Amended in Senate August 4, 2014

Amended in Assembly May 1, 2014

California Legislature—2013–14 Regular Session

Assembly Bill No. 1837

Introduced by Assembly Member Atkins

(Coauthors: Assembly Members Fox, Medina, and V. Manuel Pérez)

February 18, 2014

begin delete An act to amend Section 13997.6 of, and to add Article 4.5 (commencing with Section 12096.6) to Chapter 1.6 of Part 2 of Division 3 of Title 2 of, the Government Code, relating to state government. end delete begin insert An act to add and repeal Title 15.8 (commencing with Section 97008) of, and to repeal Section 97013 of, the Government Code, relating to corrections. end insert

LEGISLATIVE COUNSEL’S DIGEST

AB 1837, as amended, Atkins. begin delete Governor’s Office of Business and Economic Development: social innovation financing. end delete begin insert Board of State and Community Corrections. end insert

begin insert

Existing law establishes the Board of State and Community Corrections to collect and maintain available information and data about state and community correctional policies, practices, capacities, and needs, as specified. Existing law also requires the board to develop incentives for units of local government to develop comprehensive regional partnerships whereby adjacent jurisdictions pool grant funds in order to deliver services to a broader target population and maximize the impact of state funds at the local level.

end insert begin insert

This bill would enact, until January 1, 2020, the Social Innovation Financing Program, and would require the board to administer the program. The bill would authorize the Chair of the Board of State and Community Corrections, upon appropriation of funds by the Legislature for deposit in the Recidivism Reduction Fund, to award grants in amounts of not less than $500,000 and not more than $2,000,000 to each of 3 counties, selected as specified, for the purpose of entering into a pay for success or social innovation financing contract, pursuant to which private investors agree to provide financing to service providers to achieve social outcomes agreed upon in advance and the government agency agrees to pay a return on the investment to the investors if successful programmatic outcomes are achieved by the service provider. The bill would limit the total amount of the grants awarded to $5,000,000. The bill would require the chair to report annually to the Governor and Legislature on the status of program. The bill would also make legislative findings and declarations in this regard.

end insert begin delete

The Economic Revitalization Act establishes the Governor’s Office of Business and Economic Development, also known as “GO-Biz.” GO-Biz, among other duties, serves the Governor as the lead entity for economic strategy and the marketing of California on issues relating to business development, private sector investment, and economic growth.

end delete begin delete

This bill would require GO-Biz to serve as the lead entity for efforts to explore social innovation financing, as defined. The bill would also require GO-Biz to develop recommendations for implementing social innovation finance models, including performance-based contracts, as defined, for achieving measurable social benefits. The bill would authorize GO-Biz to establish an advisory board to help guide the implementation of the act.

end delete begin delete

Other existing law creates the California Economic Development Fund in the State Treasury for the purpose of receiving federal, state, local, and private economic development funds, and receiving repayment of loans or grant proceeds and interest on those loans or grants.

end delete begin delete

The bill would establish the Social Innovation Account within the fund for the purpose of receiving federal, state, and local governmental moneys and private moneys to be used to implement social innovation financing methods. The bill would authorize GO-Biz to accept nonstate moneys for the purposes of facilitating, administering, or collaborating on social innovation financing and implementing performance-based contracts. The bill would require GO-Biz to post on its Internet Web site prescribed information on private donations. The bill would authorize GO-Biz to expend moneys in the account, upon appropriation, to make payments to private investors and service providers and to fund other expenditures directly related to performance-based contracts and other social innovation financing methods and models.

end delete begin delete

The bill would also make legislative findings and declarations in this regard.

end delete

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

The Legislature finds and declares all of the
following:

(a) It is the intent of the Legislature to establish partnerships
between begin insert local end insert governmental agencies, private investors, nonprofit
organizations, and for-profit service providers to facilitate the use
of social innovation financing to achieve measurable social
benefits.

(b) Social innovation financing and the use of
performance-based contracting can serve as an effective tool for
addressing social and community development challenges where
private sector innovations may be useful and multiple approaches
may be appropriate. Research shows that the selection and design
of these types of social interventions should be done with care in
order to ensure successful outcomes. Among other criteria, selected
projects should meet the following requirements:

(1) Address social needs that are unmet, high priority, and
large-scale.

(2) Address target populations that are well-defined and can be
measured with scientific rigor.

(3) Result in outcomes that are credible and readily available
by cost-effective means.

(4) Propose interventions that are highly likely to achieve
targeted impact goals.

