How does native funding work?

The recent Idle No More protests, as well as Attawapiskat chief Theresa Spence's 45-day hunger strike, have raised awareness of native issues.

One of the most complicated and misunderstood issues is the subject of native funding, which stems largely from the relationship between governments and aboriginal peoples. The history of that relationship has determined how various aspects of what we are calling aboriginal finance work — or don't work.

In an attempt to clarify the most important and most misunderstood issues, and to try to challenge some myths, CBC News spoke to experts in the field of aboriginal finance.

One is Daniel Wilson, a former senior director of strategic policy and planning for the Assembly of First Nations and before that, a Canadian diplomat. He describes himself as having Mi'kmaq, Acadian and Irish heritage.

Another is Harold Calla, chairman of the First Nations Financial Management Board, which he helped establish in 2006 to provide First Nations with the tools of modern fiscal management. A certified general accountant and a certified aboriginal financial manager, Calla is a member of the Squamish First Nation in North Vancouver.

What revenue sources do First Nations have?

The biggest revenue source is transfers from the federal government, but First Nations are increasingly generating what's called "own-source revenue."

The communities also get revenue from land claims settlements and successful lawsuits, selling treaty land and a small amount from other levels of government.

For the 50,000 Inuit in the Canadian north, federal funding is mostly determined by the four comprehensive land claims agreements, that, combined, cover 40 per cent of the country's land mass. Programs and services generally have been provided through territorial or provincial governments.

The January 2013 ruling by the Federal Court that Métis and non-status Indians fall under federal jurisdiction may have funding implications. Before that ruling, Métis National Council President Clément Chartier had said, "the federal government continues to say we are a provincial responsibility." Aboriginal Affairs Minister John Duncan announced Feb. 6 that his government is appealing the decision.

Why does the federal government fund First Nations?

In 1867, the British North America Act made "Indians and lands reserved for the Indians" an exclusive federal jurisdiction, making the federal government responsible for providing programs and services that most communities in Canada receive from provincial and municipal levels of government. These include education, health and social services, roads, housing, water and waste management.

First Nations also lost land and resources through treaties and land claims settlements, which created government obligations to provide aid and services in return.

Providing a comparable range and level of service to First Nations and Inuit is a stated government goal, but according to Canada's auditor general, "Services available on reserves are often not comparable to those provided off reserves by provinces and municipalities," and conditions have remained poor.

In the 2011 report Programs for First Nations on Reserves, the auditor general also observed, "It is not always evident whether the federal government is committed to providing services on reserves of the same range and quality as those provided to other communities across Canada."

The federal government established each First Nation band as an autonomous entity and, therefore, provides separate program funding to each one. With about 630 First Nations – 60 per cent of which have fewer than 500 residents – economies of scale mean that delivering these programs likely will be expensive, compared to when similar services are provided at the municipal and provincial level.

How does the government fund First Nations?

The primary method to fund services is through what's called "contribution agreements." The agreements are renewed annually, although not always on time. As stated in the auditor general's report, that means "First Nations must often reallocate funds from elsewhere to continue meeting community service requirements."

That report also says that "while the agreements state the services or actions to be provided, they do not always focus on service standards or results to be achieved."

Both Calla and Wilson say there is a lack of transparency in how the Ministry of Aboriginal Affairs and Northern Development (AANDC) sets the amount of money that goes to each First Nation.

Calla says there's "no linking of funding levels to national standards for services such as in the equalization program for provinces." Furthermore, he says the growth rate of federal funding to First Nations has not been keeping pace with the growth rate in transfers to the provinces.

Calla acknowledges that AANDC is in a difficult position because "they know the demand, they know what's required and they have to work with very limited resources and policies and conditions that they wish they didn't have."

A report for AANDC concluded that the existing funding arrangements are not appropriate. "There is a lack of clarity about the overall objectives of the funding arrangements, a lack of coherence among programs and funding authorities that make up the arrangements, and no clear leadership at [AANDC] Headquarters," the Institute on Governance, an Ottawa think tank,  says in its 2008 report.

Has funding kept pace with population growth?

The aboriginal population appears to be increasing at a significantly faster rate than the total population. Between Statistics Canada's 1996 and 2006 census, the total aboriginal population increased 45 per cent (29 per cent for First Nations), compared to an eight per cent increase in the non-aboriginal population.

Documents for the last three budgets all contain this phrase, that the additional spending is "to meet increased demand for ongoing Indian and Inuit programs which reflects a 2.0% allowance for inflation and population growth."

That two per cent spending cap on AANDC program funding has been in place since 1996. However, the Parliamentary Budget Office looked at the actual spending and reported in 2009 that it increased by an average of 2.75 per cent annually between 1996-2004. That's still below the four percent annual increase in the aboriginal population, and then there's inflation.

Wilson has been researching education spending and told CBC News that in conversations with him, AANDC officials "are frank in explaining that there's no system, no standard for calculation, it's not done on a per-capita basis, it's not done on 'what do you have that you currently need to improve?' It's done on a band-by-band basis, seemingly at the whim of administrators in aboriginal affairs."

According to an AANDC internal evaluation, "there is no evidence that funding allocations from regional offices to First Nations were based on any rationale that takes the current structure of educational responsibilities into account."

