Potential Impact of COVID-19 on First Nation Funding Agreements

First Nation communities that typically rely on funding from the Federal Government are concerned that the funding amounts they have agreed upon with the Federal Government will be substantially decreased due to a general strain on the federal budget caused by COVID-19.

The Conference Board of Canada has projected that economic growth will contract in the second quarter of the year and will result in an annual economic growth of 0.3% in 2020. Governments are always forced to make difficult funding allocation decisions, but the difficulty will no doubt be exacerbated by COVID-19.

First Nation Funding Model

The funding model for First Nations puts them in a precarious position when it comes time for budgetary decisions. There are two ways that the Federal Government provides funding, the first is through statutory transfers and the second is through non-statutory transfers. While nearly two-thirds of transfer payments made by the Federal Government are statutory transfers, nearly all transfers to First Nations are non-statutory transfers. First Nations under the Indian Act receive funding from Indigenous Services Canada (“ISC”) through Non-Statutory transfers in a combination of grants and contributions. Grants are transfer payments subject to pre-established eligibility and entitlement criteria while contributions are transfer payments that are subject to performance conditions and reporting obligations.

Non-statutory transfers, such as the grants and contributions received by First Nations, require annual approval by Parliament through the budget process and appropriation acts. This means that while the transfers to First Nations are often made under long-term agreements, they are subject to change through allocations in the annual budget. This was recently recognized in the June 2019 Interim Report of the Joint Advisory Committee on Fiscal Relations – for Engagement Purposes, where it was recommended that Canada move towards increasing the number of statutory transfers to First Nations.

First Nation Funding Agreements

In recognition of the potential for Parliament to alter funding amounts, the Government of Canada’s Directive on Transfer Payments requires funding agreements with First Nation communities to include a provision setting out that any payment of funds will be subject to an appropriation by Parliament for the fiscal year in which the payment is to be made. It also requires a provision for termination or reduction in the funding in the event that the amount of the appropriation is reduced or denied by Parliament. The First Nations and Tribal Councils National Funding Agreement Model 2017-2018 includes an example of this term:

3.2 Funding Subject to Appropriations and Departmental Funding Authorities

3.2.1 Notwithstanding any other provision of this Agreement, the amount of any funding to be provided to the Council, as otherwise calculated or payable pursuant to this Agreement, is subject to the appropriation of funds by the Parliament of Canada.

3.2.2 In the event that any funding authority of DIAND or any other Federal Department for any program, service or activity for which funding is provided under this Agreement is modified or cancelled by the Treasury Board of Canada or by that Federal Department, or if funding levels of DIAND or any other Federal Department are reduced, increased or cancelled by Parliament for any Fiscal Year in which payment is to be made under this Agreement, Canada may terminate or adjust the amount of funding under this Agreement accordingly.

This term, required in the funding agreement, gives Parliament the flexibility to allocate funds in any given fiscal year, without being strictly bound to existing funding agreements. While Parliament has the ability to reduce funding for existing programs, these reductions are not typical. This is due to the cost of change, and the recognition that non-statutory programs require funding stability.

Federal Government Budget Process

Funding requests for existing programs are provided through the Annual Reference Level Update, which requires each Department to update their existing budget and present it to the Treasury Board Secretariat. These numbers usually form the basis for developing the Main Estimates which are included in the Estimates eventually presented to Parliament for budget approval.

All transfer payments by the Federal Government must be authorized by Parliament through the passage of appropriation acts. The appropriation act is the vehicle through which expenditures from the consolidated revenue fund are authorized. The approval process for Estimates begins no later than March 1 and typically ends in late June. The process includes standing committees approving, reducing, or rejecting applications for Non-Statutory expenditures such as grants and contributions.

Once the Estimates are reviewed and approved by the standing committees, the House of Commons votes to approve the Estimates, following which an appropriation bill is introduced and must be approved by the House of Commons, the Senate, and receive Royal Assent. Once this process is complete the government is finally authorized to withdraw funds from the Consolidated Revenue Fund. Because the previous year’s funding lapses on March 31, and the appropriation act does not come into effect until late June, the government will seek approval for Interim Supply, which is typically 3/12 of the requested Estimates. The Interim Supply for fiscal year 2020-2021 was passed on March 13, 2020.

It is impossible to predict what the impacts of COVID-19 will be on First Nations funding at this stage; however, it is important to keep in mind that while First Nations funding is typically made through Non-Statutory Transfers and is therefore vulnerable to change, the Federal Government recognizes predictability contributes to more efficient and effective program delivery. As such, any decisions to decrease the funding already committed under funding agreements will not be made lightly.

Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.