Case Studies in Aboriginal Business

The Purdy Crawford Chair in Aboriginal Business Studies was established at Cape Breton University in 2010 in response to Aboriginal community leaders’ expression of the need for entrepreneurship, business investment, and corporate skills training for the purpose of creating a model of self-reliance.

Named in honour of Canadian lawyer and corporate boardroom leader, the late Mr. Purdy Crawford, the Chair aims to promote interest among Canada’s Aboriginal people in the study of business at the post-secondary level.

The Purdy Crawford Chair in Aboriginal Business Studies focuses its work in four areas:

• Research on what “drives” success in Aboriginal Business• National student recruitment in the area of post-secondary

Aboriginal business education• Enhancement of the post-secondary Aboriginal business curriculum• Mentorship at high school and post-secondary levels

“ Meaningful self-government and economic self-sufficiency provide the cornerstone of sustainable communities. My wish is to enhance First Nations post-secondary education and research to allow for the promotion and development of national Aboriginal business practices and enterprises.”

Purdy Crawford, C. C. (1931-2014)

Purdy Crawford Chair in Aboriginal Business Studies

Shannon School of BusinessCape Breton University

1250 Grand Lake Rd, Box 5300Sydney, NS B1P 6L2

©2015

www.cbu.ca/crawford

Membertou Hotel by Keith G. Brown and Janice Esther Tulk 1

MEMBERTOU HOTEL In 2009, the chief and council of Membertou were planning to construct a hotel that would attract more business to the community’s Membertou Trade and Convention Centre and support future development projects. They had to decide where to locate the new facility to achieve their economic development goals. MEMBERTOU The Mi’kmaw community of Membertou (sometimes referred to as Membertou First Nation) is located within the Cape Breton Regional Municipality on Cape Breton Island, Nova Scotia. The urban reserve, located on Alexandra Street in Sydney, spans 103.6 hectares; however, Membertou also has three other reserves totalling 885.7 hectares. The community has a population of 1440, with 871 residing on-reserve. From the late 1870s until the mid-1920s, the community now known as Membertou was located on waterfront land and referred to as the Kings Road Reserve. While the community likely used the full shoreline for their benefit, the Kings Road Reserve was surveyed as being 3 acres. It was crowded, but in a prime location, resulting in employment opportunities. Increasingly, there was interest in the land and Indian Affairs wanted to relocate the Mi’kmaq from the Kings Road Reserve to other parcels of less desirable land. The Mi’kmaq would have preferred relocation to Coxheath or Westmount, where they would have access to waterways, fertile land, and traditional hunting areas; however, they were instead forced to move inland to their current location in 1926. In the decades that followed, members of the community dealt with inadequate housing, high unemployment rates, and limited access to services, such as garbage collection or sewer. All the while, the land of the former Kings Road Reserve was leased as park land to Sydney by Indian Affairs, with the revenue from the lease going into a trust for the community. In the 1960s, there was further interest in the waterfront land of the Kings Road Reserve and the federal government wanted Membertou to surrender their interests in the land so that it could be sold. The community understood that a doctor was going to open a community medical clinic that Mi’kmaq could access. Despite this potentially beneficial use, the community was divided as to whether the land should be surrendered and sold, since some members recognized its commercial value. Because reserve land cannot be surrendered without a referendum, multiple votes were held in Membertou and the sale was eventually approved. There was significant suspicion in the community, however, around whether the votes had been conducted appropriately and were valid. Nevertheless, the government proceeded with the sale of the land for less than fair market value and a three-story office building – not the anticipated community medical clinic – was built on the former Kings Road Reserve land. The

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outcome fractured the community and, ever since, the surrender of any land has been rejected. In the mid-1990s, under the leadership of Chief Terry Paul, Membertou began engaging in economic development, both on the Membertou reserve and in the international market, with a corporate office in Halifax, Nova Scotia. Membertou also received ISO 9000: 2001 certification, which had significant impact on how they are perceived as a business partner. As a result of these initiatives, the community has become one of the most economically sound Aboriginal communities in Canada. In 2001, the Membertou Market opened, providing access to grocery items and gasoline on-reserve. The following year, the Membertou Gaming Commission (MGC) opened five pavilions, employing more than 50 individuals. The Membertou Trade and Convention Centre (MTCC) opened in 2004, followed by the Membertou Entertainment Centre (MEC) in 2007. The Membertou Business Park, which provides professional and commercial office space, while serving as a business incubator for the community, was opened in 2010. In the future, Membertou planned to construct a sports and wellness arena, which was part of their overall development strategy to create a marketable cluster of businesses and attractions within a 4km radius. MEMBERTOU TRADE AND CONVENTION CENTRE The Membertou Trade and Convention Centre opened in 2004. A 47,000 square foot facility, it featured a 10,000 square foot great hall, conference and break-out rooms, an executive boardroom, and a multi-purpose room. Full catering and banquet services were available, and the MTCC was also home to a restaurant and gift shop. To maximize the potential of the facility, particularly by attracting large-scale conferences and trade shows, a hotel would also be required. BARRIERS TO BUILDING THE MTCC The biggest obstacle faced by the community in building the Membertou Trade and Convention Centre, which was developed over a two-year period (2003-2004), revolved around locating it on reserve land. Section 89 of the Indian Act prevents the property of Status persons or bands from being seized if the property is situated on a reserve. It effectively precludes commercial lending for construction of facilities on reserve lands. Because a lending firm cannot seize reserve land or real property situated on reserve land if a borrower defaults on their loan, reserve land cannot be used to securitize the loan. Representatives of Indian and Northern Affairs Canada (INAC, now Aboriginal Affairs and Northern Development Canada) insisted that Membertou should surrender the

