NTI borrowing threatens land claim fund

The Nunavut land claim compensation fund was supposed to reach $1.17 billion by 2007 — but now it won’t, mostly because NTI has borrowed more money from it than it’s able to repay.

As their system for managing Inuit land claim money veers dangerously out of control, board members from Nunavut Tunngavik Inc. and the Nunavut Trust began the work of getting it back on track last week at a joint board meeting held Sept. 27 in Arviat.

“In our last meeting in Arviat, I had the sense that they [NTI’s board] are starting to understand where the Nunavut Trust is coming from,” said Archie Angnakak, chair of the Nunavut Trust, which protects and manages the land claim compensation money that Ottawa will pay the Inuit of Nunavut until 2007.

That fund is now smaller than it’s supposed to be, because of NTI’s failure to repay loans from the Nunavut Trust.

It’s still not clear why and how, but despite repeated warnings from the Nunavut Trust that go back to at least 1995, NTI continued to borrow heavily from the land claim fund’s precious principal until at least 2004.

The result, Angnakak said in an interview last week, is that NTI’s long-term debt to the Nunavut Trust now stands at a whopping $119 million.

It’s money that NTI borrowed from the Nunavut Trust’s “capital” — the land claim compensation fund that’s supposed to reach $1.17 billion in 2007, when the federal government will make its last payment to Inuit.

But when 2007 rolls around, about 18 months from now, Nunavut Inuit will discover that a big chunk of money won’t be there.

Angnakak says the full amount of capital can be restored by 2012, because that’s when NTI ought to be able to start paying all or most of its debt.

“It must be repaid,” Angnakak said.

But that will happen only if the Nunavut Trust sticks to a strict new rule for distributing money every year to NTI and the three regional Inuit associations.

And that rule is this: from now on, the trust will spend no more than four per cent of its capital each year.

“The Nunavut Trust is going to be adamant and insist on the four per cent limit. It protects the capital asset,” Angnakak said, pointing out that it’s a guideline used by many other North American endowment funds.

He also said NTI must come to understand that the Nunavut Trust “is not an economic development organization.”

He said the Trust’s job is to put land claim money into secure, ethical investments that will create earnings for Inuit — such as stocks in profitable companies operating around the world, bonds, and other instruments.

Under the Nunavut land claims agreement, the Nunavut Trust is to receive the $1.17 billion in compensation money that the federal government promised to pay the Inuit of Nunavut in annual instalments between 1993 and 2007.

The Trust then invests the capital. Cash earned by these investments must be turned over to NTI every year, for use by NTI and the three regional Inuit organizations.

But the Nunavut Trust’s earnings alone haven’t been enough to satisfy NTI’s growing hunger for money.

In its early years, NTI had no choice but to borrow from capital, because it needed the money to pay startup costs for the new organization, and to pay a $40 million debt that the old Tungavik Federation of Nunavut ran up while negotiating the land claims agreement.

In 1995, the Nunavut Trust and NTI appeared to agree that NTI must pay all operating loans by 2007.

“All agreed that it was essential that operating loans be repaid before the last settlement payment is received from the Government of Canada,” states a Nunavut Trust document tabled at an NTI board meeting in 1995.

At that time, the CEO of the Nunavut Trust, Andy Campbell, warned that NTI must be prepared to repay its loans by 2007, and be prepared to reduce its spending if the Nunavut Trust’s earnings were to drop in any given year.

But those loans were never repaid, and NTI continued to increase its spending, borrowing from Nunavut Trust capital to meet its bills.

It’s still not clear why the original plan got so far off track. But to make things worse, after the terrorist attacks of Sept. 11, 2001, global financial markets suffered a serious blow. Pension and endowment funds everywhere — including the Nunavut Trust — saw their earnings decline.

In 2004, according to NTI’s annual report for that year, NTI received only $9.7 million in its “distribution” from the Nunavut Trust. That’s money the trust would have earned on its investments that year.

But to get enough money to operate, NTI borrowed another $29.4 million in capital, raising its Nunavut Trust debt from $92.25 million to $116.5 million. In 2003, NTI borrowed $23.6 million from the trust’s capital.

At the same time, NTI is still making small repayments on its debt, but not nearly enough to eliminate it by 2007. NTI is also repaying a $12.1 million debt to the Royal Bank.

So early in 2005, the Nunavut Trust finally put its foot down. When NTI tried to borrow another $10 million this past February, the Nunavut Trust said no.

At the time, Angnakak warned that as the Nunavut Trust’s capital shrinks, so does its ability to earn money on its investments for distribution to NTI. In an interview with Nunatsiaq News this past February, he said that if NTI had repaid its loans on time, the Trust could have earned another $82 million.

Eventually, the Trust loaned $4 million to NTI, not $10 million.

NTI now needs about $35 million a year to operate. That includes about $13.5 million that it divides up among the three regional Inuit associations for regional economic and social programs, the hiring of CLOs, and to pay for the regional Inuit associations’ operations.

In 2004, NTI’s spending also included:

* $9.4 million on salaries;
* $2.2 million on travel and accommodations;
* $2 million on professional and consulting fees;
* $1.6 million in lease and utility payments;
* $918,000 in office expenses.

NTI also spends various amounts of money on social and economic programs of its own, such as its bereavement insurance program for beneficiaries.