BILL ANALYSIS Ó
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THIRD READING
Bill No: SB 593
Author: Lieu (D)
Amended: 1/27/14
Vote: 21
SENATE GOVERNMENTAL ORGANIZATION COMMITTEE : 6-0, 1/14/14
AYES: Berryhill, Cannella, Hernandez, Lieu, Padilla, Torres
NO VOTE RECORDED: Wright, Correa, De León, Galgiani, Vacancy
SENATE APPROPRIATIONS COMMITTEE : 6-0, 1/23/14
AYES: De León, Gaines, Hill, Lara, Padilla, Steinberg
NO VOTE RECORDED: Walters
SUBJECT : Social impact partnerships: pilot program
SOURCE : GRACE
DIGEST : This bill requires the Governor's Office of Planning
and Research (OPR) to conduct a Social Impact Partnership Pilot
Program; and permits OPR to identify and submit proposed social
impact partnerships to the Legislature for consideration with
the May Revision of the Governor's Budget each year beginning in
2015.
ANALYSIS : Existing law establishes OPR and sets forth its
powers and duties as the comprehensive state planning agency.
This bill requires OPR to conduct a Social Impact Partnership
Pilot Program. Specifically, this bill:
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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
Partnership Pilot Program.
3.Permits the OPR Director to identify and submit proposed
social impact partnerships to the chairs of the Senate and
Assembly budget committees, and the chairs of the relevant
subcommittee for consideration with the May Revision of the
Governor's Budget each year, beginning in 2015.
4.Requires the OPR Director, 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; and
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H. An itemization of all expenses proposed to be reimbursed
under the contract.
1.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.
2.Authorizes OPR to adopt regulations to implement the program.
3.Requires OPR to adopt an application fee that is sufficient to
cover expenses incurred by OPR, including startup costs.
4.Requires the OPR Director to report annually to the Governor
and Legislature on the status of ongoing social impact
partnerships and the Social Innovation Financing Trust Fund.
5.Sunsets the pilot program on January 1, 2020.
Background
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 ("What is Pay for success?"):
"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."
Federal government incentives for state and local governments .
In November 2013, the U.S. Department of the Treasury issued a
Request for Information that will help design a proposed $300
million Incentive Fund to further expand pay for success
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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.
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.
Program challenges . According to a recent study (Social Impact
Bonds, Jeffrey Liebman, Center for American Progress, February
2011), these social impact/pay for success programs will work
only for interventions that meet specified criteria, including
(1) the interventions must have sufficiently high net benefits;
(2) the interventions must have measurable outcomes; (3) the
treatment population must be well-defined up front; (4) impact
assessments must be credible; and (5) unsuccessful performance
must not result in excessive harm.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee:
One-time costs of approximately $125,000 to promulgate
regulations (General Fund).
First year program administration costs of approximately
$175,000, with ongoing annual costs in the range of $150,000
(General Fund).
Costs could be partially offset by application fees.
SUPPORT : (Verified 1/23/14)
GRACE (source)
California Hospital Association
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Catholic Charities of Santa Clara County
First 5 LA
Homeboy Industries
LAX Coastal Chamber of Commerce
Los Angeles Area Chamber of Commerce
Los Angeles County Board of Supervisors, Chairman Don Knabe
Los Angeles Junior Chamber of Commerce
Los Angeles Times Editorial Board
O'Connor Hospital
Para Los Niños
SEIU-UHW
Seton Medical Center
Shields for Families
St. Francis Medical Center
St. John's Well Child and Family Center
St. Joseph Center
St. Louise Regional Hospital
St. Vincent Medical Center
ARGUMENTS IN SUPPORT : According to the author's office, this
bill adds California to the growing list of governmental
entities that are pursuing Social Impact Partnerships which are
"a promising new financing mechanism for social programs. They
have been a bi-partisan approach used by other states as well as
the Obama Administration, which has a major initiative to expand
their use. This financing mechanism offers government a way to
partner with the non-profit and private sector to spur
innovation in social programs, but by setting specific goals
that can be measured, government only pays for success."
MW:e 1/24/14 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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