BILL ANALYSIS Ó
Senate Appropriations Committee Fiscal Summary
Senator Kevin de León, Chair
AB 1920 (Campos) - Social Impact Partnerships Pilot Program.
Amended: June 12, 2014 Policy Vote: Public Safety 6-1
Urgency: No Mandate: No
Hearing Date: August 4, 2014
Consultant: Jolie Onodera
This bill meets the criteria for referral to the Suspense File.
Bill Summary: AB 1920 would establish the Social Impact
Partnerships (SIP) Pilot Program until January 1, 2020, for the
purpose of entering into "pay-for-success contracts," to be
administered by the Board of State and Community Corrections
(BSCC). This bill would also create the Social Innovation
Financing Trust Fund, from which all funds appropriated by the
Legislature would be used to pay for SIP contracts.
Fiscal Impact:
First-year costs of $275,000 (General Fund) to BSCC for
start-up activities, including the development and adoption
of regulations governing the structure and administration of
the program.
Ongoing administrative costs of about $225,000 (General
Fund) for BSCC to solicit and submit SIP proposals, monitor
contracts, and report annually to the Governor and
Legislature. Costs would be offset in part through fees on
project applicants, and would be dependent on a sufficient
number of applicants and the amount of the fee established
by the BSCC.
Unknown, major future cost pressure potentially in the
millions of dollars to fund SIP contracts. Although the 2014
Budget Act appropriates $5 million from the Recidivism
Reduction Fund (RRF) to facilitate the use of social
innovation financing for recidivism reduction programs,
these funds were specifically appropriated to the Office of
Planning and Research (OPR).
Unknown, potentially significant future federal, state, and
local cost savings to the extent the innovative financing
model results in successful outcomes at reduced governmental
risk and cost.
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Background: Social impact partnerships (SIP), also known as
"Social Impact Bonds (SIBs)," "Social Innovation Financing," and
"pay for success contracts" represent a financing model in which
funds are raised from private investors through philanthropic
and non-governmental organizations to provide capital for social
services traditionally delivered by public entities. Social
impact partnerships are intended to provide public funding of
service delivery programs only on a reimbursement basis once
demonstrated performance measures are achieved by a private
entity under contract to perform specified services. This model
is intended to shift financial risk to non-governmental entities
that are paid for providing traditional services only upon
demonstration of results.
The social impact partnership model was first used in the United
Kingdom in 2010. The federal government initiated "pay for
success" programs in 2012 and recently provided $24 million for
pilot financing programs in New York and Massachusetts.
The President's proposed 2015 Budget provides up to $382 million
for "pay for success" efforts, including up to $82 million for
"pay for success" initiatives at the Departments of Education,
Labor, and Justice and the Corporation for National and
Community Service in the areas of job training, education,
criminal justice, housing, and other areas to promote
opportunity and economic mobility.
The 2015 Budget also re-proposes a $300 million mandatory Pay
for Success Incentive Fund in the Department of the Treasury to
help state and local governments implement "pay for success"
approaches that generate savings in federal government programs.
The 2015 Budget also proposes a new demonstration allowing the
Department of Housing and Urban Development (HUD) to use a "pay
for success" model to finance energy efficiency retrofits in
HUD-assisted housing through reductions in utility costs.
Proposed Law: This bill would establish the SIP Pilot Program to
be administered by the BSCC until January 1, 2020. Specifically,
this bill:
Defines "social impact partnership" or "pay for success
contract" as a contract for services provided to address a
defined demographic group's particular needs that are
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traditionally addressed through state programs, and funding
for those programs, and that are entered into in order to
improve outcomes and lower costs because payment is made
only after measured results are achieved.
Requires the BSCC to administer the SIP Pilot Program.
Authorizes the Chair of the BSCC to identify and submit
proposed SIPs to the chairs of the Senate and Assembly
budget committees and chairs of the relevant subcommittee
for consideration with the May Revision of the Governor's
Budget each year beginning in 2015.
Prior to submitting a proposed SIP, requires BSCC to
consult with the appropriate state agency or department
responsible for administering a state program that would be
affected by the proposed SIP.
Requires each submission to include all of the
following:
o Description of the proposed social program.
o Description of the organization's experience
in providing the proposed social program.
o A description of the financial stability of
the organization.
o An identification of each component of the
social program to be provided.
o A description of the manner in which the
social services will be provided.
o A description of the recruitment or selection
process, or both, for participants in the social
program.
o The proposed quantifiable results upon which
the success of the social program will be measured.
o An itemization of all expenses proposed to be
reimbursed under the contract.
