that reserve land base can be critical. In some cases, the investments in capacity building and providing the tools to move beyond the Indian Act have been critical ingredients.
When resolving land claims issues and addressing specific claims, it's interesting; when you look at the combination of these factors, that's what has allowed some communities to move significantly forward over the past number of years. Quite frankly, that has combined with their own leadership and the drive of community members, but if those ingredients are provided, I think that makes a huge difference.
Mr. Pagan: Senator, I would just add to your question. I don't have access to numbers for provincial spending or on-reserve activity through casinos, et cetera, but if you add up all of the spending at the federal level in the Main Estimates year over year, it has been relatively constant over the last four or five years.
In this year's Main Estimates, the total spending for Aboriginal issues is $10.9 billion. That compares to $10.8 billion last year, and this will be updated over the course of the year through supplementary estimates. I mentioned the infrastructure component, so we know that there's some $500 million for on-reserve schooling to be presented in future supplementary estimates this year.
Senator Beyak: Thank you very much.
The Chair: Senator Raine, did you have a supplementary question?
Senator Raine: I'll go on second round.
Senator Enverga: Thank you for the presentation, gentlemen.
This is a question for AANDC. According to the 2013 fall report, the Auditor General of Canada stated that according to department officials, the capital program is underfunded to meet its needs, and reallocation results in delays or cancellation of community infrastructure projects.
What has AANDC done to address this concern? Are we funded now? Are we underfunded? What else can we do?
Mr. Carisse: Just like the situation off reserve — Andrew was talking about the Federation of Canadian Municipalities — they come up with numbers to address the need for infrastructure. I think it's up to $175 billion now. It's an on- and off-reserve issue now and not just in Canada. In industrialized countries, there were a lot of investments after the Second Word War leading up to the 1950s and 1960s. Then there were social programs, and the infrastructure that was in place wasn't as maintained as it should have been.
On reserve there is the maintenance issue or the lack thereof in certain communities. As I mentioned earlier with water and waste water, just using that example, there is a great need. The $1.1 billion or so per year does not meet all the needs for infrastructure on reserve, which is why we're looking into other opportunities and working with economic development and the financial management board with Mr. Calla and others that are trying to raise bonds for commercial infrastructure but also public infrastructure.
We are exploring public-private partnerships. We're looking at different ways. The letters of comfort are just one way to try to spread those costs over the years to look at the financing. We're doing a big project with the Atlantic Policy Congress, a representative organization for the communities in the Atlantic. They would like to create a water utility, a water authority for the 33 communities there. They actually have 24 communities that have signed band council resolutions to take part in this initiative, which would mean that the water authority would control the water and waste water infrastructure in all of those 24 communities.
If you establish a water authority that's recognizable, credible and stable, you have great opportunity, just like if you're Halifax Water or any other utility, to get to the market and see if industry would be interested in getting into a public-private partnership. This is not being led by the department, which is nice. Now the governance and the direction to explore this are coming from the chiefs through the Atlantic Policy Congress.
I think the average population of most communities in Canada is about 500 people, so 500 people in a community to do what federal, provincial and municipal levels would do with governance, and then for infrastructure to have a band manager, a certified water treatment operator and a housing manager becomes difficult. So the opportunity we have is to look at aggregations, and this is what the Atlantic Policy Congress is realizing.
Just the fact of aggregating a utility has a lot of benefit for efficiency and effectiveness of delivering water and waste water services in these communities. They will have an opportunity as well to try to get financing through a mechanism of a public-private partnership. Will it be successful? We don't know. We have to go through the motions. We're probably still another couple of years away. We are at procurement for a P3. At that point, we'll determine if there is actually value for money by working with our colleagues from P3 Canada. We'll work with the chiefs and we'll see at that point.
If it won't work, we'll look at a plan B and see what we can do that's a little bit less. But if it does work, it would be interesting for those 24 and hopefully 33 communities. For the next 25 to 30 years, their water and waste water needs will be taken care of in those communities.
