BILL ANALYSIS �
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|Hearing Date:June 23, 2014 |Bill No:AB |
| |1837 |
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SENATE COMMITTEE ON BUSINESS, PROFESSIONS
AND ECONOMIC DEVELOPMENT
Senator Ted W. Lieu, Chair
Bill No: AB 1837Author:Atkins
As Amended: May 1, 2014 Fiscal: Yes
SUBJECT: Governor's Office of Business and Economic Development:
social innovation financing.
SUMMARY: Establishes the Governor's Office of Business and Economic
Development (GO-Biz) as the lead state entity for state efforts
related to social innovation financing and tasks GO-Biz with providing
technical assistance to local governments that are exploring the
creation of social innovation financing.
Existing law:
1)Federal law establishes the Social Innovation Funds (SIF) grant
program to make grants on a competitive basis to eligible entities.
(42 USCS � 12653k)
2)Establishes GO-Biz within the Governor's Office for the purpose of
serving as the lead state entity for economic strategy and marketing
of California on issues relating to business development, private
sector investment and economic growth. GO-Biz also serves as the
administrative oversight for the California Business Investment
Service and the Office of the Small Business Advocate. (Government
Code (GC) �12096 et. seq.)
3)Establishes processes and accountability measures for GO-Biz to
accept private monies to fund, establish and operate international
trade offices. (GC � 13997)
This bill:
1)States Legislative intent to establish partnerships between
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governmental agencies, private investors, nonprofit organizations,
and for-profit service providers to facilitate the use of social
innovation financing to achieve measurable social benefits.
2)Makes findings and declarations that social innovation financing
(SIF) 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. States that research shows
that the selection and design of these types of social interventions
should be done with care in order to ensure successful outcomes.
States that among other criteria, selected projects should: address
social needs that are unmet, high priority, and large-scale; address
target populations that are well-defined and can be measured with
scientific rigor; result in outcomes that are credible and readily
available by cost-effective means; propose interventions that are
highly likely to achieve targeted impact goals; be carried out by
proven service providers that are prepared to scale with quality;
include safeguards to protect the well-being of the populations
served; be cost-effective programs that can demonstrate financial
savings for government.
3)Provides that the focus of initial SIF efforts should be toward
decreasing recidivism rates in our criminal justice system, reducing
homelessness, and promoting workforce development.
4)Requires GO-Biz to serve as the lead entity for efforts to explore
SIF and provide technical assistance to local governments that are
exploring the creation of SIF.
5)Requires GO-Biz to develop recommendations for implementing SIF
models, including performance-based contracts for achieving
measurable social benefits. Provides that recommendations shall
include but not be limited to:
a) Strategies for engaging with private investors, nonprofit
organizations, and for-profit and nonprofit service providers.
b) Parameters for determining which projects are appropriate for
performance-based contracts.
c) Parameters for establishing baseline, setting performance
metrics, and measurable outcomes.
d) A model for a performance-based contract, including parameters
for writing a statement of work and quality standards that
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encompasses the requirements of paragraph (3).
1)Authorizes GO-Biz to establish an advisory board for SIF.
2)Makes the following definitions:
a) "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.
b) "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.
1)Creates the Social Innovation Account 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 SIF methods including performance-based contracts.
2)Authorizes GO-Biz to accept nonstate moneys, including, but not
limited to, private sector funds, for the purposes of facilitating,
administering, or collaborating on SIF and implementing
performance-based contracts.
3)Creates accountability requirements for each private donation GO-Biz
receives to fund SIF activity or performance-based contract,
including posting a report on the GO-Biz Internet Web site within 30
days of receiving that donation that contains the name and address
of the donor, the amount of the donation, the date the donation was
made, the name and address of the entity receiving or using the
donation, a brief description of the goods or services provided or
purchased, if any, a description of the specific purpose or event
for which the donation was made, if any.
4)Authorizes GO-Biz to 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.
FISCAL EFFECT: This bill is keyed fiscal by Legislative Counsel.
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According to the Assembly Committee on Appropriations analysis dated
May 7, 2014, this bill will result in one-time costs to the General
Fund costs of approximately $375,000, and ongoing costs of
approximately $200,000 for GO-Biz to administer the program.
