Building a New Fiscal Relationship with First Nations: The 10-Year Grant Presentation by Paul Thoppil to AFOA Canada, October 4, 2018
Purpose Context and the journey so far Shared understanding, shared vision Priority commitments to First Nations in 2018-19 Ongoing Co-development Agenda Risk Management Considerations 2
Context: Leadership on the Fiscal Relationship With First Nations November 2015 - Ministerial Mandate Letter: Work with the Minister of Finance to establish a new fiscal relationship that lifts the 2% cap on annual funding increases and moves towards sufficient, predictable and sustained funding for First Nations communities. July 2017 - Statement of Principles: The Government of Canada recognizes that reconciliation and self-government require a renewed fiscal relationship, developed in collaboration with Indigenous nations. August 2017: Announcement of new departments of Crown-Indigenous Relations and Northern Affairs Canada (CIRNAC), Indigenous Services Canada (ISC) October 2017 - CIRNAC and ISC Ministerial Mandate Letters: CIRNA: Deepen work with the Minister of Finance to establish a new fiscal relationship with Indigenous Peoples that moves towards sufficient, predictable, and sustained funding for communities. ISC: Oversee provision of existing services to Indigenous Peoples, and particularly First Nations under the Indian Act improve accountability to Indigenous Peoples for the quality of services delivered develop governance models that bring control and jurisdiction back to Indigenous communities. January 2018: New Fiscal Relationship for First Nations under the Indian Act part of ISC vision 3
CIRNAC & ISC Fiscal Processes: Different Partners, Different Circumstances, Same Objective Collaborative Fiscal Policy Government to Government Dialogue Support assumption of jurisdiction Other Revenue Sources Own Source Revenue Policy Shared interests Sufficiency and Comparability Closing socioeconomic gaps Indicators to measure outcomes Service Population Remoteness New Fiscal Relationship Capacity and Institution Building Predictable and Flexible Transfer Payments Mutual accountability Revenue Generation Capacity (Phase 2) Work underway through different processes with Métis & Inuit 4
The current fiscal relationship is not working Shared understanding of challenges: Sufficiency of funding focus on fairness and closing socio-economic gaps Predictability and flexibility of funding support planning based on First Nations priorities Reporting burden focus on program outputs, not community outcomes Default prevention need for collaborative, supportive tools for low-capacity First Nations Governance capacity programs reforms based on co-development Fiscal policy framework build a relationship based on transparency, evidence and collaboration Mutual accountability: First Nation citizens should be empowered to hold their leaders accountable, and the nation-to-nation relationship should support collaboration on improving outcomes The Colonial approach needs to change 5
The New Fiscal Relationship journey so far July 2016 Memorandum of Understanding with the Assembly of First Nations 2016-17 Co-development activities including: Technical working groups - sufficiency, predictability, and mutual accountability Main partner: Assembly of First Nations Other Indigenous partners: First Nations-led institutions, community leaders INAC/ISC/CIRNA employees across sectors and regions Other federal departments with Indigenous program, central agencies Fall 2017 Regional Engagement December 2017 Final Report under the MOU Recommendations accepted by AFN Chiefs-in-Assembly Ø Ministerial response sets priorities for implementation: 10 year grants for qualified First Nations Default prevention reform Advisory body to support ongoing co-development 6
Shared vision: Strengthening Self-determination Consistent with Principles Respecting the Government of Canada s Relationship with Indigenous Peoples Support for different paths to self-determination (Principle 5) Nisga a First Nations self-government Mi kmaq of Nova Scotia sectoral education agreement Miawpukek grant since 1986 BC First Nations Health Authority tripartite public authority We need a new model to achieve a new fiscal relationship 7
The Goal: A fiscal relationship with First Nations that supports transformation of Indigenous Services Current fiscal and program policies set by the Department Future transformed fiscal relationship led by First Nations Funding Sufficiency Short-term and targeted funding set by the Government of Canada Funding levels do not address needs and opportunities Inconsistent funding practices across the country F New fiscal policy model that includes global funding escalators Creation of a permanent advisory body Funding Flexibility Inflexible funding based on Government of Canada s priorities Funding streams not aligned with needs of communities Unpredictable funding limits long-term planning Enhanced funding predictability and flexibility, including access to 10-year grants Co-developed criteria for grants and other funding arrangements aligned with internationally recognized risk management framework Support for innovative service delivery models Results focused Accountability Program-based reporting Accountability is compliance-based and does not support closing socio-economic gaps based on community priorities Accountability relationship between First Nation governments and First nation citizens is not supported First Nations governments report to their citizens Mutual Accountability Framework based on UNSDGframed community outcomes Strong Governance Default prevention and management policy does not adequately support low-capacity First Nations Governance capacity programs and approaches designed with minimal input from First Nations Lack of coordination between federal approaches and First Nations-led institutions 8 8 Reformed default prevention policy, supported by capacity development Priorities articulated in community plans, supported by appropriate funding envelopes First Nations-led institutional support systems (financial, audit, statistics, and others) instead of the federal government 8 8
Priority commitments to First Nations in 2018-19 Continuing co-development, supported by an advisory body Temporary body established via Ministerial Appointments, 2 year mandate Mandate to co-develop options for a permanent advisory function, develop joint proposals for consideration by ISC Minister, National Chief of Assembly of First Nations Targets: Advisory body established by Fall 2018; 1 st tranche of joint proposals by April 2019; options for permanent advisory function by Fall 2019 Reforming the Default Prevention Management Policy Target: Implementation of new policy Providing 10-Year Grants based on mutual accountability Co-developed eligibility criteria, accountability provisions and risk management Target: 100+ eligible First Nations receiving 10-Year Grants by April 2019 9