The risks and liability would go from the department, which is currently with chief and council and those operators, to third-party service providers. The chiefs at that point would be able to concentrate on education, social issues or economic development, but at least it would take care of that big part of their job, which is extremely important when we think about it with regard to health and safety. The number one job of any state is to provide good, clean drinking water to their membership and to their citizens. Then it derives from there.
Senator Enverga: With our recommendations that you followed, have you ever requested more funding from the government or something like that? Or are you doing it on your own terms?
Mr. Carisse: No, we always obviously look for more funding. There's a need there.
We have been very fortunate, I have to say, over the past several years, going back, as Mr. Pagan mentioned, to the First Nations Water and Wastewater Action Plan. It has been renewed three times now at $330 million over two years. We've had the economic action plan for housing at $400 million. We've had the gas tax and the Municipal Rural Infrastructure Fund that First Nations also have a portion of, which is now the Building Canada Fund.
For schools, $175 million over three years was allocated in Budget 2012. In Budget 2014, it's $500 million over the next seven years. What's really interesting there is that we are actually starting to look at long-term funding. It used to be more on a two- or three-year basis, usually two. For the first time now, it's $500 million over seven years, so we can start being a little more innovative in how we can actually finance infrastructure.
Can you get a 25-year financing scheme? No, we have it for seven years, but there are still opportunities. Is more needed? Sure. As mentioned, it's the same with off reserve; there is always going to be a gap, but every little bit helps. How can we stretch it? Every time new funding comes to the department for First Nations, how can we stretch that funding a little bit more? If we can tie it into other projects that are going into the community, such as economic development, that's even better.
Senator Enverga: How far are we from the gap now? Are we getting any closer?
I understand that AANDC mentioned there is a five-year plan for infrastructure funding. How close are we? Can you provide at least the status of that? Are we getting any closer to the funding, or how far are we from completion?
Mr. Carisse: That's the big problem with infrastructure. You're never out of it, unfortunately. Andrew talked about potholes earlier. Just like in a municipality or city, investments in infrastructure will always be needed.
The opportunity or the goal is to try to do those wise investments to ensure that the infrastructure lasts its serviceable or expected life cycle, and on reserve more than off reserve we're seeing infrastructure rusting out a bit quicker. There are some issues, and we're trying to address those to make sure that there's proper O&M and proper maintenance.
Going back to what I mentioned earlier with a small community trying to take care of the entire infrastructure, if you can aggregate a bit more, I think you'll get a better life cycle for that infrastructure, be it water, waste water, schools or even the housing. There are opportunities to do that.
I think we are chipping at it, definitely, with the A-base as well as these bump ups from budget. Five hundred million dollars will put a lot of new schools in a lot of new communities, which is great news. Will it cover the whole list of schools that are needed? No. But it's going to take a great amount of those schools off that list, which is good.
Senator Enverga: I know that AANDC officials told the committee they were working with regional officials and First Nations organizations to try to better plan for a longer period.
This is a question you can answer or the perhaps Treasury Board here. What restraints are imposed by the Treasury Board Secretariat? Is there a hindrance on those terms?
Mr. Carisse: Nowadays, when you're talking about infrastructure, you should be looking at 50 years when you're doing proper planning at least because infrastructure you put in the ground you're hoping will last that long for pipes, et cetera, especially with the materials you can have now, but it's difficult to do planning further right now for us.
What is the budget we know we are going to be receiving within the next year and the following year with our A- base funding and some of the budgets? We're trying to get to a point where working with communities, our First Nations Infrastructure Investment Plan will reflect not only the budget but also the need that's out there and will try to project that at least over a 10-year period so that when opportunities or budget discussions come up we'll have a better idea of what the need is out there.
