First Nations Own-Source Revenue: How Is the Money Spent?

Abstract

The confluence of several factors – favourable Supreme Court of Canada decisions, the rise (until recently) in natural resource prices and the emergence of a cadre of well-educated on-reserve leaders – has encouraged the growth of First Nations commercial ventures over the past generation. This growth raises important questions: How significant is own-source revenue (much of it derived via First Nations-owned corporations) in financing First Nations governments? How are these governments spending incremental revenue that arises from market-based activities? Before the passage in 2013 of the First Nations Financial Transparency Act (FNFTA), relevant audited statements of First Nations were hard to obtain, if indeed they were publicly available. The FNFTA requires First Nations to publish online audited statements of revenues and expenditures, which enables hitherto unavailable insights into First Nations budgeting priorities. Our analysis of a sample of 72 FNFTA filings submitted by First Nations in Ontario, covering the fiscal years 2013 and 2014, finds that own-source revenue comprises, on average, nearly a third of total First Nations government revenues. First Nations with higher per capita own-source revenue increase economic development activities but only modestly increase education and health spending. They also undertake large increases in spending on general government and business management. Whether large increases in this last category are warranted is an important question for members of First Nations to address. Interpreting the audited statements of First Nations governments is difficult, however, because they do not apply standardized protocols to identify revenue and expenditure categories. Furthermore, some undetermined portion of their own-source revenue derives from impact and benefit agreements negotiated between First Nations councils and resource developers. These agreements are usually confidential and details about them in audited statements are scant. Finally, since our sample is derived from First Nations communities in Ontario, it might not be representative of pan-Canadian experience. Our results are an admittedly tentative look at the data derived from the audited statements, but two obvious policy conclusions emerge from the analysis. First, since the FNFTA is intended to help First Nations assess the budgeting activities of their respective councils, one simple policy recommendation would be to introduce more uniform and informative accounting protocols, which would considerably aid those interested in undertaking this task. Second, since many First Nations apparently do not consider it appropriate to use own-source revenue to finance basic education and health services, the onus for education funding will continue to fall squarely on the federal government. In the end, of course, it is up to First Nations people themselves to determine their financial priorities.