Shared vision: A New Approach to Risk Management Through co-development discussions, ISC and First Nations representatives came to a consensus that First Nation governments should be primarily accountable to their own citizens based on First Nation priorities. ISC is proposing to move away from program delivery compliance-based approaches for First Nations that have demonstrated sound governance and financial management, and to focus resources on supporting First Nations in strengthening governance and financial management. Current program-compliance approaches have not been effective in eliminating risk and have been insufficient to improve service quality and socioeconomic outcomes. The proposed approach is consistent with international research literature on governance and socioeconomic outcomes, including by the World Bank, the Institute on Governance, the Harvard Project on American Indian Economic Development, and the Royal Commission on Aboriginal Peoples. Self-determination is a key determinant of Indigenous well-being outcomes. 10
The 10-Year Grant Ø The 10-Year Grant will enhance self-determination by providing greater predictability and flexibility of funding in a number of ways, including: Increased length of funding agreements Reduced administration (no permissions needed) as a result of greater flexibility to reallocate funding Elimination of compliance-based reporting for programs included in the Grant No recipient audits or compliance reviews initiated by the department for programs included in the Grant. Minimum set of results based indicators Ø Risk management for the 10-Year Grant focuses on measures that strengthen First Nations governance and empower First Nation citizens to hold their leaders accountable Co-developed eligibility criteria Reports to citizens Ongoing monitoring of eligibility Focus on strengthening governance capacity 11
Co-developed Eligibility Criteria and Accountability Ø Ø Access to the 10-Year Grant will be based on co-developed eligibility criteria derived from First Nations Financial Management Board (FMB) standards: Financial Administration Law (FAL) A financial administration law is a set of governance and financial practices that assist a First Nation government in making informed financial decisions To qualify for the 10-Year Grant, First Nations must have a financial administration law, passed under either the First Nations Fiscal Management Act or the Indian Act, that conforms to the standards used by the FMB. First Nations must also demonstrate that core provisions of their financial law are effectively supported by policies and procedures. Financial Performance (FP) A First Nation government s financial statements for the preceding 5-year period must meet certain financial performance standards. Measures to enhance accountability to First Nation citizens are codified in the Financial Administration Law: Annual audited financial statements Multiyear financial plan Annual progress report Finance and audit committee Policies on conduct, conflict of interest, reporting financial irregularities 12
Rationale for Approach to Eligibility Criteria Co-development to date on the new fiscal relationship has favoured policy proposals that are consistent with international research and best practices, and that are compatible with First Nations-led institutional approaches. FMB standards were designed to align with the Committee of Sponsoring Organizations of the Treadway Commission (COSO) s internationally recognized framework for risk management. These standards are currently used to determine eligibility for borrowing from capital markets via the First Nations Finance Authority. They are also being deployed as part of co-developed reforms to the Default Prevention and Management Policy. FMB standards provide internationally-recognized measures of risk management that empower First Nations to exercise their right to self-determination while instilling confidence that they are well-run, transparent and accountable. On this basis, ISC and AFN invited FMB to co-develop grant eligibility criteria built upon FMB s existing standards (FAL, FP). ISC is prepared to continue co-development of funding policies that are based on international standards and compatible with First Nations-led institutional approaches. 13
Looking ahead The Department of Indigenous Services was created with the explicit expectation that it should eventually be wound down and control over services transferred to self-determining Indigenous communities and Indigenous-led institutions. The New Fiscal Relationship with First Nations supports this long-term objective by strengthening self-determination, enhancing capacity and favouring First Nations-led approaches. Indigenous-led governance institutions such as AFOA Canada have a crucial role to play in supporting the emergence of a new fiscal relationship between Canada and Indigenous peoples. Co-development works but it requires patience and sustained commitment. 14
Next Steps: Delivering on co-developed priorities 10-Year Grant Respond to expressions of interest from First Nations Complete eligibility assessments in time to support implementation by April 2019 Next phase of co-development Fiscal policy framework, including escalators, service population definition, remote and northern considerations Expanding grants to include aggregation entities Reforming governance capacity programs Strengthening mutual accountability outcomes-based approaches, First Nations-led institutions These measures will advance reconciliation and self-determination for First Nations under the Indian Act by reinforcing the co-development relationship, by enhancing funding predictability and flexibility, and by improving governance capacity and accountability of First Nation governments. Paul Thoppil paul.thoppil@canada.ca 15
Annex Slides 16
Co-developed Eligibility Criteria for the 10-Year Grant Co-development partners: ISC, Assembly of First Nations (AFN), First Nations Financial Management Board (FMB) Financial Administration Law (FAL) A financial administration law is a set of governance and financial practices that assist a First Nation government in strengthening decision-making. The Sample FAL provided by FMB sets out basic requirements for contents of a FAL. First Nations would have the option of passing a FAL under the First Nations Fiscal Management Act or as a by-law (FAB) the Indian Act. Either way, the same criteria would apply. For additional information, visit https://fnfmb.com/en/services/certify-first-nations/financial-administration-law and consult the sample FAL. 17
Co-developed Eligibility Criteria (continued) Financial Performance (FP) A First Nation government s audited financial statements for the preceding 5-year period as at March 31, 2018 must meet certain financial performance standards, specifically: An average fiscal growth ratio of no lower than minus 5%; An average operating margin ratio of no lower than minus 5%; An average asset maintenance ratio of no lower than 100%; A weighted average net debt ratio of no more than 50% OR a current year net debt ratio of no more than 50%; and, An average interest expense ratio of no more than 5%. To assist ISC in making its determination on eligibility for the 10-Year Grant, FMB will provide reports on whether First Nations applying for grants meet these standards. For more information, visit: https://fnfmb.com/en/services/set-standards/standards 18