For us at the department, we could not run an infrastructure program. We provide funding for infrastructure and communities. But a community is like a municipality or a city, so that program should be run from the community. They should be given the capacity to run a true capital program within the community itself and see what is the need to the community, their planning, if they aggregate. That's the importance of doing those long-term plans, the physical development plans for the community both on infrastructure and on economic development. For us it's to try to meet as much as we can, based on our social policy of providing funding towards infrastructure, that gap and to provide some tools. We are starting to address that with the bond that Andrew was talking about and with those institutions looking at possibly P3s or other opportunities, but it's those communities also that are ripe to be doing things a little bit differently, to stretch, and they have the capacity to provide those tools to those communities.
Senator Enverga: My question is exactly are there constraints imposed by the Treasury Board so you can do your job there?
Mr. Carisse: The constraint we face right now towards funding agreements is that we've been dealing more with communities with yearly funding agreements. We have been doing more multi-year funding agreements. If we want to get into a long-term financing opportunity, we'd have to be looking at 25 years. We have yet to do that. I'm not saying they're constraints, but we'll have to work around that and find the authority and try to secure the authorities to do that.
Mr. Pagan: I would be happy to speak to that.
I think it's fair to say, generally speaking, that there are three types of constraints that exist for any public program and service. In no particular order, there are a parliamentary constraint, a funding constraint and then your program constraint. On the parliamentary side, as I said in my overview, we work within a construct. The rules are set by Parliament in terms of voted and statutory programs. For those voted programs we're on an annual appropriations cycle.
For the funding, as we discussed, there are different tools and mechanisms. There are guarantees. We have had the loan guarantees since 1966. There are flagship programs, the First Nations Water and Wastewater Action Plan, the recent infrastructure announcement where the government will make a commitment to a specific need over a longer horizon. In the case of on-reserve schools it's $500 million over seven years. Then there are the actual details of the specific program. So for every single program that comes to Treasury Board ministers for approval, regardless of the department or agency where it's coming from, we will go through and work closely with the department in question to look at the terms and conditions of that program. In that way, we can satisfy ourselves and Treasury Board ministers, parliamentarians and the Auditor General that the structure of that program is sound, that we have thought through where points of service will be, how money will be allocated and accounted for, how staff will be hired and how the contracting process will be tendered and whether it's an open competitive process or whether there's only a certain supplier that can do it.
Each and every program will obviously have different parameters and considerations, but we will go through a program proposal and approve certain terms and conditions for that program, and that becomes the governing conditions of the program that the department will in turn operate under to deliver the program or service or otherwise allocate the funds.
I think it would be helpful if the committee would keep in mind those three broad types of constraints that exist for all departments and agencies and for all programs.
Senator Enverga: Is there a dialogue now ongoing between your two organizations?
Mr. Pagan: Absolutely. We work within the secretariat on the basis of portfolios. We have a portfolio where Aboriginal Affairs and Northern Development Canada is a very major player of our social affairs portfolio. They bring forward numerous program proposals over the course of the year. We have a proactive dialogue with them to order that business to try to aggregate some of their programs so that instead of presenting ministers with a one-off, with an individual transaction, we might present them with a suite of programs that present a fuller picture of what the department is trying to do, whether it's economic development or social programming or infrastructure.
It's an iterative process for each program brought forward and hopefully approved by ministers and presented to Parliament. We will learn from that experience by the nature of questions that parliamentarians ask us and by the nature of questions from the Treasury Board. We will feed that back to the department so it is taken into consideration when planning their next program.
If, for instance, there was a particular interest in working with third parties or exploring public-private partnerships or contracting, we would make sure that those interests and concerns were part of the thinking of that next program proposal. It's an ongoing process to make sure we're continuing to listen to what we hear from stakeholders and ministers and make sure the department is reflecting that in their programming proposals.
Senator Tannas: This has been very helpful. I appreciate it. My question is for Mr. Pagan and it goes to the contingent liability on Ministerial Loan Guarantees.
You mentioned that that contingent liability gets disclosed in an appendix somewhere in the reports and that's all part of good governance. Who would be looking at that? Would it be rating agencies and so on that would be looking at contingent liabilities of the government and assessing it? Are there any kind of statutory triggers where if all of a sudden we had too many contingent liabilities through, say, Ministerial Loan Guarantees, something would be stopped? Is there any kind of mechanism at all?
