BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Kevin de León, Chair SB 593 (Lieu) - Social Impact Partnership Pilot Program. Amended: January 6, 2014 Policy Vote: GO 6-0 Urgency: No Mandate: No Hearing Date: January 21, 2014 Consultant: Mark McKenzie This bill meets the criteria for referral to the Suspense File. Bill Summary: SB 593 would require the Governor's Office of Planning and Research (OPR) to administer the Social Impact Partnership Pilot Program until January 1, 2020. The bill would require OPR to identify and submit at least three proposed "social impact partnerships" annually to the Legislature for consideration with the May Revision of the Governor's Budget, and to enter into a contract with an applicant to provide an alternative method for delivering state services to a defined population, upon appropriation of sufficient funding by the Legislature, as specified. Fiscal Impact: One-time costs of approximately $125,000 in 2014-15 for OPR to develop and adopt regulations governing the administration of the pilot program (General Fund). Estimated program administration costs in the range of $150,000 to $200,000 in 2015-16, including initial outreach costs, and ongoing annual costs in the range of $150,000 (General Fund). Unknown future cost pressures related to funding any proposed social impact partnership contracts. Any potential costs or savings would depend upon the provisions in any future contracts for services pursuant to these partnerships. Background: A "pay for success" or "social impact contract" is 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 SB 593 (Lieu) Page 1 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 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 2014 Budget includes a new $300 million Pay for Success Initiative Fund at the Department of the Treasury to help states and local governments implement "pay for success" programs with philanthropies, nonprofits, and other non-governmental organizations to test new models for providing services. Proposed Law: SB 593 would establish the Social Impact Partnership Pilot Program, administered by OPR, until January 1, 2020. Specifically, this bill would: Define "social impact partnership" or "pay for success contract" as a contract for services that are traditionally provided by state programs and funding to address a defined demographic group's needs, in a way that improves outcomes and lowers costs because payment is made upon achievement of measured results. Require the Director of OPR to identify and submit at least three proposed social impact partnerships to the Legislature for consideration with the May Revision of the Governor's Budget, beginning in 2015. Require OPR to consult with agencies and departments responsible for administering any state program affected by a social impact partnership prior to submission of a proposal to the Legislature. Require each submission to include: a description of the proposed social program; a description of the organization's experience in providing the proposed program; demonstration of the financial stability of the organization; identification of each component of the program and how it will be provided; a description of any recruitment or selection process for program participants; proposed quantifiable results upon which the program will be measured; and an itemization of all expenses subject to reimbursement under the contract. Require OPR to enter into a contract with an approved SB 593 (Lieu) Page 2 applicant, upon appropriation of sufficient funds by the Legislature to the Social Innovation Financing Trust Fund (created by this bill). Require each contract to include the following components: a requirement that payment be conditioned upon achievement of specified outcomes and performance targets; an objective process for evaluating achievement of performance targets by an independent evaluator; a calculation of the amount and timing of payments to the service provider each year upon achievement of targets; and a determination that the contract will result in significant performance improvements and budgetary savings if targets are achieved. Require OPR to submit an annual report to the Governor and Legislature on the status of any ongoing social impact partnerships, as specified, and an accounting of the Social Innovation Financing Trust Fund. The pilot program would sunset on January 1, 2020. Related Legislation: SB 9 (Price), introduced in 2013, would establish 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 service needs. The bill has not been heard in policy committee. Staff Comments: Considering the bill would not go into effect until January 1, 2015, it is unlikely that OPR would have sufficient time to develop and adopt regulations, conduct any necessary outreach, solicit and evaluate applications, consult with state agencies and departments, and submit proposals for consideration by the Legislature with the 2015 May Revision of the Governor's Budget.