Attawapiskat's leaders are seeking an injunction to force a third-party manager appointed by Ottawa to relinquish control of the band's purse strings.
The disagreement is a major schism that could impede progress on solving the problems of the troubled northern reserve.
"The chief and council are not agreeing to third party at all. They've agreed to everything else," Stan Beardy, grand chief of Nishnawbe Aski Nation, which includes Attawapiskat, said Thursday.
Aboriginal Affairs Minister John Duncan and his parliamentary secretary, Greg Rickford, met on Thursday with leaders from the western James Bay community to hash out a way forward.
Mr. Rickford described the meeting as "respectful, cordial and collegial," and said it produced a three-step stability plan.
Mr. Rickford said the parties agreed that emergency supplies will still be required for the near term to resolve the Cree community's immediate housing crisis. A retrofit of a local healing centre needs to be finished for the medium term. And 22 new houses must be set up on new lots for the long term.
And Mr. Duncan confirmed construction will begin on a new elementary school in Attawapiskat in the spring, after years of lobbying by residents.
Notwithstanding persistent protests and threats of legal action from Chief Theresa Spence, however, Ottawa is insisting the reserve remain under third-party management.
"We agreed on just about everything. And we obviously agreed to disagree on the role of a third-party manager under these circumstances," Mr. Rickford said in an interview.
The government appointee will stay in place only until the housing crisis is under control, likely just a few months, he said.
Ottawa wants the housing plan solidified and well under way by the fiscal year end on March 31, 2012. At that point, the third-party manager could relinquish control of the band's finances, and a full audit of the past five years of spending would start.
The band chief and council have agreed to the audit, if only to disprove statements from Prime Minister Stephen Harper and others that the band has mismanaged its money.
But Ms. Spence and the council adamantly oppose the third-party manager – Jacques Marion of BDO Canada's offices in Winnipeg.
The band continues to refuse to allow Mr. Marion access to the reserve, and it will be very difficult for him to figure out what needs to be done in these conditions, Mr. Beardy said in a phone interview.
"I don't know how the working relationship that used to be there will pan out as the third party tries to implement measures to address the crisis. There's no relationship, none whatsoever," he said.
The band filed for an injunction, Mr. Beardy said, because the housing crisis that started the dispute has nothing to do with financial mismanagement.
"It's just underfunding that is the issue."
He pointed out that Ottawa has a legal and fiduciary duty to look after the band's basic needs.
Many bands spend years under third-party management only to see their underlying problems remain unresolved or even deteriorate further. The Auditor-General, outside experts and government analysts have all said the third-party system is deeply flawed.
Mr. Duncan and Mr. Rickford say they are trying a new approach with Attawapiskat, with an emphasis on exit strategy. Mr. Rickford said government officials will make more of an effort to communicate that strategy with the people of Attawapiskat.
The overseer costs the band $1,300 per working day – money the band says it can't afford. Ms. Spence also argues that his control slows down bureaucratic procedures, and is a punishment to the band for crying out for help.
Ottawa has transferred about $90-million to the 3,000-member reserve over the past five years.
The Canadian Press