Mr. Pagan: The public accounts, as you may know, are presented in three volumes at the conclusion of the fiscal year. They're signed off by the Minister of Finance and the President of Treasury Board. They're actually audited. Our financial statements are audited by the Auditor General, and that becomes the basis upon which credit rating agencies, for instance, would look at the health of the government's finances and make conclusions about the sustainability of our finances.
It's a very important process and very important for the government to get a clean audit from the Auditor General. We're going back many years now. I don't have the exact number, but it's over a dozen years where there's been unqualified support by the Auditor General's office of the financial statements of the Government of Canada.
If there were to be an issue with contingent liabilities, if we were somehow understating or misrepresenting our potential liabilities, this is something that the Auditor General would certainly flag because it potentially undermines the financial sustainability of the government.
If there was a potential liability out there that we were not accurately reflecting, they would take us to task for that. We would have a dialogue, because these are matters of opinion when we're looking at financial statements, and if they ask questions and we're able to satisfy them, we have an unqualified situation. If they challenge something and we are not prepared to address that, then they would have the option of qualifying or — I'm not sure what would be worse than that — otherwise drawing attention to the fact that they have concerns about the financial statements of the government.
Just as we have very active dialogues with departments in terms of structuring their program terms and conditions and readying those for approval, we also have a very active dialogue with the Auditor General throughout the year, and then at the conclusion of the fiscal year we go through a very intensive process where we open up all our accounts and they go through these in great detail. They will ask probing questions and ask us to consider or not to consider inclusion of this or that in the financial statements. We work with them to address their concerns and to make sure that we get that unqualified opinion.
I see a bit of a question there.
Senator Tannas: Yes or no. It's a long one, I know. I want to understand. So as long as the contingent liability is stated properly, and we would all agree that would be the case — I'm sure that the $1.8 billion contingent liability that rests around housing right now, around the Ministerial Loan Guarantee, is properly accounted for. Let's assume that if there were another program that had a Ministerial Loan Guarantee it would be properly accounted for.
Is there anything anywhere — if it got too much, if the minister went crazy one day and approved $10 billion of loan guarantees — in the statutes that would trigger any kind of action that could potentially hinder the annual spending programs of the government?
Mr. Pagan: Yes, there are controls, quite simply. Any expenditure by the government is subject to some form of internal control, and in the case of these loan guarantees, it is capped. There is a legislative ceiling of $2.2 billion, and so there will be controls in the department such that they are not able to exceed that ceiling. These are both manual and automated systems that make sure, whether we're looking at a statutory or a voted appropriation, that the explicit authorities provided by Parliament are controls within the department.
Senator Tannas: Okay. Thank you.
Mr. Beynon: If I could just add to that as well, I think that it's an intriguing question. The absolute limits on these kinds of exposures to risk are carefully monitored in the department and by our friends at Treasury Board. But also within a program like Ministerial Loan Guarantees, even if we're within the cap, we're watching year to year the changes in this. If we see a spike, we're going to have to carefully manage that internally and respond to our colleagues at Treasury Board as to why there is a greater expenditure.
The Chair: We've heard about the ACRS reporting system, which provides us information about the condition of assets, cost estimates for repair and reconstruction needs and estimate of the remaining life of the assets. The committee heard some criticism about this system. We were told that the information is not accessible. For example, it should and could be made available to insurance companies so that they could know more accurately the condition of assets, and this could save significantly on premium costs.
We were told that the ACRS reporting doesn't seem to involve First Nations, that First Nations often don't know that the ACRS studies are going on, and that the reports are not consistently provided to First Nations communities, nor are they made public. Could that be addressed? You may be aware of those criticisms that were put before the committee.
