BILL ANALYSIS Ó
SB 593
Page 1
SENATE THIRD READING
SB 593 (Lieu)
As Amended August 22, 2014
Majority vote
SENATE VOTE :35-0
ECONOMIC DEVELOPMENT 7-0 APPROPRIATIONS 17-0
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|Ayes:|Medina, Campos, Daly, |Ayes:|Gatto, Bigelow, |
| |Fong, Fox, Linder, | |Bocanegra, Bradford, Ian |
| |Melendez | |Calderon, Campos, |
| | | |Donnelly, Eggman, Gomez, |
| | | |Holden, Jones, Linder, |
| | | |Pan, Quirk, Ridley-Thomas |
| | | |Wagner, Weber |
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SUMMARY : Establishes the Social Impact Partnership pilot
program and authorizes the Governor to solicit applications for
the establishment of new social impact partnerships with private
entities in order to address significant social issues
including, but not limited to, child abuse, job preparedness for
youth, and high recidivism rates among the state's prison
population. These partnerships are to be formalized through a
pay-for-success contract, which sets the evaluation metrics,
quality standards, and timelines. If the conditions of the
pay-for-success contract are not met, the state pays nothing.
This bill requires that the terms and conditions of the
pay-for-success contract be submitted to the Legislature as part
of the Governor's budget. Contracts are prohibited to move
forward until the Legislature has approved the funding.
FISCAL EFFECT : According to the Assembly Appropriations
Committee:
1)Unknown future cost pressures, likely in the millions, 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. Funding and approval of these projects
are required to be included in the annual budget act.
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2)Administrative costs to the state agency assigned to
administer the program, potentially in the hundreds of
thousands, to solicit, evaluate and select proposals for
social impact partnerships. Because this type of contract
would be new both for state staff and for many of the
potential proposals, the amount of time needed to develop the
solicitation document and respond to inquiries from interested
parties may be considerable. Given the potential range and
complexity of social impact partnership proposals,
consultation with outside experts may also be necessary.
Additional time would be dedicated to preparing a report for
the Legislature.
COMMENTS : This bill establishes a framework for undertaking
social impact partnerships between the public and private
sectors including state and local governments, service
providers, and foundations and investors. Social impact
partnerships have demonstrated that they can help governments
meet the unique needs of targeted populations, including foster
youth and individuals released from prison. The measure calls
for the establishment of one or more pilot projects as a means
for the state to learn how to effectively operationalize the use
of pay-for-success and performance-based contracts, as well as
achieving measurable positive outcomes for the individuals
participating in the pilot projects.
In deliberating the merits of the measure, Members may wish to
consider the state's limited resources to address complex social
problems, and the significant amount of work that has previously
been done by impact investors, foundations, and other states in
the area of social impact partnerships that could benefit
California. Amendments taken in Assembly Appropriations
Committee remove any conflicts between this bill and AB 1837
(Atkins) of the current legislative session, which authorizes
the Board of State and Community Corrections to administer a
program to provide funding to local governments to utilize
social innovation financing models to reduce recidivism rates
among formerly incarcerated individuals.
Federal Lessons on Performance-Based Contracting:
Performance-based contracting is designed to ensure that
contractors are given the freedom to determine how best to meet
the government's performance objectives, while allowing
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governments to only pay for those services that meet the
pre-determined quality and performance levels. This is not a
new concept, but it is growing in popularity as governments face
tighter budgets and become more open to using private sector
innovations to address social challenges where "one size" will
not fit all.
The United States Department of Defense was an early pioneer in
the use of performance based contracting. One early study
suggests that the model resulted in an average 15% reduction in
contract price, and an 18% improvement in satisfaction with the
contractor's work. Although a documented success, this early
research also identified a number of key challenges government
faced when using performance-based contracts, including
identification of which service contracts were best suited to
the model, preparation of a sufficiently focused statement of
work, and ensuring quality standards were being met. Under this
bill, state agencies participating in the pilot projects will
have an opportunity to examine these types of issues and make
recommendations on how best to move forward with
performance-based contracts.
Innovating Performance-Based Contracts: Since the 1990s,
performance-based contracts have evolved to better address
social service and community development challenges. One of the
key changes is the funding method, whereby a third party
finances the initial service contract and is then paid at a
premium rate by the government upon successful completion of the
contract. If the measurable outcome is not achieved, the third
party financer receives no money. Several states and major
metropolitan areas are currently using or are preparing to use
social innovation financing including Massachusetts, to address
both chronic homelessness and high recidivism rates among
juvenile offenders.
Recent Federal Activity: As noted above, the federal government
has been using performance-based contracting for over two
decades. The Obama Administration awarded nearly $24 million in
pay-for-success grants, which are one type of performance-based
contracts, to states including New York ($12 million) and
Massachusetts ($11.67 million). In January 2014, the White
House Office of Science and Technology Policy released a Request
for Information designed to accelerate the development,
evaluation, and adoption of high-impact learning technologies
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using pay-for-success contracts and other types of social
innovation financing.
All this suggests that additional federal funds will become
available. Implementation of this bill and AB 1837 will help
California prepare to access these moneys in a manner that is
thoughtful and appropriate for the state.
Analysis Prepared by : Toni Symonds / J., E.D. & E. / (916)
319-2090 FN:
0005301