Legislation that would provide additional federal support for social impact bonds (SIBs) took a tentative step forward today when a House subcommittee held a hearing focused on their potential benefits and tradeoffs.
The bill being considered, the Social Impact Bond Act (H.R. 4885), has drawn bipartisan sponsorship from Reps. Todd Young (R-IN) and John Delaney (D-MD). But the spirit of bipartisanship was less evident during the hearing itself, where Democrats were generally more skeptical and Republicans more supportive of the social impact bond idea.
The first principal speaker at the hearing — held by the House Ways and Means Subcommittee on Human Resources — was the bill’s Republican cosponsor, Rep. Young. Young argued that his bill would help shift the conversation away from “measuring compassion with dollar signs” to a focus on social outcomes. His opening remarks were followed by comments from the ranking subcommittee Democrat, Rep. Lloyd Doggett (D-TX), who expressed doubts about whether SIBs were “the best way to spend taxpayer dollars.”
The first witness was Sam Schaeffer, chief executive at the Center for Employment Opportunities (CEO) in New York. Schaefer described a SIB-funded recidivism program operated by his organization with support from Social Finance. His comments were followed by Robert Romo, a client who spoke about his experiences. Romo noted that he had been given a job coach and, after attending carpentry classes funded by the program, had received three job offers and had been employed since last October.
The next speaker was Linda Gibbs, currently a principal at Bloomberg Associates and previously a high-ranking member of the Bloomberg administration in New York City. Gibbs spent time talking about a SIB-funded program focused on reducing recidivism for inmates at Rikers Island. In discussing the more general benefits of SIBs, she focused on their usefulness in scaling up programs that have been proven to work.
The fourth witness was Dr. David Juppe from the Maryland Department of Legislative Services, who discussed concerns raised about SIBs in an analysis written by his office in 2013. He argued that SIBs cost more than directly funding the same programs, pointing to the cost of providing a return on investment to outside investors, the need for independent evaluations, and associated management fees for consultants.
Juppe also argued that while SIBs are often said to provide a new funding stream for social initiatives, many states and local governments face budgetary requirements that force them to assume that all of their contract costs will be paid. This forces them to provide all of the funding themselves up front.
The fifth and final witness was George Overholser, who heads Third Sector Capital Partners, a leading intermediary that is involved with several social impact bond projects across the country. Overholser said that the government officials he has worked with have stressed that they see social impact bonds as contracting reform and that SIBs enable them to shift funding to strategies that work. Overholser also said that half of the outside money for projects he has seen has come from philanthropists seeking little or no additional return on their investment.
The subcommittee chairman, Rep. Dave Reichert (R-WA), began the discussion by pointing out that social impact bonds appear to be growing on their own across the nation and asked why federal legislation was needed.
Mr. Overholser said that there is already a small federal role and where it exists, it has helped catalyze the work that is happening now. He cited U.S. Department of Labor matching dollars as playing an important role in one of their partnerships with the state of Massachusetts. He said increased federal involvement would also help overcome disincentives due to what he called the “wrong pocket problem,” where savings generated by local programs accrue not locally, but at the federal level, which can then lead to under-investment.
The ranking Democrat on the committee, Rep. Doggett, then spoke about concerns he had about privatizing public services. He said that his state of Texas had been told that privatizing public services would save money, but instead there was a lot of waste. He was similarly concerned that the cost of SIBs would outweigh their benefits and asked Dr. Juppe if he agreed (he did).
Ms. Gibbs then noted that she did not agree with the comparison and did not believe that SIBs amounted to privatization. She said that contracts under SIBs are negotiated between governments and nonprofit service providers, just as in the case in non-SIB arrangements, and that outside private investors only provided the up front investments.
Mr. Overholser added that he believed that over half of public programs currently bring no measurable benefits and that SIBs would help change that.
Later, in response to a question from Rep. Griffin, Overholser said he believed that it would be great if government could directly fund the best programs but that this was not happening. Moreover, he felt that some of the additional costs associated with SIBs were due to outside private investors bringing experience with technology and measurement that was often lacking at the local level.
- Nonprofit Quarterly, Ways & Means Committee Hearing on Social Impact Bonds Gets Little Attention (September 16, 2014)