BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 593| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- UNFINISHED BUSINESS Bill No: SB 593 Author: Lieu (D) Amended: 8/22/14 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 SENATE FLOOR : 35-0, 1/30/14 AYES: Anderson, Beall, Berryhill, Block, Calderon, Corbett, Correa, De León, DeSaulnier, Evans, Fuller, Gaines, Galgiani, Hancock, Hernandez, Hill, Hueso, Huff, Jackson, Knight, Lara, Leno, Lieu, Liu, Mitchell, Monning, Padilla, Roth, Steinberg, Torres, Vidak, Walters, Wolk, Wyland, Yee NO VOTE RECORDED: Cannella, Nielsen, Pavley, Wright, Vacancy ASSEMBLY FLOOR : 75-1, 8/26/14 - See last page for vote SUBJECT : Social impact partnerships: pilot program SOURCE : GRACE DIGEST : This bill establishes the Social Impact Partnership Pilot Program and authorizes the Governor to solicit applications for the establishment of new social impact CONTINUED SB 593 Page 2 partnerships (SIPs) with private entities in order to address significant social issues; provides that these partnerships are to be formalized through a pay-for-success contract, which sets the evaluation metrics, quality standards, and timelines; states that if the conditions of the pay-for-success contract are not met, the state pays nothing; requires that the terms and conditions of the pay-for-success contract be submitted to the Legislature as part of the Governor's budget; and prohibits contracts from moving forward until the Legislature has approved the funding. Assembly Amendments delete the requirement that the Office of Planning and Research conduct the Social Impact Partnership Pilot Program and the creation of the Social Innovation Financing Trust Fund; authorize the Governor to solicit proposals for SIPs; add legislative findings and declarations regarding SIPs; specify accounting requirements for the State Treasurer; establish additional requirements for pay-for-success contracts; and define terms. ANALYSIS : Existing law establishes OPR and sets forth its powers and duties as the comprehensive state planning agency. This bill: 1.Makes legislative findings and declarations stating that social innovation financing (SIF) and the use of pay-for-success contracting are an especially effective tool for addressing social and community development challenges where private sector innovations are needed and multiple approaches are appropriate; and authorizing the state to enter into pay-for-success contracts to meet state goals to reduce recidivism and improve outcomes in the child welfare system. 2.Creates the Social Impact Partnerships Pilot Program. 3.Defines the terms "pay-for-success contract," "social impact partnership," and "social innovation financing." 4.Provides that pay-for-success contracts may be entered into, subject to this bill's conditions and requirements, (a) to address programs or policies not current funded by the state, (b) to address a particular component of a state program in order to improve outcomes or lower state costs; (c) to reduce CONTINUED SB 593 Page 3 recidivism; and (d) to reduce child abuse and neglect to assist at-risk and foster children. 5.Specifies that SIPs may not be used in lieu of funding or administering an existing state program nor cause the displacement of any state employee. 6.Authorizes the Governor, or his/her designee, to solicit proposals for SIPs using pay-for-success contracting, and requires each application for a contract to include specified information; and authorizes the Governor to enter into SIPs, as specified. 7.Requires a pay-for-success contract for an SIP to be submitted to the Legislature as part of the Governor's proposed budget, and any funding necessary for that fiscal year to be included in the Governor's proposed budget for the state agency that administers or oversees the contract. 8.Requires the State Treasurer to separately account for monies for pay-for-success contracts that have been approved by the Legislature and the Governor to use for payment for these contracts, upon appropriation by the Legislature. 9.Sunsets these provisions 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 CONTINUED SB 593 Page 4 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 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 Assembly Appropriations Committee: Unknown future cost pressures, likely in the millions, related to funding any proposed social impact partnership contracts. Any potential costs or savings will depend upon the provisions in any future contracts for services pursuant to these partnerships. Funding and approval of these projects are CONTINUED SB 593 Page 5 required to be included in the annual budget act. 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 will 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 will be dedicated to preparing a report for the Legislature. SUPPORT : (Verified 1/23/14) (Unable to reverify at time of writing) GRACE (source) California Hospital Association 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 SIPs 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 CONTINUED SB 593 Page 6 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." ASSEMBLY FLOOR : 75-1, 8/26/14 AYES: Achadjian, Alejo, Ammiano, Bigelow, Bloom, Bocanegra, Bonilla, Bonta, Bradford, Brown, Buchanan, Ian Calderon, Campos, Chau, Chávez, Chesbro, Conway, Cooley, Dababneh, Dahle, Daly, Dickinson, Donnelly, Eggman, Fong, Fox, Frazier, Beth Gaines, Garcia, Gatto, Gomez, Gonzalez, Gordon, Gorell, Gray, Grove, Hagman, Hall, Harkey, Roger Hernández, Holden, Jones, Jones-Sawyer, Levine, Linder, Logue, Lowenthal, Maienschein, Medina, Melendez, Mullin, Nazarian, Nestande, Olsen, Pan, Perea, John A. Pérez, V. Manuel Pérez, Quirk, Quirk-Silva, Rendon, Ridley-Thomas, Rodriguez, Salas, Skinner, Stone, Ting, Wagner, Waldron, Weber, Wieckowski, Wilk, Williams, Yamada, Atkins NOES: Allen NO VOTE RECORDED: Mansoor, Muratsuchi, Patterson, Vacancy MW:ed 8/27/14 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED