The work of the group was broken down into five major tasks:
a. Define
the Scope of Discussions
b.
Explore and Analyse Interests
c.
Develop Fiscal Options
d.
Evaluate Fiscal Options
e.
Make Recommendations to Principals
a. Define the Scope of
Discussions
Consistent with its mandate to move beyond the Indian Act s. 87
tax exemption to the entire fiscal relationship, the FRWG began
by making a list of fiscal components that would form the basis
for the discussions. The scope of discussions is set out in a
document entitled “Clarification of Components of the Fiscal
Relationship.” (see Annex A)
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b. Explore and Analyse
Interests
The FRWG chose to take an interest-based approach. Each Party
identified and presented interests on the agreed list of fiscal
components. The Parties then undertook an exploration and analysis
of the interests with a view to describing commonalities and differences.
The results of these discussions have been summarized in the documents
entitled “Guiding Principles – Shared Interests”
and “Divergent and Other Interests” (see Annex B).
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c. Develop Fiscal Options
The next major area of work for the FRWG involved the development
of fiscal options. Based on the earlier identification of interests,
the Parties developed three options for consideration by the group.
A fuller description of these options is provided in Annex C.
The three options developed are known as:
1. The Flexible Fiscal Option
2. The Incremental Jurisdiction Option
3. The Local Jurisdiction Option
The major characteristics of each option, generally distinguished
by how they treat transfers to First Nation government, own source
revenue, and program and service responsibility are summarized
below.
Option 1 – Flexible Fiscal Option
Government funding for agreed-upon programs and services provided
to First Nation government through negotiated funding agreements;
 |
Government funding for agreed-upon
programs and services provided to First Nation government
through negotiated funding agreements; |
|
All federal department funding provided through
one transfer agreement -- “One Window” funding
agreement |
|
First Nation governments contribute, through
the generation of government revenues (own source revenues
“OSR”), to the funding of agreed-upon programs
and services; |
|
Negotiated funding amounts set for fixed period
of time (e.g., 5 years) with annual adjusters (e.g., price
and volume); |
|
Through tax agreements, the federal and provincial
governments share tax room (e.g., sales tax, property tax,
income tax) with First Nation government; |
|
Possible Restrictions on Revenue Sharing: In
certain situations, there may be a threshold at which restrictions
on the amount of tax revenue that Canada is willing to forego
in sharing its tax room with First Nation governments that
enact tax laws applies. However, any such restrictions are
not likely to reduce further revenue sharing to zero as revenues
continue to increase beyond the threshold level where the
restriction take effect. This situation is not expected to
be a factor for the majority of First Nations and as such
not reflected in the model. |
|
Net transfer to First Nation government determined
by the difference between the agreed-upon funding amount for
agreed-upon programs and services for a particular year and
the amount of OSR to be taken into account for that year; |
|
Funding floor – funding will not be reduced
beyond an agreed-upon floor; |
|
All sources of own source revenue (OSR) are
taken into account; |
|
Agreed-upon amount of OSR exempt from consideration
when determining net transfer; |
|
OSR inclusion rate -- less than 100%; |
|
OSR phased in over agreed-upon period. |
Option 2 – Incremental Jurisdiction Option
|
Governments share tax room with
First Nations; |
|
OSR divided into “included” and
“excluded”; |
|
Revenue stabilization fund used as insurance
against revenue shortfalls or unexpected costs in First Nation-financed
agreed-upon programs and services; |
|
Included revenues used to assume financial
responsibility for certain agreed-upon programs and services; |
|
Excluded revenues used to fund not agreed-upon
programs and services; |
|
First Nation collects all property tax revenue
and has financial responsibility for local services; and |
|
Transfer entitlement based on program standards
and formula. |
Option 3 -- Local Jurisdiction Option
Own Source Revenues (OSR) available to the First Nation are First
Nations sales tax, local property tax and resource revenues. If
from a taxable First Nation corporation is included as OSR, then
an OSR credit will be provided for corporate income taxes paid
by the First Nation corporation.
For the first Fiscal Financing Agreement, the First Nation receives
transfers for local services, land management and other negotiated
services.
Thereafter:
1. the First Nation is entirely responsible for all costs associated
with land management from its OSR;
2. any OSR net of land management costs is applied to local services;
and
3. transfers continue to be used to fund all other negotiated
services such as education and social services.
If First Nation OSR net of land management costs is below a per
capita floor, then the First Nation will receive transfers to
bring per capita OSR levels up to the floor. The floor is comparable
to the lower range of revenue per capita of BC municipalities
(approximately $700/capita).
If the First Nation’s OSR exceeds a ceiling comparable to
the higher range of revenue per capita of British Columbia municipalities
(approximately $3000/capita), 50% of the OSR in excess of the
ceiling must be used to offset transfers to the First Nation for
other negotiated services. The remaining 50% is available to the
First Nation for discretionary funding. This OSR inclusion is
phased in on a straight-line basis over 15 years.