Mr. Carisse: Not to that extent. The ACRS is not necessarily just a system. The automated system we have is called the Integrated Capital Management System. All the information goes in there. Under ACRS you have inspectors going out doing asset condition reports, and they're usually hired through tribal councils. I think there's one region where it's run from the regional office, but usually it is a tribal council, and they send those to the communities.
I'll definitely look into that. For any recipient of funding agreements in a department, there is a recipient reporting guide, so every community has to fill in certain reports. For the capital program, at one point we had about 12 national reports and 80 regional ones. There was a directive from Treasury Board to reduce the reporting burden on First Nations communities. Only five reports now are being asked for in the recipient reporting guide, but one of those reports coming directly from a community is the ACRS report.
The actual inspector comes from a tribal council or another group, but the community is submitting that report. It's a point we'll take, and anything that can help out insurance, definitely. We have had many discussions over the years with fire underwriters, and as you probably know, for any insurance company in regard to premiums, what they don't know they will charge more for, right? A lot of communities are not assessed with underwriters. Therefore, for any type of insurance premium, it's really high. It's better to get a poor score on an assessment. At least the insurance industry knows what kind of premiums they would give, but we have been working with the Aboriginal Firefighters Association of Canada and others on that to try to really improve insurance.
Infrastructure and everything intertwines. So if you're going to try to promote market housing, it's difficult to try to do market housing if you can't get insurance for that house.
Thank you very much, senator; I will take that back and will look into it for you.
Senator Raine: Actually, just a follow-up on the last one. I have a document here that was presented June 30, 2011. It sort of summarizes how the ACRS report could really assist in insurance.
However, my question is to Mr. Pagan. We have heard many times about the cap on spending in Aboriginal Affairs at 2 per cent, which was initiated in an attempt to assist with the deficits back in the early 1990s, and that cap is still on.
I would like to know what the normal procedure is in doing your budgeting planning. I believe most budgets have an escalator built into them on an annual basis based on inflation. There's an adjustment based on a kind of reality as to how many people the program is serving and things like that.
I fail to understand how a cap can be put in place for one reason and continue today when circumstances are completely different. It appears to me to be very punitive. I would love for you to talk about that if you don't mind, but maybe it's not the appropriate time. I think this has an impact, because you're then looking at having to fund operation and maintenance out of a pot that was designed originally to have as well some infrastructure capital.
Mr. Pagan: Senator, that's a very interesting question. I'm not quite sure where to begin.
The budgeting process is a dynamic process. I've explained to you my portion of it, the expenditure management system and the presentation of estimates documents to Parliament. That's a very important part, but still just a part of the overall budgeting process run out of the Department of Finance.
It's a dynamic process because, as you know, there are innumerable needs out there and important programs and services; and the availability of funding is subject to certain economic and fiscal constraints. I'm not familiar with when the cap that you refer to was introduced, but I'm certainly aware of instances in the past when there have been concerted efforts on the part of the government to contain or otherwise limit growth and spending to make it sustainable. It becomes sort of a constant in the budgeting process to make the spending sustainable.
Departments are generally provided with A-base or ongoing programming. This can be both voted and statutory. The government will approve a program for social housing or infrastructure or whatever. It's intended to be ongoing so that programming will continue into the foreseeable future.
Now, with each and every commitment, there can be escalators or not, depending on the situation. In fact, the reality is that most of our discretionary spending or voted spending is not subject to escalators. Most departments are expected to absorb ongoing costs of inflation or program delivery from their A-base and to find efficiencies. The fact that there may be an escalator for Aboriginal Affairs is in itself a bit of an anomaly. I can't speak to the level or the 2 per cent, but the fact that there is an escalator is a bit of an anomaly.
Within that construct, we go in peaks and valleys. In the depths of the global recession in 2008-09, there was a significant commitment on the part of the government to inject spending into the system to provide stimulus. I believe that Aboriginal Affairs was the beneficiary of that because they received funding for infrastructure and for a waste water action plan, et cetera. We worked through that cycle, and it became time to bring public finances onto a more stable footing. We've seen renewed emphasis on cost containment and restraint, most recently with the introduction of an operating budget freeze. There won't be an automatic increase to a department's operating budget to account for salary increases, for instance, that might be negotiated through a collective bargaining process.
