How the government took over First Nations’ finances. And made things worse.

Clip You’re listening to a Frequency Podcast Network production in association with CityNews.

Jordan I don’t think it’s a secret that in dozens of First Nations communities around this country, conditions are grim. We have covered boil water orders on this program before. We’ve discussed how difficult it is for many First Nations to bring in doctors and other skilled professionals. In many communities, buildings are badly in need of repair or replacement. And then, of course, there’s money, or rather the lack of it. But I am not sure Canadians understand, and I’m not sure because I didn’t understand it myself, how much of this stems from the lack of money and for many First Nations, how much responsibility the federal government bears for that lack. You see, we need to discuss the Default Prevention and Management Policy, something most of us have probably never heard of. For decades, this policy was used to take away control of budgets and finances from First Nations leaders and put them in the hands of what are called default managers appointed by the government to supposedly better manage First Nations finances. Of course, when you actually look at the data as a massive investigation recently did, what you find is the opposite. What you find is that when you take control of a First Nations’ finances over people in that community, that community ends up worse off. You might imagine that would be an intuitive thing to assume. And yet here we are. So how did we get here? What comes next? I’m Jordan Heath-Rawlings. This is The Big Story. Patti Sonntag is an investigative journalist and a data journalist. She worked with a huge team on this project for the National Observer. Hello, Patty.

Patti Sonntag Hi. Thanks for having me.

Jordan You’re most welcome. Can you begin by telling us about Gull Bay First Nation? The project says that it’s currently recovering, so recovering from what? What have they been through?

Patti Sonntag Gull Bay is a small first nation north of Thunder Bay. It has been through a series of difficulties. For example, starting in 2004, there was an assessment of the housing and it found that about half of the 100 homes on reserve needed to be torn down. And the Chief and Council and residents had to come up with a series of solutions to replace the homes. It happened really gradually, and so they replaced them and started constructing new homes. So they found that about half the homes need to be replaced. And now things are really looking up. After a long stretch of time, with a number of the homes replaced and construction underway, there was a boil water advisory that officially started in 2009 but anecdotally appears to have started in 1999. A plant that was scheduled to open in 2002, didn’t. And so people have been boiling their water ever since. So notice went out to the community in the spring and people are drinking the water now, and the boil water advisory will be lifted officially pretty soon. And what’s less well known is the court struggles that the First Nation went through in the early 2000s, fighting to retain the Chief and Council, fighting to see their financial records, and the First Nation was in debt. The Chief, Wilford King, says the debt started at $2 million and ballooned to $11 million and is now over with. So this series of events is something that you wouldn’t see in a non-Indigenous community.

Jordan You mentioned that they were fighting to see their finances, and then you mentioned that they were $11 million in debt. If they can’t see their finances, how did they end up with $11 million in debt?

Patti Sonntag We know that in the early nineties, Gull Bay First Nation had taken a loan from the Canada Mortgage and Housing Corporation, with Indigenous and Northern Affairs Canada backing the loan. We also know from court documents, ISQ and Chief King, that around 1995, Gull Bay was moved into the DPMP, and soon after that into third-party management. A general theme that turned up in many interviews is that First Nations are often reluctant or unable to charge rent, especially if residents were impoverished. And we also know that in the midst of legal struggles over a few different things, indigenous Services Canada appointed a new third-party manager. Gull Bay and other First Nations and DPMP managers and the Auditor Generals all pointed out that under third-party managers, debts tended to increase. It was because, especially in the early 2000s, there were actual mechanisms in the policy that made it more difficult to pay down debt for the third-party managers. So all of these factors coincide, the time period coincides with observations about the worst failings of the policy during that time. It’s little known in Canada that federal government, federal officials have options for seizing control of a First Nations’ finances. And First Nations were under this policy from sometime in the 1990s at least until this very day right now. When that happened, not only did the First Nation lose control, sometimes access to their records, they were also forced to pay for these financial managers. So they had no supervisory ability. It didn’t matter how poorly the manager was performing, how the person was qualified, or whether they had qualifications, the First Nation had to pay for this person who was hired by at the time, Indigenous and Northern Affairs Canada.

Jordan Can you explain a little more about that? What’s this program called? How can the government just appoint someone to take over indigenous finances?

