BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                            



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          |SENATE RULES COMMITTEE            |                        SB 593|
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                                 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  
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          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  

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            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  

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               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  

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            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  

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          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

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