Bands on the hook for debts INAC used to cover

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Sections of the Indian Act that have allowed First Nations to repay creditors will disappear when the First Nations governance act is passed into law as it's currently constructed, says a Winnipeg consultant who is trying to help private businesses collect on debts owed by First Nations.

Alan Isfeld, a Waywayseecappo First Nation member, has read the First Nations governance act and he sees changes that will poison the already strained relationship between First Nations and the business community. He said the minister proposes to delete sections of the Indian Act that will take away a First Nation's ability to repay debts, while getting the government off the hook at the same time.

"By repealing Sections 81, 82 and 83 of the Indian Act, the ability of the chiefs and councils to consolidate band debt and pay private sector creditors . . . will be gone," he said.

He added that other Indian Act sections can be brought into force by Sections 81, 82 and 83 that allow the minister to loan money to bands or guarantee debts so the First Nations can repay them over time, and those sections will no longer be available.

Many of those sections are already not in operation since Minister Robert Nault changed the department's policy regarding departmental guarantees of debts incurred by First Nations.

Recently, the Garden Hill First Nation in Manitoba, faced with a court judgement against it regarding a debt of $2,283,986.04 owed to Springhill Lumber Wholesale Ltd., passed a band council resolution (BCR) asking the department of Indian Affairs to pay the debt. In the BCR, the Garden Hill council committed themselves to repay the department $113,844.52 a year over 20 years. Garden Hill is currently under third party management. According to documents obtained by this publication, the third party manager, Knowles, Warkentin & Bridges, receives $90,000 annually to manage the band's finances for the government. That money is deducted from the band's funds.

The band cited several sections of the Indian Act in making this request. They stated that Section 83-1 (b) allows the appropriation and expenditure of monies of the band to defray band expenses. Section 70 allows the minister to make loans to bands. Section 64-1 and 66-1 allow the minister to authorize and direct the expenditure of capital monies of the band with the band's consent.

In a letter written to the minister by Garden Hill Chief Russell Harper on Nov. 4, 2002, the band asked the minister why the BCR directing him to pay the debt had not been acted on.

"Will the minister fulfill his fiduciary responsibility to the First Nation and evoke the BCR and pay out Springhill Lumber Wholesale Ltd. and allow the First Nation the ability to pay back the government as per the Sept. 25, 2002 BCR and the Indian Act?" the letter asked.

But the department refused to comply with the band's request.

"We declined the offer," said Indian Affairs director of communications Alistair Mullin. "Why did we decline the offer? Because this is a business arrangement between Garden Hill First Nation and Springhill Lumber. First Nations enter into contractual agreements with businesses all the time. The vast majority of First Nations honor those agreements and contractual obligations."

Mullin said the minister wants to put all First Nations on an equal footing with non-Native businesses so their initiatives will be seen as good investments.

First Nations elsewhere in Manitoba and throughout Canada are grappling with the new policy initiated by Nault. They claim that some businesses allowed them-or even schemed to get them-to spend more money than they could afford because the businesses were confident the federal government would step in if the First Nation defaulted. When the minister decided the government would no longer step in and assist bands in trouble, he failed to take this fact into consideration, they claim. Now, First Nations leaders say they are on the hook. Many say this ha led to a cash-only economy for First Nations when they deal with outside businesses.

Charles Coffey, a former vice-president of Aboriginal banking for the Royal Bank who is now the bank's executive vice-president of government and community affairs, suggests it will take a while for all parties in the economy to get used to the new rules.

"I think we need a period of adjustment here until the revisions that the minister and others have asked for are implemented. I do give the minister credit for bringing about changes that I believe personally and on behalf of the bank are necessary, that I believe will have a positive longer term impact. I know there are hundreds, maybe thousands who would disagree with that. But I don't believe the status quo is an option," he said.

Coffey urged all parties to work together to find a positive way to get through the period of transition.

"We all need to work very co-operatively and it requires a high level of good will to deal with the issues," Charles Coffey said. "At the Royal Bank we are in the business of keeping businesses or organizations or communities in business, not the reverse. From the bank's point of view, for any economy to function we need a high degree of clarity and certainty and I would also say it's absolutely imperative that all the lenders . . . the government and the band, work co-operatively to resolve the issues."

Coffey suggested that better monitoring by the department would have prevented many of the financial troubles that plague some First Nations.

"I think most importantly we need to all understand what would have happened to cause third party management procedures to be implemented. What's the triggering event for that? These things don't just happen overnight. We should be developing a series of what I'd call red flags-early warning signals that would suggest that the financial affairs are off the rails a bit and action needs to be taken," he said. "In every case there have been plenty of eary warning signals that if addressed would have saved much of the aggravation, if you will, that is brought or caused by third party management."

Alan Isfeld said that's fine, but it won't help the First Nations already in trouble or the businesses that are owed money.

"In the past under third party management, all band debts were consolidated by department of Indian Affairs officials and approved by the minister of the day. And all creditors were paid from the band's capital and revenue monies with the consent of chief and council at no additional cost to the taxpayers," he said. "Minister Nault is guaranteeing First Nations remain dependant on the government and ensuring no economic relationship is built with private sector businesses unless the government has full control."