COMMENTS:
1. Purpose. This bill is sponsored by the Author . According to the
Author, "in times of economic uncertainty, ongoing budget
liabilities, and volatile revenue streams, one of the biggest
challenges government encounters is finding upfront resources to
invest in innovation. Even when innovative strategies have proven
to be successful through research, pilot programs, and data,
finding upfront investment to expand successful programs amidst
competing priorities proves to be an enormous barrier. The
unfortunate reality is California misses out on improved outcomes
that save governments and taxpayers' money simply because we can't
find the startup money to fund successful intervention. California
should be open to tools that encourage more investment to
accomplish measurable social benefit, save taxpayer money, and meet
public policy goals. Social innovation financing is one such tool."
The Author asserts that by identifying GO-Biz as the lead entity
for SIF, this bill sets California on a path to better tap into
private and philanthropic resources, support local governments that
are already exploring these partnerships, and take advantage of
future federal funding for social innovation.
2. Background on SIF. This Committee held a hearing in June of 2013
titled "What is the Role of Social Innovation Financing in
California? Are We Ready for Social Impact Bonds?" The hearing
outlined the social impact bond, or pay-for-success approach and
highlighted efforts underway by state and local government
throughout the nation to explore these opportunities.
Social Impact Partnerships (SIP), also known as "Social Impact
Bonds (SIBs)," "Social Innovation Financing (SIF)," and "Pay for
Success Contracts" are a financing mechanism for social programs
operated and administered by non-government organizations (NGOs).
The NGO enters into a contract with a local, state or federal
government agency to administer a specific program, including goals
and quantifiable target results with a set time frame by which they
must be achieved. The NGO pays for the entire up-front costs of
providing the service and if the service meets the agreed upon
quantifiable results in the specified time frame, the NGO is in
turn reimbursed by the government for the cost of the service plus
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an agreed upon rate of financial return. If the goals are not met,
the government does not reimburse the NGO and no public monies are
expended. In essence, nonprofit organizations deliver a program
and government only pays if a program succeeds.
SIF is seen as having a number of benefits, including:
Transferring risk away from government and taxpayers; in
that public entities are not subject to repay for services if
the outside organization is unable to achieve the desired
outcome.
An ability to fund preventive services that may provide
cost savings to government money down the road.
An ability to overcome the "silo" problem in government
where agencies may find it difficult to pool resources or
direct money toward effective programs.
According to a recent New York Times article, projects would allow
social activists and philanthropists to be more effective with
their donations and there may be opportunities to put private
venture capital and market discipline and innovation to work
solving social problems that government so far has found
intractable.
1. Examples of SIFs. According to the White House Office of Social
Innovation and Civic Participation, the federal Social Innovation
Fund (SI Fund) is a program of the Corporation for National and
Community Service (CNCS) and combines public and private resources
with the intention of growing "promising community-based solutions
that have evidence of results in any of three priority areas:
economic opportunity, healthy futures, and youth development."
The SI Fund was established in 2009 as part of the bipartisan
Edward M. Kennedy Serve America Act and makes grants to experienced
intermediaries well-positioned within communities to identify the
most promising programs and guide them towards greater impact and
stronger evidence of success. These grants typically range from
$1-5 million annually for up to 5 years. The intermediaries then
match the federal funds dollar-for-dollar and hold open
competitions to identify the most promising nonprofit organizations
working in low-income communities that have evidence of compelling
results. Once selected, these nonprofits must also match the funds
they receive, and participate in rigorous evaluations of the impact
of their programs.
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In addition to funding, SI Fund grantees receive significant
technical assistance from CNCS to support implementation of their
innovative programs. Participation in the SI Fund gives
grant-makers greater visibility and plugs them into a national
network of funders and nonprofits that are committed to fostering
social innovation to improve lives in low-income communities
throughout the U.S.
The SI Fund launched its first competition in April of 2010 and
selected 11 intermediary grantees. These 2010 grantees have made
awards to more than 150 subgrantees serving low-income communities
across the country. The SI Fund began its second competition in
February of 2011, and selected five additional grantees. The SI
Fund initiated its third competition in February of 2012, and will
engage between three and five new grantees. As of February 2012,
$95 million in federal funds have been awarded, and $250 million in
additional private funds have been leveraged through the program.