That's the general dynamic. The commitments and the programs approved by government are presented to Parliament in the estimates. That's a structured process. The budget process is a bit more dynamic. This year we're seeing a bit of a delay to the budget as Finance accounts for this disruption in the energy sector. When that budget comes forward, I expect that as usual there will be plans and commitments to new programming. We'll take account of whatever those are. We'll work with the department to approve any funding provided for in the budget, and we'll present that back to Parliament in future estimates documents.
That's the dynamic and the way in which a department can address its needs: identify its priorities and work with the Department of Finance to see funding provided in this or future budgets.
Senator Dyck: Actually, that was a very important question raised by Senator Raine. It relates somewhat to the question that Senator Beyak posed. If people listened to what Senator Beyak said, they may think she was trying to say that individual First Nations were mismanaging their money. In fact, the reality is that there is not enough money there.
The department's report in June 2011, Cost Drivers and Pressures — The Case for New Escalators, recommends that you provide new capital funding for infrastructure; stop reallocating money; and apply new escalators of 3 per cent.
Has new capital funding been obtained? Will you stop reallocation? Have you made a bid to get a new escalator at 3 per cent? Those are directed to Mr. Carisse.
Mr. Carisse: We've been fortunate with recent budgets for additional funds. The A-base funding for the capital program is just shy of $800 million. Over the last five or six years, the average has been over $1.1 billion — $300 million more per year has been allocated through the economic action plan for housing, for the First Nations Water and Wastewater Action Plan and for schools. So part of that has been addressed. The escalator has not changed. We're still at 2 per cent from the decision in the 1990s.
With regard to the reallocation, the issue that the department is facing is that on the whole, the A-base gets 2 per cent. Certain programming within the department matches provincial programming with regard to education and social, which have to be met; so the department has to manage from within. Those are the situations that we face there, unfortunately. We're trying to do the best we can with the funds that remain within capital — hence, the importance of trying to find new tools and areas where we can promote better financing and maintenance of the infrastructure.
Senator Dyck: To follow up on that, Mr. Serson spoke to the committee about this problem of underfunding. All departments had a 2 per cent cap applied in 1996. Aboriginal Affairs still has this cap applied, but when it was taken off other departments, a top-up was provided to equalize, sort of, what had been lost. Has Aboriginal Affairs ever taken into consideration applying for a top-up for the debt you've accumulated since 1996? That's almost 20 years.
Mr. Beynon: Senators, we're raising issues that are far beyond the infrastructure funding. It's the overall department's level of funding, as Mr. Carisse has said, for social programs and so on. We're always trying to raise the opportunities for the best investments and to manage our programs as efficiently as possible. I don't think we are in the best position to say to the committee what the right level of funding for infrastructure or social programs or economic development would be. It's a bigger issue that's better in the hands of parliamentarians than officials.
Senator Dyck: It may be beyond infrastructure, but it's all tied together. If you have an amount of money that goes to the department and there's not enough money, then what is the department going to do? In the past you have taken money from infrastructure and reallocated it to education and to child welfare for social programs. It's a problem that's not going to go away until more money is made available to fund all the programs that need to be funded.
For the department, how do you make that case? What can you do to increase the budget, which is passed on to individual First Nations, so they're not in this constant state of debt?
Mr. Beynon: The quick answer is that the right role for us as public servants is to try to make the programs as strong as we can, to make them investment worthy, and to make the case for why the investments would be successful. Then, it's up to parliamentarians and others to decide whether we have the conditions right to do that.
The Chair: I'd like to thank the witnesses. This has been an informative session. I would like to thank all the committee participants. If you wish to speak to the witnesses, maybe you could go to the anteroom because this room is required for another purpose shortly.
(The committee adjourned.)