Upon appropriation of sufficient funds by the
Legislature, requires the BSCC Chair to enter into a
contract with the approved applicant.
Specifies that the BSCC Chair shall not enter into any
contract that exceeds the funds appropriated for it by the
Legislature.
Requires each contract to include all of the following:
o A requirement that the payment be conditioned
on the achievement of specific outcomes based upon
defined performance targets.
o An objective process by which an independent
evaluator, selected by the Chair, will determine
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whether the performance targets have been achieved.
o A calculation of the amount and timing of
payments that would be earned by the service provider
during each year of the agreement if performance
targets are achieved as determined by the independent
evaluator.
o A determination by the Chair that the contract
will result in significant performance improvements
and budgetary savings across impacted agencies or
departments if the performance targets are achieved.
Creates the Social Innovation Financing Trust (SIFT)
Fund in the State Treasury, and requires all funds
appropriated by the Legislature for SIP contracts to be
deposited into this Fund.
Authorizes the BSCC to adopt regulations to implement
the provisions of this bill.
Requires BSCC to adopt a reasonable application fee
sufficient to cover the expenses incurred by the BSCC in
processing the application.
Requires the BSCC to report annually to the Governor and
Legislature on the status of each ongoing SIP, including
but not limited to, a description of the desired outcome
and an overview of the independent evaluator's findings.
The report must also contain an accounting of the SIFT
Fund.
Sunsets the pilot program and associated fund on January
1, 2020, unless a later enacted statute deletes or extends
that date.
Adds a non-substantive component to the duties of the
BSCC concerning the development of comprehensive regional
partnerships and job training and employment opportunities
for at-risk youth, as specified.
Related Legislation: SB 593 (Lieu) 2014 is similar to this bill
and would authorize the Governor to enter into at least three
pay-for-success social impact partnerships, as defined, before
December 31, 2019, to address policies or programs not currently
funded by the state, to address a particular component of a
state program in order to improve outcomes or lower state costs,
to reduce recidivism, to reduce child abuse and neglect, or to
assist at-risk and foster children, provided that the SIP does
not cause the displacement of any state employee and the
contractual agreement contains specified provisions. This bill
is pending hearing in the Assembly Committee on Appropriations.
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AB 1837 (Atkins) 2014 would establish the Social Innovation
Financing Program, until January 1, 2020, to be administered by
the BSCC, and would authorize grants in the amount of $500,000
to $2 million, upon appropriation by the Legislature, to each of
three counties, for the purpose of entering into a pay for
success or social innovation financing contract, as specified.
This bill would limit the total amount of grants to $5 million.
This bill is scheduled to be heard today in this Committee.
H.R. 4885 (Young) was recently introduced on June 18, 2014, and
referred to the House Committee on Ways and Means and Committee
on Financial Services. This bill would enact the Social Impact
Bond Act, appropriating $300 million to be available over 10
years to support the activities of the Act. The bill would
require the Secretary of the Treasury to seek proposals from
states or local governments for SIB projects which produce
measurable, clearly defined outcomes that result in social
benefit, such as employment for the unemployed, high school
graduation, and reduction of teen and unplanned pregnancies as
well as incidences of child abuse and neglect. This bill would
create a Federal Interagency Council on Social Impact Bonds
consisting of members from 10 government agencies to collaborate
with the Treasury.
Prior Legislation: SB 852 (Leno) Chapter 25/2014, the Budget Act
of 2014, appropriates $5 million from the RRF to the Office of
Planning and Research to facilitate the use of social innovation
financing for recidivism reduction programs, such as housing for
former felons. Expenditure of these funds is subject to future
legislation.
Staff Comments: The BSCC would incur both one-time and ongoing
costs throughout the pilot program period to implement the
provisions of this measure. First-year costs to set up the
program of about $275,000 (General Fund) would include staff
time to develop and adopt regulations for the program and
retention of an independent evaluator to develop program
outcomes, performance targets and return on investment
assessment tools. Ongoing annual costs of about $250,000
(General Fund) would consist of administrative activities
including consulting with various state agencies and
departments, soliciting and submitting SIP proposals, monitoring
contracts, and reporting annually to the Governor and
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Legislature. Costs would be offset in part through fees on
project applicants, and would be dependent on a sufficient
number of applicants and the amount of the fee established by
the BSCC.
The creation of the SIP pilot program creates major future cost
pressure potentially in the millions of dollars to fund SIP
contracts. Although the 2014 Budget Act appropriates $5 million
from the RRF to facilitate the use of social innovation
financing for recidivism reduction programs, these funds were
specifically appropriated to the OPR, so would not appear to be
available to the BSCC in the absence of additional legislative
changes.