BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 1837
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          CONCURRENCE IN SENATE AMENDMENTS
          AB 1837 (Atkins)
          As Amended  August 21, 2014
          Majority vote 
           
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          |ASSEMBLY:  |69-0 |(May 27, 2014)  |SENATE: |32-0 |(August 25,    |
          |           |     |                |        |     |2014)          |
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           Original Committee Reference:    J., E.D. & E.   

           SUMMARY  :  Establishes the Social Innovation Financing Program,  
          administered by the Board of State and Community Corrections  
          (BSCC), which will provide grants to three counties for the  
          purpose of utilizing pay-for-success contracts to reduce  
          recidivism. 

           The Senate amendments  delete the general requirements relating  
          to the state's efforts in expanding the use of social innovation  
          financing and pay-for-success contracting as a useful mechanism  
          for addressing significant social issues, including, but not  
          limited to, homelessness, prison inmate recidivism, and  
          workforce development.  The amendments, instead, establish a  
          grant program, which will allow three county governments to  
          apply social innovation financing models to reduce recidivism. 

           FISCAL EFFECT  :  According to the Senate Committee on  
          Appropriations, the BSCC estimates that up to 5% of grant  
          program moneys will be necessary for the general administrative  
          costs.  The BSCC estimates that administrative costs would be up  
          to $250,000 in Special Funds.  SB 875 (Budget and Fiscal Review  
          Committee) includes $5 million from the Recidivism Reduction  
          Fund to the Board of State and Community Corrections for the  
          establishment of a social innovation financing program for  
          counties.  

           COMMENTS  :  For decades, California's prison system has faced  
          significant challenges in meeting its basic security and  
          rehabilitation responsibilities.  Designed to house an inmate  
          population of 80,000, the state prison population has remained  
          well above that mark.  In 2006, the California prison population  
          hit its peak with over 170,000 men and women.  The resulting  
          conditions were the subject of two federal class actions, which  
          were ultimately consolidated [Plata/Coleman v. Brown].   








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          Currently, the court has ordered the state to reduce its prison  
          population to:

          1)143% of design capacity by August 31, 2014;

          2)141.5% of design capacity by February 28, 2015; and

          3)137.5% of design capacity by February 28, 2016.

          If the Administration fails to meet any of the above benchmarks,  
          Justice Elwood Lui, the court appointed Compliance Officer, is  
          authorized to order the release of the number of inmates  
          required to meet the benchmark.  

          On August 15, 2014, the state reported that it had met the first  
          benchmark with the state's 34 prisons at 140.2% of design bed  
          capacity, and 8,803 inmates being housed in out-of-state  
          facilities.  While it may appear that the state has successfully  
          reached both its 2014 and 2015 goals, the state's high  
          recidivism rate will make it challenging to maintain the lower  
          inmate population level.  

          This bill authorizes the BSCC to partner with counties in  
          applying pay-for-success contracting to achieve measurable  
          reductions in the recidivism rate of formally incarcerated  
          individuals.  This bill may be one of several key actions the  
          state will need to take in order to remain compliant.

          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 United States 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 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  








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          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 AB 1837 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                                               FN:  
          0005461 











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