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 23, 2014
Consultant: Mark McKenzie
SUSPENSE FILE. AS PROPOSED TO BE AMENDED.
Bill Summary: SB 593 would authorize the Governor's Office of
Planning and Research (OPR) to administer the Social Impact
Partnership Pilot Program until January 1, 2020. The bill would
authorize OPR to identify and submit proposed "social impact
partnerships" annually to the Legislature for consideration with
the May Revision of the Governor's Budget, and require OPR 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). These
costs could be reimbursed from application fees, to the
extent there are a sufficient number of applicants and the
amount of the fee established by OPR.
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). These costs could be at least partially
offset by fees on project applicants, depending on whether
there are a sufficient number of applicants and the amount
of the fee established by OPR.
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.
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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
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
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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
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.
PROPOSED AMENDMENTS would delete the requirement that OPR submit
three social impact partnership proposals to the Legislature
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each year, and instead authorize OPR to submit proposals to the
Legislature annually. The proposed amendments would also
require OPR to establish an application fee sufficient to cover
OPR's expenses, including startup costs, and make several
technical changes.