(5) Be carried out by proven service providers that are prepared
to scale with quality.

(6) Include safeguards to protect the well-being of the
populations served.

(7) Be cost-effective programs that can demonstrate financial
savings for government.

begin delete

(c) The focus of initial social innovation financing efforts should
be toward decreasing recidivism rates in our criminal justice
system, reducing homelessness, and promoting workforce
development.

end delete

begin delete

SEC. 2.  

Article 4.5 (commencing with Section 12096.6) is
added to Chapter 1.6 of Part 2 of Division 3 of Title 2 of the Government Code, to read:

 

Article 4.5.  Social Innovation Financing

 

12096.6.  

(a) The office shall serve as the lead entity for efforts
to explore social innovation financing and provide technical
assistance to local governments that are exploring the creation of
social innovation financing.

(b) The office shall develop recommendations for implementing
social innovation finance models, including performance-based
contracts for achieving measurable social benefits. These
recommendations shall include, but are not limited to, the
following:

(1) Strategies for engaging with private investors, nonprofit
organizations, and for-profit and nonprofit service providers.

(2) Parameters for determining which projects are appropriate
for performance-based contracts.

(3) Parameters for establishing baseline, setting performance
metrics, and measurable outcomes.

(4) A model for a performance-based contract, including
parameters for writing a statement of work and quality standards
that encompasses the requirements of paragraph (3).

(c) The office may establish an advisory board to help guide
the implementation of this chapter.

(d) As used in this section only:

(1) “Performance-based contracts” means contractual
agreements between government, private investors, and service
providers where private investors agree to provide up-front
financing to service providers to achieve social outcomes agreed
upon in advance and the government agency agrees to pay a return
on investment to the investors if successful programmatic outcomes
are achieved by the service provider.

(2) “Social innovation financing” means an investment
arrangement using private funding to finance a social program
administered by a nonprofit organization or for-profit service
provider on behalf of a government agency pursuant to a
performance-based contract.

SEC. 3.  

Section 13997.6 of the Government Code is amended
to read:

13997.6.  

(a) The California Economic Development Fund is
hereby created in the State Treasury for the purpose of receiving
federal, state, local, and private economic development funds, and
receiving repayment of loans or grant proceeds and interest on
those loans or grants.

(b) Upon appropriation by the Legislature, moneys in the
California Economic Development Fund may be expended by the
Governor’s Office of Business and Economic Development to
provide matching funds for loans or grants to public agencies,
nonprofit organizations, and private entities, and for other economic
development purposes, consistent with the purposes for which the
moneys were received.

(c) (1) The Social Innovation Account is hereby established
within the California Economic Development Fund for the purpose
of receiving federal, state, and local governmental moneys and
private moneys that will be used to implement social innovation
financing methods including performance-based contracts, as
defined and authorized in Section 12096.6.

(2) (A) The Governor’s Office of Business and Economic
Development may accept nonstate moneys, including, but not
limited to, private sector funds, for the purposes of facilitating,
administering, or collaborating on social innovation financing and
implementing performance-based contracts.

(B) The Governor’s Office of Business and Economic
Development, for each private donation that it receives to fund a
social innovation finance activity or performance-based contract,
shall post a report on its Internet Web site within 30 days of
receiving that donation. The report shall contain all of the following
information:

(i) The name and address of the donor.

(ii) The amount of the donation.

(iii) The date the donation was made.

(iv) The name and address of the entity receiving or using the
donation.

(v) A brief description of the goods or services provided or
purchased, if any.

(vi) A description of the specific purpose or event for which the
donation was made, if any.

(3) Upon appropriation by the Legislature, the Governor’s Office
of Business and Economic Development may expend moneys in
the Social Innovation Account to make payments to private
investors and service providers and to fund other expenditures
directly related to performance-based contracts and other social
innovation financing methods and models.

end delete

begin insert

begin insert SEC. 2. end insert   

end insert

begin insert Title 15.8 (commencing with Section 97008) is added
to the end insert begin insert Government Code end insert begin insert , to read: end insert

begin insert

 

Title  begin insert 15.8. end insert   Social Innovation Financing Program

 

begin insert 97008. end insert   

For purposes of this title, the following definitions
apply:

(a) “Board” means the Board of State and Community
Corrections.

(b) “Chair” means the Chair of the Board of State and
Community Corrections.

