Public Hearing On the Social Impact Financing Amendment Act of 2013

Testimony of Eduardo Ferrer, Legal & Policy Director

Good morning. My name is Eduardo Ferrer and I am the Legal & Policy Director of DC Lawyers for Youth, a local non-profit action tank that uses research, advocacy, and direct legal representation to improve DC’s juvenile justice system and expand opportunities for DC’s most disadvantaged youth.  We are by no means the experts on social impact bonds but have been studying social impact bonds for at least the last year as we believe it could be a very useful tool for funding additional innovation that would help us further improve DC’s juvenile justice system.  

First, I would like to commend Councilmember Alexander for introducing the bill.   While I believe the social impact bond is a promising tool for funding effective social services and providing taxpayers with a better return on their investment, social impact bonds are still a bit of an unknown quantity.  As such, I commend Councilmember Alexander for leading on this issue.    

Second, I want express my organization’s general support for legislation that provides the executive branch with the authority to solicit proposals for specific social investment bond funded projects or respond to proposals for social investment bond funded projects pitched by the private and non-profit sectors, subject to final appropriation approval by DC Council. Additionally, the legislation as introduced is a good start.  However, I do think that there is work that can and should be done to improve this legislation. 

Specifically, there are three questions that I believe we need to answer before we can effectively launch a social impact bond.  

First, we need to ask answer whether we are ready for the fundamental shift that a social investment bond represents in terms of social services.  In particular, we need to ask whether we are ready to focus on the procurement of outcomes rather than the procurement of services.  As introduced, the language of the legislation still places the emphasis on the procurement of services – both in the definitional section and section 505(a) – rather than on the procurement of outcomes.  Why does this matter?  At least three reasons: 

 

Services

Outcomes

Risk

On the government to pick and pay for right services for right people in right dosage

 

On the investor to pick and pay for the right services for the right people in the right dosage

Mentality

Closed process to avoid allegations of favoritism

 

Can be an open process because risk is born by investor

Flexibility

Rigid - Services to be provided laid out in detail in contract

 

Flexibility is necessary – services may change in nature or in scope over time to achieve best outcomes

 

Second, we need to answer how to best approach launching the first social impact bond in DC.   Based on what is going on in the field, there seem to be three different approaches. 

  • Legislatively-directed research proposal (Hawaii)
  • Legislative enablement for an RFP (Massachusetts)
  • Private/Public/Executive action without legislation (New York)

 The legislation as drafted appears to follow the Massachusetts model most closely.  Unfortunately, I do not have a good sense of the pros and cons of the three different models at this point.  However, we should carefully evaluate the different models prior to choosing to enact one through legislation. 

Third, we need to answer whether we are willing to provide or find additional assurances for private investors in order to attract the capital necessary for a social impact bond, even if its only for the pilot social impact bond.  Again, we can look to what Massachusetts and New York have done in this regard. 

  • Massachusetts – Included a full faith and credit clause in their legislation to try to assure investors that agreements would be honored if outcomes were met;
  • New York – Mayor Bloomberg was able to provide a guaranty for the money that Goldman Sachs is investing. 

 The legislation as drafted contains no assurances or guarantees of any kind. 

In closing, we support DC finding a way to implement social impacts bonds as we believe that could be a great funding mechanism for further improving the juvenile justice system while saving taxpayers money and risk.  We commend the Council for taking this issue up and we are available to answer any questions now and in the future as you all continue to improve this bill. 

Thank you.