Over 150 private philanthropic funders have partnered with the SIF
including private foundations, community foundations, corporations,
and individual donors. More than 100 cities in 33 states and the
District of Columbia are being directly impacted by the SI Fund.
Organizations in cities throughout California have received
subgrants from the SI Fund.
Santa Monica (California) was recently selected as a winner of the
Mayor's Challenge sponsored by Bloomberg Philanthropies and Mayor
Michael Bloomberg of New York. The city's proposal, "The Wellbeing
Project" (Project), was based on a premise that cities currently
have no holistic way to measure their success. Under the Project,
Santa Monica aims to become the first city in the nation to measure
and actively improve what really matters to every person in our
community; wellbeing. The city will create a sophisticated single
metric focused on economic vitality, social relationships, health,
education/care, and local environment; a way to measure wellbeing
which will enable the city to manage for better outcomes in these
key areas.
Throughout the nation, SIF relationships are being undertaken by
state governments as a means of enhancing or creating programs to
benefit communities. In 2012, Massachusetts allocated $50 million
for SIP projects to fund programs designed to reduce recidivism
among justice-involved youth and to house chronically homeless
individuals. In 2012, New York City became the first U.S.
jurisdiction to launch a SIP, a $9.6 million project aimed at
reducing recidivism among young men exiting the Rikers Island
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prison facility. The project, with primary investment from Goldman
Sachs and supported by Bloomberg Philanthropies is providing
support through a 75% principal guarantee. In March 2013, New York
approved a $30 million appropriation in support of SIPs over five
years. The federal Department of Labor awarded nearly $24 million
in SIP grants in September 2013, $12 million for New York and
almost $12 million for Massachusetts. In both cases, grants will
support SIPs that increase employment and reduce recidivism among
formerly incarcerated individuals.
California entities have recently entered into contracts with
organizations under the SIF model. With funding from The
California Endowment, Collective Health and Social Finance, Inc.,
Fresno is currently piloting a demonstration project to reduce
costs related to the treatment of children with asthma through
active management. If the pilot program, which launched in April
2013, is successful, the partners plan to scale the intervention
through a SIP. In August 2013, Santa Barbara County released a
Request for Information (RFI) on SIPs and approved a feasibility
study to explore the potential use of pay for success financing in
reducing prisoner recidivism. Santa Clara County recently agreed
to fund a pilot project exploring SIP feasibility in the areas of
reducing chronic homelessness and improving services for the
severely mentally ill. In May 2014, Nonprofit Finance Fund and The
James Irvine Foundation awarded five grants totaling $2.5 million
to projects in Los Angeles County, the City and County of San
Francisco, Santa Clara County, San Diego and the Nurse Family
Partnership.
2. Governor's Office of Business and Economic Development (GO-Biz).
In February 2010, the Little Hoover Commission undertook a review
of the state's economic and workforce development programs. In its
final report, Making up for Lost Ground: Creating a Governor's
Office of Economic Development, it analyzed the status and
effectiveness of current programs since the 2003 demise of the
Technology, Trade and Commerce Agency and recommended the creation
of a new governmental entity to fill the void left by the
dismantled agency.
The report called for a single entity that would promote greater
economic development, foster job creation, serve as a policy
advisor and deliver specific services (i.e., permitting, tax,
regulatory, and other information) directly to the California
business community. In April 2010, Governor Schwarzenegger issued
Executive Order S-05-10 as a means to operationalize the report
recommendations including the creation of the Governor's Office of
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Economic Development (GOED).
In October 2011, the Governor signed AB 29 (cited and described
below), which effectively codified GOED and changed its name to
GO-Biz, effective January 1, 2012. Since its inception, the office
has served over 3,000 businesses, 95% of which are small. The most
frequent types of assistance include help with permit streamlining,
starting a businesses, relocation and expansion of businesses, and
regulatory challenges.
