Ways & Means Committee Hearing on Social Impact Bonds Gets Little Attention

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September 9, 2014;Housing Horizon (Enterprise Community Partners)

It is more than a little surprising to us at the Nonprofit Quarterly that the House Ways and Means Committee hearing on the Social Impact Bond Act introduced by Rep. Todd Young (R-IN) and Rep. John Delaney (D-MD) received just about no mainstream press coverage. One possible explanation might have been that last week was devoted largely to the nation’s international crises, particularly the decision to expand bombing of ISIS from Iraq into Syria. That’s tough competition for a hearing on SIBs.

Little could be found aside from statements from the hearing posted on the Ways and Means website and some brief coverage on the hearing, either in the lead-up to it, such as this piece from an Enterprise Community Partners blog*, or in its aftermath, such as this brief post from the Social Innovation Research Center, the latter described as an apparently-nonprofit “consulting and evaluation firm specializing in social innovation and performance management for nonprofits and public agencies,” led by Patrick Lester, a former VP for the Alliance for Children and Families.

Lester reported that amidst the line-up of witnesses in support of SIBs, including social impact bond intermediaries such as Third Sector Capital Partners’ George Overholser and SIB implementers like Sam Schaeffer of the Center for Employment Opportunities, there was one invited witness raising concerns about SIBs: Dr. David Juppe from the Maryland Department of Legislative Affairs. Juppe and a colleague, Kyle McKay, had done an analysis in 2012 raising technical concerns about the practicality of SIBs, including, as recounted in Juppe’s testimony, SIBs’ potentially higher costs to government, the propensity of SIB advocates to overstate potential cost savings and likelihood of success, potential long-term risks associated with SIBs, and issues about the return on investment for private investors. While there isn’t a transcript yet available for the hearing, the only critical commentary from the subcommittee members cited by Lester came from Rep. Lloyd Doggett (D-TX), who raised concerns about SIBs as another form of privatization of government programs, which Doggett intimated had not had much success in Texas, either in terms of impact or cost savings. Linda Gibbs, a former New York City official who testified on behalf of Bloomberg Associates, which has had a major role to play in the Rikers Island SIB involving Goldman Sachs, countered that SIBs were not a form of privatization.

Despite the bipartisan sponsorship of the Social Impact Bond legislation, Lester characterized House Democrats as somewhat skeptical about the legislation and the concept while House Republicans were enthusiastic and more. In fact, the Young legislation has 10 Republican co-sponsors but only two Democratic co-sponsors in the House. Some might attribute that to the limited appetite in Congress for cooperation across the aisle, but there may be more at issue than just the mutual hostility of House Republican and Democratic leaders.

The Democrat behind the bill, John Delaney, evinced no partisan qualms in his statement leading up to the hearing. “Social Impact Bonds can improve outcomes, reduce costs to the taxpayer, and bring a data-driven results-oriented focus to public policy,” said Congressman Delaney. “Social Impact Bonds are truly bipartisan because both sides of the aisle want government to work. With my Republican colleague, Congressman Todd Young, I’ve introduced legislation that would encourage expanded use of Social Impact Bonds at the state and local level.”

Information presented by Rep. Dave Reichert (R-WA), the chair of the Subcommittee on Human Resources articulated a longstanding Republican perspective on government programs, suggesting that much of the federal government program structure is a demonstrably ineffective and inflexible imposition on state and local governments:

“While a number of specific interventions have demonstrated results, programs that haven’t demonstrated their effectiveness not only fail to help individuals in need, but also waste taxpayer funds that could be devoted to more successful programs. In addition to a lack of evidence regarding what works, many federally funded social programs are inflexible, centrally designed programs that don’t take into account key differences between states or local communities. These programs often provide little room for State and local officials to innovate, with key policy decisions frequently made by lawmakers and bureaucrats in Washington, D.C. As such, some federal social programs may operate for decades with few changes, failing to take into account new research that could improve the program’s effectiveness and without acknowledging major societal changes that may affect the program and its intended beneficiaries.”

