Social Impact Bond Legislation Introduced in the House

Reps. Todd Young (R-IN) and John Delaney (D-MD) yesterday introduced legislation in the House (H.R. 1336) that would establish a $300 million federal fund for state and local initiatives that base their payments on results.

“Too often, Washington focuses on inputs instead of outcomes,” said Young in a statement. “We spend too much time talking about how much or how little to spend on social safety net programs, and not enough time talking about whether or not we’re improving lives.”

“This bipartisan legislation offers a new solution that improves government services, helps those in need and reduces taxpayer costs,” said Delaney.

Companion legislation is expected soon in the Senate. “Chairman Hatch plans to introduce a similar bill this Congress,” said Aaron Forbes, press secretary for Sen. Orrin Hatch (R-UT).

Sen. Michael Bennet (D-CO) is expected to be a cosponsor. “These public-private partnerships represent a shift to a model of government where results matter and where we pay for competence,” said Bennet. “Supporting targeted early interventions will help improve outcomes in health care, education, job training, child care, and a range of other government services.”

The Obama administration has also supported a similar proposal in its proposed budget for FY 2016, released last month.

As introduced, the bill:

  • Authorizes $300 million through a one-time mandatory appropriation for states and/or local governments that launch pay-for-performance initiatives.
  • Specifies 21 types of allowable projects, including increasing work and earnings, increasing high school graduation rates, and reducing rates of asthma, diabetes, or other preventable diseases.
  • Authorizes payments only if agreed upon outcomes are verified by independent evaluations “using random assignment or other research methodologies that allow for the strongest evidence of effectiveness possible.” Savings to the federal, state and local government are among the factors that must be considered when approving local partnerships.
  • Establishes a Federal Interagency Council on Social Impact Partnerships to oversee the initiative and issue related regulations. The Council would be composed of one designee from 10 agencies or departments, including the Department of Health and Human Services and the Department of the Treasury. It would be chaired by the Director of the White House Office of Management and Budget (OMB).
  • Authorizes OMB to spend up to $2 million each year for federal technical assistance in the development or support of social impact partnerships and $10 million to cover up to half of the cost of state/local feasibility studies. The bill reserves up to $45 million (15% of all funds) for evaluations.
  • Permits bank investments in social impact partnerships to be considered as part of the bank’s requirement under the Community Reinvestment Act (CRA) to help meet the credit needs in their communities.
  • Sunsets after 10 years.

The bill is somewhat different from previous proposals (bill text).  It uses the term “social impact partnerships” to describe pay-for-performance agreements commonly referred to as social impact bonds or “pay-for-success” by the Obama administration. It also assigns oversight and payment authority to OMB, whereas the similar Obama administration proposal assigns such authority to the Treasury Department.

Original cosponsors of the bill include Reps. Tom Reed (R-NY), John Larson (D-CT), Dave Reichert (R-WA), Jared Polis (D-CO), Aaron Schock (R-IL), Joseph Kennedy (D-MA), and Robert Dold (R-IL). Organizations listed as supporters include Americans for Community Development, America Forward, Bank of America Merrill Lynch, Children’s Home Society of America, the Coalition for Evidence-Based Policy, Harvard Kennedy School SIB Lab, Institute for Child Success, Results for America, Social Finance, and Third Sector Capital Partners.

In the House, the bill falls within the jurisdiction of the Ways and Means Committee. Upon introduction, it received an important statement of support from the committee chairman, Rep. Paul Ryan (R-WI).

“Hardworking taxpayers deserve more from government than good intentions; they deserve results,” said Ryan. “Social-impact partnerships have shown they can deliver.”

Similar legislation was introduced in the House and Senate last year and hearings were held in both chambers.

Last week, the Young, Delaney, and Polis offered a similar pay-for-success amendment to the House bill reauthorizing the Elementary and Secondary Education Act, which was subsequently adopted on the House floor.

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