When it comes to keeping pace with need, the auditor general's 2011 report concluded, "The education gap between First Nations living on reserves and the general Canadian population has widened, the shortage of adequate housing on reserves has increased, comparability of child and family services is not ensured."

How do First Nations' earn own-source revenue?

In 1876, the Indian Act gave the government control of Indian economic and resource development and land use. They became what Calla calls "wards of Canada," which didn't allow them to engage in economic development. Only in the last few decades has there been any significant change in that arrangement.

Now that they are able to do so, many First Nations are generating revenue, from a wide variety of sources. Here are some examples:

• Squamish First Nation in North Vancouver and Westbank First Nation in Kelowna, B.C., have developed major shopping centres.
• Osoyoos First Nation in B.C. has a winery, NK'Mip Cellars.
• Vuntut Gwitchin First Nation in the Yukon owns the Vuntut Development Corp., which co-owns Air North airline and other interests.
• Tlicho First Nations north of Yellowknife provides support services to the diamond mining industry, and also receives royalties from the mining companies.
• Whitecap Dakota First Nation in Saskatchewan has the Dakota Dunes Casino and the Chippewas of Rama First Nation in Ontario have Casino Rama. There are at least 15 other First Nation-owned casinos in Canada.
• Lac La Ronge First Nation's Northern Lights Foods sells wild rice and mushrooms internationally.
• Attawapiskat First Nation in Ontario receives funds, as well as training and jobs, from De Beers' diamond mine on their traditional land, the result of an impact benefit agreement the two sides reached in 2005.
• Waswanipi Cree First Nation in Quebec has a silvaculture and timber harvest joint venture with Domtar.
• Membertou First Nation in Nova Scotia has a hotel and convention centre.

Calla estimates that his band, Squamish First Nation, puts $20 million to 24 million per year into subsidizing its own programs and services. He estimates "the Squamish Nation economy, on its reserve land, contributes $1 billion a year to the North Shore economy," through the shopping centre, an office complex and other ventures.

Do First Nations collect taxes?

In 1988, amendments to the Indian Act empowered First Nations with their own tax authority and today, according to Wilson, about one-sixth of bands collect taxes. For those bands, Calla estimates that one-tenth to one-third of their total revenue comes from property taxes and, less frequently, sales taxes but notes that those revenues come with service responsibilities.

"There's a big struggle in securing tax room for First Nations so that they can start to function as governments, and fundamentally it comes down to a difference of opinion of what self-government should be in this country," says Calla.

Sometimes it leads to what he calls "ludicrous situations."

He explained that his Squamish band wants to build market housing on their land in North Vancouver and then be able to assess a property transfer tax. But that requires the agreement of the federal and B.C. finance departments, who said no, "because it's not consistent with the treaty mandates for negotiation," Calla said. The problem, according to Calla, is that "the bureaucracy thinks we should only be able to collect taxes off Indians."

He recounts one meeting in which he asked government representatives, "You mean I'm the Indian at the table saying I want to assess this tax, including on our own people, and you're telling me that I can't do it?"

When they responded affirmatively, Calla said he asked them, "So you're prepared to have me advertise that we'll put 14,000 housing units in greater Vancouver into the general market and say to the public that 'you don't have to pay property transfer tax if you come here'?"

"They looked at me and they said, 'I guess so.'"

For Calla, it all adds up to the need for a new fiscal financing relationship, in which First Nations are viewed as "governments, not recipients."

What happens when outside corporations develop resources on aboriginal land?

Often there's a lawsuit, and 90 per cent of the time, the Aboriginal group wins, according to Bill Gallagher, a lawyer who worked for the federal government as a treaty land entitlement officer on the Prairies. He later worked for Inco in the protracted negotiations over the Voisey's Bay project in Labrador.

Gallagher says aboriginal groups have recorded victories in 175 lawsuits since the mid-'80s – including five victories while Attawapiskat chief Theresa Spence was on her hunger strike. Most of the victories concern development on traditional rather than reserve lands.

"The vast majority [of legal wins] involve the extension of native empowerment off reserve onto traditional native lands," which other levels of government claim is theirs, says Gallagher, author of the 2012 book Resource Rulers: Fortune and Folly on Canada's Road to Resources.

"That's where the [aboriginal] winning streak has really played out."

The basis for those victories, and for the emergence of some bands as "resource rulers," follows from the Canadian constitution and Supreme Court of Canada decisions setting out a "duty to consult and accommodate" aboriginal peoples about development on their traditional lands. Gallagher considers the legal winning streak a de facto constitutional amendment.

Often after the legal victories come revenue-sharing agreements with governments and partnerships with resource developers.

Two weeks ago, the federal government announced it was appealing a lower court ruling in December that ordered them to consult with First Nations before selling the Kapyong Barracks, a former Canadian Forces base in a residential area of Winnipeg. 

A week earlier, the Mikisew Cree and the Frog Lake First Nations, from Alberta, said they plan to use the duty to consult in a court challenge to provisions of Bill C-45, the omnibus federal budget bill that's now law. 

Gallagher tells CBC News that "it's in everybody's interests to have the feds, the provinces and First Nations work out a comprehensive arrangement that can get certainty for the Canadian resources sector." 

Calla estimates that $500 billion in resource and energy initiatives in Canada involve land "in the hands of First Nations."

• PART TWO: 7 questions about First Nations accountability