Two issues may be stimulating discomfort among some Democrats. One is reflected in Reichert’s statement, an unfortunately typical, politically conservative contention that government programs are by definition generally inefficient and ineffective. In a world of sound bites and quick impressions, it is easier to slam government programs and hope to find some resonance with elements of the public than to present a more nuanced but more accurate description of government-funded social programs as often starved for resources but nonetheless making important headway to improve conditions for poor families and communities. It is a myth often promulgated by Republicans that Democrats counter weakly, if at all. Lester noted that Overholser, a former Capital One banker, said in the hearing that over half of government programs “currently bring no measurable benefits,” a broad brush statement that moves the advocates of SIBs from being financial innovators to ideological partisans.

An equal concern, perhaps, is the fact that Republicans like Young and Reichert are enthusiastic about SIBs while they are cutting the resources available to many social programs. Young’s SIB bill would make $300 million available to support state and local social impact bond projects. Reichert himself is a particularly interesting example of a supporter of SIBs and an opponent of spending for social programs. Reichert has consistently called for the repeal of the Affordable Care Act and the programs that receive funding through the ACA. He also supported the House FY2014 budget resolution, which, in addition to zeroing out the ACA, slashed domestic discretionary spending. Rep. Young is right there with Reichert, and may be even more adamant in taking aim at discretionary domestic spending.

It isn’t that Reichert and others support federal program cuts in the anticipation that SIBs would generate innovations and savings that make up the difference. They, like Overholser, have been going after government programs because they see them as largely ineffectual. Their critics might, therefore, be understandably concerned that the Young/Reichert support of SIBs is but another tool to shrink the overall federal commitment to social program funding, but under the political camouflage of claiming to support governmental (and nonprofit) anti-poverty initiatives.

Based on a review of two SIBs that are only in the developmental phase—not yet implemented, tested, or demonstrating measurable results—the Enterprise Community Partners coverage of the hearing concluded, “Enterprise sees SIBs as a promising tool for creating new public-private partnerships to tackle some of the most pressing social and economic problems facing low-income communities, all while ensuring that any taxpayer investment yields measurable results.” Both of the profiled development-stage SIBs involve Enterprise: In Cleveland, Enterprise is acting as the “intermediary, providing day-to-day oversight of the program and ongoing financial management services,” and in Denver, it is taking “a leading role in conducting feasibility, structuring and transaction services and…working closely…[with] the city and local investors”

That may be the third problem in the SIB advocacy work: Nearly all of the promising examples have yet to be implemented. Confidence in their success, as in the two pre-implementation examples touted by Enterprise, emanates from consultants and intermediaries who have a more or less vested financial interest in their going forward. More credibility would ensue if the advocates for SIBs weren’t so often over-the-top ideological critics of government funding in general and weren’t pitching projects in which they often have financial stakes. When nonpartisan critics such as Juppe and McKay find their technical concerns answered, that might boost the credibility of the unfortunately overhyped tool of Social Impact Bonds. Until then, the arguments for SIBs look and feel unpersuasive.—Rick Cohen

[*Full disclosure: This author was a vice president of the Enterprise Foundation, which was subsequently renamed and rebranded ECP.]

  • Brian O’Shaughnessy, communityimpactstrategies.com

    I would respectfully ask the author to consider the motivation for his now obsessive rants against an interesting tool: Fear of privatization or possibly disdain for the private sector? There has been an extreme financial crisis nationally that has resulted in an expansion of social service need and decreasing public dollars. Government represents 40% of our nation’s GDP, but it does not know how to “reallocate” based upon a financial analysis that uses data to fund “root causes.” SIBs will help government make an informed reallocation of limited funds. The providers are the same nonprofits we presently use, we will just use the best ones more often so we can improve people’s lives and save money. I know, terrible.

  • Cason

    The co-sponsor information is inconsistent with Congress.gov, which lists 13 Republican and 13 Democrat co-sponsors (most recent cosponsor signed on 9/11/2014). Here is a link to the bill’s co-sponsor information: https://www.congress.gov/bill/113th-congress/house-bill/4885/cosponsors?q=%7B%22search%22%3A%5B%22HR4885%22%5D%7D