(c) “Social innovation financing contract,” which may also be
known and referred to as a “pay for success contract,” refers to
a contractual agreement between government, private investors,
and service providers pursuant to which private investors agree
to provide financing to service providers to achieve social
outcomes agreed upon in advance and the government agency
agrees to pay a return on the investment to the investors if
successful programmatic outcomes are achieved by the service
provider.

begin insert 97009. end insert   

(a) It is the intent of the Legislature that as part of the
package to reduce recidivism in California, the concept of “pay
for success” or social innovation financing should be included to
take advantage of available philanthropic and private investment.

(b) The Legislature hereby declares that a variety of approaches
have been shown to be successful in reducing recidivism, including
addressing homelessness, substance abuse, and workforce
participation within specific demographic groups.

begin insert 97010. end insert   

(a) There is hereby established the Social Innovation
Financing Program.

(b) The board shall administer the Social Innovation Financing
Program.

(c) (1) The chair shall solicit proposals for social innovation
financing from county boards of supervisors and shall select three
counties to receive grant funding.

(2) Before awarding a grant pursuant to paragraph (1), the
chair shall consult with the board regarding the quality of the
proposal for which the grant is to be awarded.

(3) At a minimum, each application for a grant shall 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 the manner in which 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.

(H) An itemization of all expenses proposed to be reimbursed
under the contract.

(I) The amount of matching funds provided by the county.

(J) A description of how the final payments for successful
programmatic outcomes are structured in the contract.

(K) A description of all parties to the proposed contract,
including prospective investors and philanthropic foundations.

begin insert 97011. end insert   

(a) Upon appropriation of funds by the Legislature for
deposit in the Recidivism Reduction Fund for the purposes of this
title, the chair shall award a grant in an amount of not less than
five hundred thousand dollars ($500,000) and not more than two
million dollars ($2,000,000) to each county selected pursuant to
Section 97010 for the purposes of entering into a pay for success
or social innovation financing contract. The total amount of the
grants awarded pursuant to this section shall not exceed five
million dollars ($5,000,000). Any unused state moneys shall revert
to the General Fund.

(b) Each contract described in subdivision (a) shall include all
of the following:

(1) A requirement that the payment be conditioned on the
achievement of specific outcomes based upon defined performance
targets.

(2) An objective process by which an independent evaluator,
selected by the chair, will determine whether the performance
targets have been achieved.

(3) A calculation of the amount and timing of payments that
would be earned by the service provider during each year of the
agreement if performance targets are achieved as determined by
the independent evaluator.

(4) A determination by the county that the contract will result
in significant performance improvements and budgetary savings
if the performance targets are achieved.

(5) A requirement that an amount equal to a minimum of 100
percent of the Social Innovation Financing Program grant awarded
to the county be matched by other county, federal, or private,
including philanthropic, funds. The board may adopt regulations
allowing in-kind contributions in lieu of monetary contributions
for this purpose.

(c) Up to 10 percent of the grant funds awarded pursuant to
this title may be used by the counties for administrative expenses
related to the development of the pay for success or social
innovation financing contract. The remainder shall be contributed
toward final payments to investors for successful programmatic
outcomes achieved, as stipulated in the contract.

(d) If, after receiving a grant pursuant to this title, a county
does not enter into a contract for which the grant was awarded,
the county shall return all moneys awarded by the board pursuant
to this title, to the state.

begin insert 97012. end insert   

(a) The board may adopt regulations to implement this
title.

(b) The board is encouraged to consult with relevant state
agencies and departments in the evaluation of the social innovation
financing program, including, but not limited to, the Governor’s
Office of Business and Economic Development and the Office of
Health Equity, in order to determine the efficiency and viability
of proposals.

(c) The board may adopt a reasonable grant application fee
that is sufficient to cover the expenses incurred by the board in
reviewing an application for a grant pursuant to this title.

begin insert 97013. end insert   

(a) The chair shall report annually to the Governor
and Legislature on the status of each ongoing social innovation
financing program, including, but not limited to, a description of
the desired outcome and an overview of the independent
evaluator’s findings. The report shall also contain an accounting
of the moneys awarded.

(b) A report made pursuant to this section shall be made in
accordance with the requirements of Section 9795.

(c)  This section shall remain in effect only until January 1,
2020, and as of that date is repealed, unless a later enacted statute,
that is enacted before January 1, 2020, deletes or extends that
date.

begin insert 97014. end insert   

This title does not create a statutory entitlement to
services or any contractual obligation on the part of the state.

begin insert 97015. end insert   

This title shall remain in effect only until January 1,
2020, and as of that date is repealed, unless a later enacted statute,
that is enacted before January 1, 2020, deletes or extends that
date.

end insert