Patti Sonntag First Nations receive funds from the federal government under a series of transfers and grants. And so this is very different from a non-Indigenous First Nation because these transfers and grants are governed by very strict rules, as if First Nations leaders, the Chief and Council, were federal employees. So a really good contrast is between a non-Indigenous and an Indigenous nation and how a disaster is handled. So. I’m from Fernie, BC. And if there’s a flood in Fernie and a bridge is washed out, the mayor of Fernie will look at the budget with the council and probably delay a project might be a good strategy. So if there’s a new community center plan, delay the community center, devote those funds to building the bridge and or rebuilding the bridge, and that will be called fiscal prudence. In fact, it may gain the trust of the community, and the mayor and her council may be reelected on the basis of making good decisions. But in a First Nation, that same practice will be called mismanagement by the federal government. So if the First Nation has money to devote, has received money, a grant to build a community center, that money must be devoted to the community center exactly as proposed and on schedule. And so if money is devoted to a disaster from one source of funding to another budget, then it’s labelled mismanagement. And the federal government has the option of placing the First Nation under this policy, which is called the Default Prevention and Management Policy. So this has had traumatic effects. People lost their jobs. People lost the trust of their communities. Chiefs and councils were voted out for following, in some cases, exactly the same practices as our standard and praiseworthy in non-indigenous communities.

Jordan Do we have any idea how often this policy has been used? It sounds like something that should, at the very least, require, like, extenuating circumstances, but you’re not describing it that way.

Patti Sonntag Well, there’s a lot of regional variation that’s really clear in the data. So 90% of First Nations in Manitoba were administered under one of the forms of this policy. There were three forms, one of which involves no supervision, simply following the plan, and up to third-party management, which is where an outside manager has complete control of the finances. So in Manitoba, as I said, 90% of First Nations were under this policy. In some provinces, like BC, it could be as low as 14%. So that tells us that these were decisions by regional officials, and it depended on how regional offices approached First Nations.

Jordan So tell me about your investigation then, with the National Observer. What were you guys trying to discover about this policy?

Patti Sonntag Well, across the political spectrum, your reaction is the same as what we’ve seen since this was published. There’s sort of like a woe moment. People seem to be able to agree that the federal government reaching into communities affairs is an extreme moment. So we looked at all First Nations administered under this policy between 2008 and 2016 as far as records were available, and we found that the conditions on reserve got worse, not better, after this policy was put in place. So people’s homes went into disrepair, and boil water advisories were twice as likely. And in contrast, so this was the full data set for all the First Nations recognized by the federal government. There’s more than $600. And so in First Nations, where this policy wasn’t in place, the state of housing improved. Long-term boil water advisories were much less frequent. And it’s really important to note, for me to note here, that the long-term boil water advisories followed the date on which the policy was imposed.

Jordan What does that mean? Like the boil water advisories only showed up after the finances were taken over?

Patti Sonntag Yes, exactly. So it tells us that, as the records from the Times show, there were a series of very searing reports from the Auditors Generals and from within Indigenous and Northern Affairs Canada itself, talking about the failures of this policy. I’ve really never seen such blunt language. So the problems that showed up with this policy were myriad. So the third party managers couldn’t pay down the debts in some cases, if a First Nation was in debt, the third party managers were not supervised by INAC. And the First Nations didn’t have the option of trying to supervise them. They were drawing, in some cases, high salaries, and the First Nation had no option but to pay it. The tendering process didn’t follow federal rules. Indigenous and Northern Affairs Canada was ordered to amend this issue. So there were a series of reports once the policy was formalized in 2001, pointing out all of the failures of this policy within government. It wasn’t news to anybody. We found more than a dozen court cases in which First Nations challenged various aspects of this policy. There was a Senate committee hearing in 2017 where all of these issues again surfaced. All of these problems came up over and over again. And we found 114 1st nations administered under the co-management or a third party management version of this policy in between 2008 and 2016, which altogether represents I don’t even know how many people, but so many families affected.

Jordan How did this go on for so long? If, as you say, there are so many reports and so much evidence within the government, at least, even if we didn’t see them, that it’s not working?

Patti Sonntag Well, it all seems to hinge on the word default. So the name of the policy itself implies that these First Nations were somehow to blame, that First Nations leaders couldn’t manage the money. And so our discussion of this policy now is really about how this history is and has been written. The fact is that at least some of these cases involved people making very sensible decisions. At least some of these cases were punitive. The federal government has, in a document dated to about 2016, noted that this policy was used to punish First Nations, a word that came up over and over again. One of the observers called it a series of political hits. And it boils down to that essential relationship between Canada and First Nations, which has been not been an equal one, it’s a paternalistic one. And the idea that, hey, you can’t manage this money. So I’m going to hold on to it, which we found, going back as far as I found mention of it in an 1840s Upper Canada document. It was at a time when Canada was starting to transition from payments in terms of hard goods like blankets and kettles to cash payments. And an official from Upper Canada was expressing reluctance to make cash payments with exactly this argument.

Jordan So this has been around in one form or another, or at least the attitude behind it has been basically since colonization 2017, you mentioned. It kind of became clear to everybody in government just how awful this looked. What did they do about it?