Note, however, for the purposes of modelling this option, land
management costs were not netted out of First Nation OSR. Therefore,
in the modelling results, First Nation OSR is less likely to fall
below the floor.
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d. Evaluate Fiscal Options
The options-evaluation phase of the FRWG’s work involved
both qualitative and quantitative assessments.
Qualitative Assessments:
Each of the Parties undertook a qualitative review of each of
the three fiscal options by assessing them against a set of criteria
based on each party’s respective interests. Some of the
interests used as criteria for the evaluation were common to all
Parties while others were specific to individual Parties. Note
that each evaluation was conducted independently by each of the
Parties and does not necessarily reflect the views of the other
Parties. However, even where criteria were shared by the Parties,
the interpretation of the criteria varied among them. The following
table contains the criteria that the Parties used to evaluate
the fiscal options.
|
FIRST
NATIONS SUMMIT |
CANADA |
BRITISH
COLUMBIA |
|
Certainty/ Predictability |
|
Accountability of First Nation
Government |
|
Comparability |
|
Affordability |
|
Accountability of other Governments |
|
First Nation Self-Sufficiency |
|
First Nation Autonomy |
|
Affordability |
|
Accountability and Representation |
|
Accountability |
|
First Nation Self-Reliance/ Economic
Development |
|
Predictability vs. Flexibility |
|
Comparability |
|
Predictability/Flexibility |
|
Self–Government Referendum Principle |
|
Consistent with Broad Social and Economic
Priorities |
|
Comparability |
|
Responsiveness |
| |
|
|
Harmonization/ Efficiency |
|
|
| |
|
|
Within Constitutional Framework/ Consistent
with Broad Social and Economic Priorities |
|
|
|
Full assessments are set out in Annex D.
Quantitative Assessment:
The FRWG, through a technical working group ("TWG")
comprising representatives from British Columbia, First
Nations Summit and the Department of Indian Affairs and
Northern Development, undertook a "Community Profiling
and Modeling Project" to provide information about
the fiscal options under consideration by the FRWG. The
Community Profiling and Modeling Project involved two components:
the development of community profiles and the development
of a spreadsheet model constructed by a modeling consultant
with the participation of the TWG.
The Parties began a quantitative evaluation of the options
using the
spreadsheet model to provide summary results of the three
fiscal options.
These results may be used for each Party's quantitative
assessment.
To undertake the development of community profiles, the
FRWG first began by collecting existing data. Demographic,
economic and government data were collected from a variety
of sources, including census data, the Department of Indian
Affairs, Treaty offers (past offers that had been made public)
and First Nation audited financial statements. The result
was the derivation of three community profiles to be used
for illustrative purposes and representing three different
scenarios, though not necessarily representative of any
one particular community:
|
Profile A: “Urban
” |
|
Profile B: “Resource” |
|
Profile C: “Remote” |
The FRWG spreadsheet model provides a framework
to input community profile data and to analyse the implications
of different options for structuring the fiscal relationship
among First Nation and other governments. Inputs for this
model comprise two parts: collection and derivation of community
profiling data; and specific settings of model parameters
to reflect each fiscal option. The model can, therefore,
generate output based on three community profiles under
three fiscal options resulting in nine different sets of
model output (three profiles x three options).
This model provides a picture of the fiscal position of
a First Nation government under different fiscal options
over a twenty-year timeframe. The FRWG recognizes the limitations
of the model. In particular, it is not possible to accurately
model all of the economic, fiscal and social factors that
will impact on fiscal arrangements. Therefore, the Parties
acknowledge that the results will not accurately reflect
reality and should be viewed as a general indication of
direction and magnitude only. More directly relevant results
will be possible at negotiation tables, using the data specific
to the negotiation at that table.
Given the range of input and fiscal option combinations
and number of different output measures provided by the
model, the Parties agreed to focus on nine key output measures
in order to analyse the three fiscal options:
|
Demographics |
|
Total First Nation own source revenue |
|
First Nation own source revenue committed
to agreed-upon programs and services |
|
Net transfers |
|
Net own source revenue |
|
Total expenditures |
|
Share of tax revenues by government |
|
Settlement trust |
|
Surplus/Deficit |
See Annex E for further detail on community
profiling and modelling results.
While the Parties compiled a report setting
out the results of the community profile and modelling project,
a quantitative evaluation based on the results of the model
was not completed as part of the FRWG process. The First
Nations Summit representatives have undertaken a quantitative
evaluation and will provide a report to their Principal.
The other Parties will report to their Principals and will
seek further direction on this work.
The FRWG spreadsheet model was modified to a “user-model”.
The user-model provides a framework for exploring different
fiscal options – without being limited to the three
options explored by the FRWG (i.e., no option is “hard-wired”
into the model).
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e. Make
Recommendations to Principals
After the evaluation of the fiscal options through the modeling
exercise, each of the Parties will make recommendations
to its respective Principal.
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