Membertou Hotel by Keith G. Brown and Janice Esther Tulk 3

reserve land on which the MTCC was to be built and go through a land designation process. That is, the band would surrender its interest in a parcel of reserve lands that had been set aside for their use and benefit. This process to surrender and designate land requires a community referendum for approval and takes approximately 2-3 years to complete. Designated land can be used to secure a loan, but is then also at risk of seizure. Given the community’s previous experiences being pushed from the King’s Road Reserve, Membertou’s chief and council were reluctant to risk their lands, and also recognized that the time required for designation would delay the project. Another option available to Membertou was to issue a certificate of possession (CP) for the land on which the MTCC would be built. A certificate of possession provides an Aboriginal person with the right to possess reserve lands. Individuals who possess a CP can sell it to another band member or lease the property to a non-band member or non-Aboriginal person. This process would be much quicker than designation; however, the community would surrender its rights and control of the land to the certificate holder for a defined period of time (usually 99 years) and, as noted, it would have limitations. After weighing the options, the MTCC was built on reserve lands, despite the fact that commercial lending at standard terms would not be available. Given the restrictive impact that repayable loans with seven-year terms have on cash-flow, the MTCC was constructed with a combination of government loans and grants. Building on reserve lands had advantages: community members and other Status persons would be able to work there tax-free if their employment income were sufficiently tied to the reserve, any future property taxes implemented by the band would return to the community, and customers with Status could take advantage of tax-free purchases. LOCATING THE HOTEL The decision to construct a hotel in Membertou resulted primarily from a desire to attract more business to the Membertou Trade and Convention Centre, particularly in the form of large conferences and trade shows. However, such a facility would also be valuable for the future development of a sports and wellness arena, planned for a parcel of fee simple land near the MTCC, and be part of the marketable cluster of businesses and attractions in their development strategy. The chief and council had several options available to them, including: 1) locate the hotel on reserve land a few kilometres away from the MTCC; 2) surrender and designate reserve land a few kilometres away from the MTCC, then locate the hotel on it; 3) issue a certificate of possession for the reserve land a few kilometers away from the MTCC, then locate the hotel on it; 4) locate the hotel on community-owned fee simple land adjacent to the MTCC and go through an addition to reserve (ATR) process, which would add the parcel of fee simple land to the reserve land held by the

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community; or 5) have community-owned fee simple land adjacent to the MTCC rezoned for commercial development, then locate the hotel on it (without going through the ATR process). Locating the hotel on reserve land would be beneficial for Aboriginal employees and customers, given the tax exemptions that apply to reserve lands, but it would make it difficult, if not impossible, to obtain financing for the hotel through a traditional chartered bank. Financing from non-traditional lending sources, such as trusts, however, might be available. If the reserve land was surrendered and designated, it could be leased and, because the band would have given up its interest in it, it could be used as collateral to obtain financing for the development. Issuing a CP for the land to trusted community members and then leasing it for development (called a locatee lease) would satisfy INAC, but it was unclear to the chief and council how such an arrangement might be viewed by the banks and impact access to financing. Given their development strategy, the better location for the hotel would be on the fee simple land adjacent to the MTCC. If chief and council chose this location, however, they would also have to decide whether to keep the land as fee simple and have it rezoned for development or go through the ATR process, which can take more than a decade – a process that does not move “at the speed of business.” This would mean surrendering the land to the Crown to be administered by the Minister of INAC. When fee simple land becomes reserve land, however, it loses value (in that it can no longer be used as collateral to securitize a loan). Further, they could not guarantee that a request for ATR would be approved for economic development purposes, since it could be perceived as creating an unfair advantage given the tax exemptions that apply on reserve lands. Given Membertou’s reluctance to surrender and designate reserve land, the second option – to surrender and designate reserve land for development – was quickly dismissed. The chief and council had to identify which of the remaining options were viable and then choose the best one given the circumstances. CONCLUSION In an effort to attract more business to the Membertou Trade and Convention Centre and support the future development of a sports arena, in 2009, the Membertou chief and council planned to construct a hotel in the community. To achieve their economic development goals, they needed to decide where to locate the new facility.