Patti Sonntag The government of Canada put in place a series of pilot projects in 2016 examining new approaches, what’s called a new fiscal relationship. I think that happened in at least six First Nations, and our report is due this fall on how best to replace or update the policy. And the government of Canada has committed to replacing it. There are quite a few different solutions on the table. It’s really important for everyone to remember that with 600 FirstNations, each with its own traditions of governance, there is no one approach that’s going to work here. The most important thing seems to be which the Truth and Reconciliation Committee pointed everyone toward was a nation-to-nation relationship, rather than the paternalistic relationship that has been in place for all this time.

Jordan So they’ve been planning to replace it or studying how to replace it since 2017. Meanwhile, you mentioned earlier that this is still being used in some First Nations. How many and what is it like now? Like presumably, they’re still not making all these decisions.

Patti Sonntag There are 93 First nations under this policy today. Only one is in the most stringent form, the third-party management. The relationship, by some accounts, is quite different. With exceptions, 93 1st nations are 93 different experiences of this policy and the various personalities and people involved. So one of the issues that any small community faces is finding staff who are able to handle this very advanced financial work. In the 2017 committee hearings, it was said that even financial professionals with lots of experience and very advanced credentials weren’t able to administer First Nations finances because of the sheer complexity of dealing with all the different federal requirements. So one of the issues that have come up, again and again, is simply making sure that there are people available to provide the training and sometimes the services.

Jordan So the letter of the law hasn’t really changed. But the hope, I guess, is that in recent years, the spirit of the way it’s executed has.

Patti Sonntag Well, the roots of this policy are underfunding of First Nations. What Indigenous Services Canada said after looking at the analysis was the roots of this policy are in underfunding that goes back decades. If a First Nation didn’t have sufficient funding, which by all accounts across the board for decades, the level of underfunding was at least 30% of all programming, 30% of any program you care to think about, from roads to water plants to education, you name it. Our history, historically, the Canadian government has underfunded First Nations. And so when First Nations encountered a disaster like a fire or a flood, there was no option in many cases except to move funding from one program to another, which, as Indigenous Services Canada said, was how this happened during those decades, for the most part. So Indigenous Services Canada didn’t dispute the analysis. And so the data that we’ve gathered offers a good basis for beginning the discussion of how do we rethink how this was administered.

Jordan So this is the last question that I want to ask you about, and I’m glad you mentioned the response from Indigenous Services Canada, because my question is, I guess, what comes next? It sounds like your reporting has kind of upped the urgency here, which is great, but technically, are we still just sitting here waiting for ISC to come up with something that will totally replace this policy, which they’ve been trying to do for five years? Right?

Patti Sonntag Well, there are some stars in financial management who are from First Nations backgrounds, and I spoke to person after person who had made it really big in financial management, like, on a global scale and then went back to the First Nation or to a nonprofit to start tackling these problems. Financial managers have really taken the lead on this and have been suggesting solutions based on their experience and expertise.

Jordan So are you hopeful that these changes made sooner rather than later? And are you more hopeful after you finished this project than you were when you started it?

Patti Sonntag I was pretty devastated to see how this policy has been rooted in the language of colonialism and how, despite the different Auditor General’s reports and internal reports, the policy continued on and on. So I think this is part of a much larger discussion about Canada’s history and its present, and I don’t think there are any quick fixes. I think this is a generation-long discussion.

Jordan Well, Patti, thank you so much for doing the work and making it more plain for the rest of us to see just how badly things have been handled.

Patti Sonntag I’d like to point out that it wasn’t just me, a number of reporters and students who contributed to this reporting, Shiri Pasternak and Ryan Moore led the reporting on this. There are also people like Robert Houle, Declan Keogh, and others who contributed files and expertise. This goes back to a project called Clean Water Broken Promises, which launched some of this reporting.

Jordan Well, it’s incredibly thorough and pretty revelatory, so thank you so much for sharing it with us.

Patti Sonntag Thanks for having me.

Jordan Patti Sonntag reporting for the National Observer. That was The Big Story. For more, head to thebigstorypodcast.ca. And yes, please take the listener survey. It will only be around for one more week. I promise I will stop bothering you soon. We very much appreciate all those of you who have filled it out already. If you want to talk to us elsewhere, you can find us on Twitter at @TheBigStoryFPN. You could talk to us anytime with an email [click here!]. And you can leave a voicemail if you wish 416-935-5935. If you’re listening right now in a podcast player that lets you rate a review or click a little button to share it with friends. We’d love it if you did that too. Every little bit counts. Thanks for listening. I’m Jordan Heath-Rawlings. We’ll talk tomorrow. Back to top of page