BILL ANALYSIS �
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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 Le�n, Galgiani, Vacancy
SENATE APPROPRIATIONS COMMITTEE : 6-0, 1/23/14
AYES: De Le�n, 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 Le�n, 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 : Not available
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 Ni�os
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."
MW:e 8/26/14 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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