In March 2012, the Governor initiated a reorganization process to
realign the state's administrative structure. Key changes include
dismantling of the Business, Transportation and Housing Agency
(BTH) and the shifting of a number of key programs and services to
GO-Biz including the Small Business Loan Guarantee Program, the
California Travel and Tourism Commission, the California Film
Commission, the Film California First Program and the
Infrastructure and Economic Development Bank (I-Bank). GO-Biz also
administers the "Made In California" program for the purpose of
encouraging consumer product awareness and to foster the purchases
of products manufactured in California. GO-Biz now has authority
for undertaking international trade and foreign investment
activities, including establishing any international trade and
investment office ( AB 2012 , Perez, Statutes of 2012). GO-Biz has
partnered with the Bay Area Council to open a California-China
Trade and Investment office in Shanghai's downtown Yangpu district
and is authorized under current law to accept private monies to
establish, fund and operate these offices.
3. Related Legislation This Year. SB 593 (Lieu) would allow the
Governor to solicit and then submit three proposed Social Impact
Partnerships to the Legislature's budget committees for
consideration to reduce recidivism and improve outcomes in the
child welfare system. ( Status : This bill is currently pending in
the Assembly Committee on Jobs, Economic Development and the
Economy.)
AB 495 (Campos) establishes the California Community Investment
Program within GO-Biz, tasked with creating an inventory of
low-income neighborhoods, public interments, state and local
programs, and sources of public-sector finance., coordinate
public-sector financial investment and public programs to assist
low-income communities to become business, development and
investment ready, develop criteria for determining the type of
economically, socially, and environmentally responsible businesses
and real estate developments to assist in starting-up, locating,
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and growing in low-income neighborhoods, establish a broad array of
incentives to encourage responsible businesses and real estate
developments to grow in low income neighborhoods and to encourage
investment in low income neighborhoods. ( Status: This bill will
also be heard in the Committee on June 23, 2014.)
AB 1178 (Bocanegra) of 2013-14 would have established the
California Promise Neighborhood Initiative to develop a system of
40 California promise neighborhoods throughout the state to support
children's development. ( Status: The bill was held in the
Assembly Committee on Appropriations)
4. Prior Related Legislation. SB 9 (Price) would have established the
Office of Social Innovation within GO-Biz to establish partnerships
with government agencies, private investors, nonprofit
organizations, and for-profit service providers to facilitate the
use of social impact bonds (SIBs), as defined, to address social
services needs to explore the use of social innovative financing in
the State of California. ( Status: The bill was never heard in a
policy committee.)
SB 431 (Price) of 2013 would have established the California
Socioeconomic Development Pods Program within the GO-Biz to
encourage the use of social innovative financing, as defined,
within blighted areas in the state and would have also created the
Pod Accelerator Fund, a continuously appropriated fund, within the
State Treasury, to receive moneys collected and received by GO-Biz
for the Program from gifts, bequests, or donations. ( Status: The
bill was held in the Senate Committee on Appropriations.)
AB 250 (Holden, Chapter 530, Statutes of 2013) codified and expands
the iHub Program at GO-Biz for the purpose of stimulating economic
development and job creation through the coordination of federal,
state and local innovation-supporting resources.
AB 1072 (Fuentes) of 2011 would have created the California Promise
Neighborhoods Initiative in the then-Governor's Office of Economic
Development with the purpose of maximizing collective efforts
within a community to improve the health, safety, education and
economic development of each neighborhood. The bill directed GOED
to work with various agencies and departments and gives cities,
counties and school districts, in a promise neighborhood, priority
for certain programs, grants and funding. ( Status: The bill was
held in the Senate Committee on Appropriations.)
5. Arguments in Support. The County of Santa Clara writes in support
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of this bill, stating that it is currently in the process of
implementing its Pay for Success/Social Innovation Financing
Project which has created an opportunity to move the county's
contract process from outputs to outcomes and attract new revenue
streams to address especially difficult social issues. The County
notes that this bill will set California on a path to better tap
into private and philanthropic resources as well as supporting
local governments that are already exploring SIPs.
SUPPORT AND OPPOSITION:
Support:
County of Santa Clara
Opposition:
None on file as of June 18, 2014.
Consultant:Sarah Mason