BILL ANALYSIS Ó
Bill No: SB
593
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Roderick D. Wright, Chair
2013-2014 Regular Session
Staff Analysis
SB 593 Author: Lieu
As Amended: January 6, 2014
Hearing Date: January 14, 2014
Consultant: Paul Donahue
SUBJECT
Social impact partnerships; Pilot program
DESCRIPTION
Requires the Governor's Office of Planning and Research
(OPR) to conduct a Social Impact Partnership Pilot Program.
OPR would identify and submit at least 3 proposed social
impact partnerships to the Legislature for consideration
with the May Revision of the Governor's Budget each year
beginning in 2015. Specifically, this bill:
1)Defines a "social impact partnership" or "pay for success
contract" to mean a contract for services provided to
address a defined demographic group's particular needs
that are traditionally addressed through state programs
and funding therefor, in order to improve outcomes and
lower costs because payment is made only after measured
results are achieved.
2)Designates OPR as the entity to conduct the Social Impact
Partnerships Pilot Program.
3)Directs the OPR director to identify and submit at least
three proposed social impact partnerships to the Chair of
the Assembly and Senate Budget Committees, and the Chair
of the relevant subcommittee for consideration with the
May Revision of the Governor's Budget each year,
beginning in 2015.
SB 593 (Lieu) continued
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4)Requires OPR, prior to the submission of any proposed
social impact partnerships, to consult with the
appropriate state agency or department responsible for
administering any affected state program.
5)Specifies that each submission shall at a minimum include
all of the following:
a) A description of the proposed social program.
b) A description of the organization's experience in
providing the proposed social program.
c) A description of the financial stability of the
organization.
d) An identification of each component of the social
program to be provided.
e) A description of how the social program will be
provided.
f) A description of the recruitment or selection
process, or both, for participants in the social
program.
g) The proposed quantifiable results upon which
success of the social program will be measured.
h) An itemization of all expenses proposed to be
reimbursed under the contract.
6)Creates the Social Innovation Financing Trust Fund from
which funds appropriated by the Legislature would be
spent on contracts entered into by OPR with approved
applicants.
7)Authorizes OPR to adopt regulations to implement the
program.
8)Requires the director of OPR to report annually to the
Governor and Legislature on the status of ongoing social
impact partnerships and the Social Innovation Financing
Trust Fund.
SB 593 (Lieu) continued
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9)Sunsets the pilot program on January 1, 2020.
BACKGROUND
1)Purpose : The author asks, "Can government pay for
demonstrated success instead of just the hope of
success?" The author also notes that, although California
spends millions of dollars on important social programs,
fiscal constraints have forced the complete elimination
of many services, including those that reduce recidivism,
provide better healthcare delivery, and improve outcomes
for foster children. The author believes that social
impact partnerships can and should be a tool used by
state government as it contemplates how to restore
funding to solve these complex social policy goals.
2)What is pay for success ? A pay for success or social
impact contract is a type of financing in which funds are
raised from investors to provide social service providers
with the working capital to deliver their services.
According to the U.S. Department of Labor:
"Under the pay for success model, a government
agency commits funds to pay for a specific
outcome that is achieved within a given
timeframe. The financial capital to cover the
operating costs of achieving the outcome is
provided by independent investors. In return
for accepting the risks of funding the project,
the investors may expect a return on their
investment if the project is successful;
however, payment of the committed funds by the
government agency is contingent on the
validated achievement of results. In this way,
the pay for success model shifts the burden of
investment risk from the government to private
investors, effectively creating a social
investment market where the government only
pays for results."<1>
3)Federal government incentives for state and local
governments : In November 2013, the U.S. Department of
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<1> "What is Pay for Success?" Employment and Training
Administration, U.S. Dept. of Labor, available at
http://www.doleta.gov/workforce_innovation/pdf/whatispfs.pdf
SB 593 (Lieu) continued
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the Treasury issued a Request for Information (RFI) that
will help design a proposed $300 million Incentive Fund
to further expand pay for success contracts. The Fund is
intended to empower cities, states and nonprofits to test
new pay for success models. According to the White House,
this same Fund was also part of the President's
commitment of nearly $500 million in this year's Budget
to expand pay for success strategies. <2>
Similarly, the U.S. Department of Labor recently
announced a grant that will provide approximately $24
million to pay for success initiatives in New York and
Massachusetts. These grants are designed to increase
employment and reduce recidivism in ex-offender
populations. These projects will feature strong private
sector support to amplify the public dollars. They also
will use rigorous valuation methods to measure their
outcomes, which also will be reviewed by independent
validators, according to the grant announcement.
4)Program challenges : According to a recent study, these
social impact / pay for success programs will work only
for interventions that meet specified criteria,
including: (a) the interventions must have sufficiently
high net benefits; (b) the interventions must have
measurable outcomes; (c) the treatment population must be
well-defined up front; (d) impact assessments must be
credible; and (e) unsuccessful performance must not
result in excessive harm.<3>
This bill appears to have a corresponding set of
measuring criteria that include requirements that the
quantifiable results upon which the success of the social
program will be measured be well articulated.
5)The detractors : Critics have stated that because the
outcomes-based payments are dependent on governmental
funds which must be budgeted, pay for success programs do
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<2>
See,
http://www.whitehouse.gov/blog/2013/11/20/building-smarter-m
ore-efficient-government-through-pay-success
<3> Social Impact Bonds, Jeffrey Liebman, Center for
American Progress, February 2011.
SB 593 (Lieu) continued
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not actually raise additional capital for social
programs, but instead displace funding for other
programs, and that, given the need to budget for a return
on investment, a program evaluation, middle managers, and
the expenses of designing the complex financial and
contractual mechanisms, social impact bonds, according to
critics, may be an expensive method of operating social
programs.<4>
A counter argument is that program staff does a better
job when producing results is a prerequisite to getting
paid, which contrasts with the traditional government
worker model, in which performance metrics can be a less
important consideration.
PRIOR/RELATED LEGISLATION
SB 9 (Price) 2013-2014 Session. Would have established the
Office of Social Innovation and Entrepreneurship
Development within the Office of the Governor to establish
partnerships with government agencies, private investors,
nonprofit organizations, and for-profit service providers
to facilitate the use of social impact bonds, as defined,
to address social services needs. (Not heard)
SUPPORT:
California Hospital Association
First 5 LA
Grace (grace-inc.org)
Homeboy Industries
Los Angeles County Board of Supervisors Chairman Don Knabe,
Fourth District
O'Connor Hospital
Para Los Ninos
Saint Louise Regional Hospital
SEIU-UHW
Seton Medical Center
Shields For Families
St. John's Well Child and Family Center
St. Joseph Center
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<4> Risky Business: Social Impact Bonds and public
services,
http://www.smf.co.uk/files/7713/7518/4818/Risky_Business_fin
al.pdf
SB 593 (Lieu) continued
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St. Vincent Medical Center
OPPOSE:
None on file
FISCAL COMMITTEE: Senate Appropriations Committee
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