BILL ANALYSIS Ó AB 1837 Page 1 CONCURRENCE IN SENATE AMENDMENTS AB 1837 (Atkins) As Amended August 21, 2014 Majority vote ----------------------------------------------------------------- |ASSEMBLY: |69-0 |(May 27, 2014) |SENATE: |32-0 |(August 25, | | | | | | |2014) | ----------------------------------------------------------------- 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]. AB 1837 Page 2 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 AB 1837 Page 3 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 AB 1837 Page 4