BILL ANALYSIS Ó
AB 1837
Page 1
ASSEMBLY THIRD READING
AB 1837 (Atkins)
As Amended May 1, 2014
Majority vote
ECONOMIC DEVELOPMENT 6-0 APPROPRIATIONS 13-0
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|Ayes:|Medina, Campos, Daly, |Ayes:|Gatto, Bocanegra, |
| |Fong, Fox, V. Manuel | |Bradford, |
| |Pérez | |Ian Calderon, Campos, |
| | | |Eggman, Gomez, Holden, |
| | | |Linder, Pan, Quirk, |
| | | |Ridley-Thomas, Weber |
|-----+--------------------------+-----+--------------------------|
| | | | |
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SUMMARY : Requires the Governor's Office of Business and
Economic Development (GO-Biz) to lead the state's efforts in
expanding the use of social innovation financing and
performance-based contracts as a mechanism for addressing
significant social issues, including, but not limited to,
homelessness, prison inmate recidivism, and workforce
development. Specifically, this bill :
1)Expresses findings and declarations including, but not limited
to, that it is the intent of the Legislature to establish
partnerships between government agencies, private investors,
nonprofit organizations, and for-profit service providers in
order to facilitate the use of social innovation financing to
achieve social benefits.
2)Requires GO-Biz to serve as the lead entity for the state's
efforts to explore social innovation financing and provide
technical assistance to local governments that are exploring
the use of social innovation financing.
3)Requires GO-Biz to develop recommendations for implementing
social innovation finance models including performance-based
contracts, as specified.
4)Defines "performance based contracts" to mean contractual
agreements between government, private investors, and service
providers where private investors agree to provide up-front
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financing to service providers to achieve pre-agreed upon
social outcomes and the government agency agrees to pay a
return on investment (ROI) to the investors if successful
programmatic outcomes are achieved by the service provider.
5)Defines "social innovation financing" to mean an investment
arrangement using private funding to finance a social program
administered by a nonprofit organization or a for-profit
service provider on behalf of a government agency pursuant to
a performance-based contract.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, implementation of this measure will result in
one-time General Fund costs of $375,000 and ongoing costs of
approximately $200,000.
COMMENTS : This bill calls on GO-Biz to operationalize the use
of social innovation finance and performance-based contracts to
achieve measurable positive outcomes that address significant
social and community challenges. In undertaking this charge,
GO-Biz will also be responsible for providing technical
assistance to local governments.
In deliberating the merits of the measure, Members may wish to
consider the state's limited resources to address complex social
problems, and the significant amount of work that has already
been undertaken by impact investors, foundations, and other
states on social innovation financing that would benefit
California if they were more widely distributed.
Federal Lessons on Performance-Based Contracting:
Performance-based contracting is designed to ensure that
contractors are given the freedom to determine how best to meet
the government's performance objectives, while allowing
governments to only pay for those services that meet the
pre-determined quality and performance levels. This is not a
new concept, but it is growing in popularity as governments face
tighter budgets and become more open to using private sector
innovations to address social challenges where "one size" will
not fit all.
The U.S. Department of Defense was an early pioneer in the use
of performance based contracting. One early study suggests that
the model resulted in an average 15% reduction in contract
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price, and an 18% improvement in satisfaction with the
contractor's work. Although a documented success, this early
research also identified a number of key challenges government
faced when using performance-based contracts, including
identification of which service contracts were best suited to
the model, preparation of a sufficiently focused statement of
work, and ensuring quality standards were being met. Under this
bill, GO-Biz will examine these types of issues and make
recommendations on how state agencies can best move forward in
performance-based contracting
Innovating Performance-Based Contracts: Since the 1990s,
performance based contracts have evolved to better address
social services and community development challenges. One of
the key changes is the funding method, whereby a third party
finances the initial service contract and is then paid at a
premium rate by the government upon successful completion of the
contract. If the measurable outcome is not achieved, the
third party financer receives no money. Several states and
major metropolitan areas are currently using or are preparing to
use social innovation financing including Massachusetts to
address both chronic homelessness and high recidivism rates
among juvenile offenders.
Recent Federal Activity: As noted above, the federal government
has been using performance-based contracting for over two
decades. The Obama Administration awarded nearly $24 million in
pay-for-success grants, which are one type of performance-based
contracts, to states including New York State ($12 million) and
Massachusetts ($11.67 million). In January 2014, the White
House Office of Science and Technology Policy released a Request
for Information designed to accelerate the development,
evaluation, and adoption of high-impact learning technologies
using pay for success contracts and other types of social
innovation financing.
All this suggests that additional federal funds will become
available. Implementation of this bill will allow California to
be ready to access these moneys in a manner that is thoughtful
and appropriate for the state.
Analysis Prepared by : Toni Symonds / J., E.D. & E. / (916)
319-2090
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