Greetings, Chair and members of Parliament.
Let me begin by thanking you for the opportunity to speak to you today about Saskatchewan's interest in and movement toward social finance. I will provide my thoughts and will advise you on some of the initiatives we are working on in our ministry, as well as in the Government of Saskatchewan, and give input on some of the areas where I think our federal government can help us on this journey. I will not speak of the Sweet Dreams project, as my colleague from Saskatchewan, Mr. Meikle, is in attendance and can speak directly to the project and its progress.
I will start by speaking about the opportunity or the reason that we started to explore social finance, or what we call “pay for success”.
Social finance is a way for the Government of Saskatchewan to ensure that we are focused on outcomes-based performance. In essence, we are trying to slow down and eventually stop funding projects and/or programs without knowing what will be achieved. A successful business would not operate in this environment, thus our government is in the process of transforming itself based on competing demands to focus on similar methodologies.
In the process of transformation, I firmly believe that social innovation will be the next competitive advantage. Social innovation is the means to connect the domestic economy with social expenditures. In turn, social expenditures are the mechanism to create another product for investors to realize a financial return in a collapsed market and to pay for success, being a way for governments to ensure that public moneys are going toward proven concepts that deliver results. The challenge is the metrics, or the ability to ensure that this value remains constant.
We have a window afforded to us by the financial market. In my field of expertise, which is the justice system, there is a long-standing relationship between policing, or the evolution of policing, and the financial markets. This relationship dates back to the premise of why traditional policing was created, which was to protect the financial market.
Two years ago, our ministry recognized the opportunity created by the current state of the financial market and the increasing need for government to create a mechanism to address social ills. In response, we formed a social finance division in the ministry. At the time, we took the first steps to research the existence of where the expertise was, what was being done, and what it could look like in Saskatchewan.
The due diligence that we undertook included phone calls with experts in the United Kingdom and Australia that were facilitated by KPMG; a trip to Ottawa to meet with our federal colleagues to determine what they were researching and to avoid redundancy; discussions with the MARS Group and an understanding of their work; and, significantly, we hosted meetings in Saskatchewan for a third-party provider in the United States of their largest social finance model. That provider is the Roca Foundation, and their project is in the range of $20 million, with a multitude of financial investors and partners. The model comprises highly detailed metrics that determine success. Roca possesses dynamic leadership, which quickly stood out for us as the model that most resembled what we were trying to work on in Saskatchewan.
From Roca we learned that leadership is the first step and that a secondary investment market is important to financiers; that metrics are critical to success and that they need to be identified from the start and must show value or savings to government.
We found that there is more than one way or one process to fund these initiatives, which made it clear to us that we were going to broaden our initiatives to pay for success that includes social impact bonds and investing for impact. This followed our thinking, in that we had to move from trying to fit people into programs and move toward creating flexible programs with metrics to meet the needs of individuals to create success. It also showed us how to take government out of the position of being an evaluator, or mired in day-to-day business, to a higher level that could drive strategic alignment and focused outcomes.
As a byproduct, with the right planning and strategy, we saw the opportunity for CBOs and NGOs to be funded on outcomes rather than inputs, and equally as important, with the right strategic investment, CBOs and NGOs might just become self-sufficient.
If we follow the premise that there is one taxpayer, we will recognize that there is an opportunity for the federal and provincial governments to work with the private sector and third parties to multiply savings. Government has responsibility for support and social programs, and equally we have the responsibility to facilitate economic growth. When we look at them in the same context, through innovation, many of the same mechanisms can be used to focus on net gains. This emulates the same type of innovative thinking we use to establish our models of community mobilization. Some of you have heard of Hub and COR, which have broken down silos and allowed us to address issues from a multi-sectoral perspective to meet targeted outcomes.
From hockey country in the middle of the Stanley Cup playoffs I offer the following, that Gretzky was a great hockey player because he knew where the puck was going. If we apply the same concept to social finance, it will now move from the 30,000-foot level that has been the focus of my statement thus far and operationalize what we are working on. We are focused on four key areas that undoubtedly have a direct impact on what is driving our work.
In the area of absenteeism in school, we have completed a mapping exercise that articulates a relationship between absenteeism and criminal activity. We have mined into the data of our troubled and complex families and are looking at options to inform how we utilize a third-party pay-for-success model to address this at the front line. Graduation rates will not increase without attendance. We are optimistic that this area of focus will have value and significant returns. We also know there's significant data supporting how we could mine for value.
If we look at bail and remand, particular to our ministry, we have undertaken significant economic analysis in this area. Saskatchewan statistics since 1998 show custody remand populations have grown by 89.1% and sentenced custody populations have grown by 2.1%. The analysis shows that, for every 100 clients who we take off remand, there's an $8.2 million savings. And further, we have evidence to support where to better target spending to ensure a return on investment. Right now, that particular part has very little return. We have almost completed the due diligence on what this could look like on the ground, while ensuring that public safety is protected in the process.
In the area of mental health and addictions in community programming, we are examining programming that takes high-needs mental health and addictions clients out of an expensive system that is not meeting their needs, and establishing a system that meets their clinical needs and presents higher opportunities for success. Statistics show that mental health clients are two times more likely to have contact with police, and are the most vulnerable population to reoffend. As well, mental health calls drive up to 40% of calls in some police services, and they are the most vulnerable population to go from non-criminal offences to criminal offences in one distinct act if not treated, cared for, or medicated. There are ample metrics in this area that could help us focus in on creating success for this client base and showing value and savings for government with better services.
The initiative of skills training connected to real jobs is targeted for those serving time in custody and reintegrating back into the community. By meeting clients’ needs for housing and skills training and putting them in the position of connecting to real jobs that are in demand in our economy, we can leverage their success. In essence, we are taking offenders and/or clients out of the system and turning them into taxpayers, which has a compounding effect in the relationship between jobs and social expenditure. We believe this will prove to be a strong business case for social finance.
The Saskatchewan government appointed current MLA and former cabinet minister June Draude as social finance legislative secretary to the premier to focus on what and where we might have the best opportunities for success. We are committed to moving these initiatives forward if they make sense for the citizens of Saskatchewan and meet the set outcomes.
As an idea for innovation, as I close, I pose the following question to the parliamentary committee: could we create a fund through legislation that is similar to a venture capital fund that expands the investment pool through incentives to drive results? If social expenditures grow faster than the domestic economy, the relationship will always be a negative number—thus, not enough money. If the relationship is studied and connected, as it can be, the number becomes net growth, which shows enhanced value. A mechanism that blends philanthropy with return in difficult financial times could leverage opportunities on new markets going forward. A fund for innovative thinking in this area could be a way to advance a relationship that focuses on balanced solutions and maximizes on investment for impact.
Economics is dictated by supply and demand. We have spent the majority of our time solely focused on supply. When we balance the focus by reducing demand, the system functions as it was designed and delivers much better results.
I thank you for the opportunity to speak with you today, and certainly, I look forward to any questions you may have after the presentations.
Good afternoon, Mr. Chair, and members of Parliament. I appreciate the opportunity to testify before you today.
By way of a brief background, my name is Dr. David Juppe. I am the senior operating budget manager with the Department of Legislative Services in Maryland, which provides all support services for the Maryland legislature. For the past 26 years, I've been reviewing operating and capital budgets and providing fiscal policy advice for our budget committees. In addition, I teach undergraduate and graduate classes in budgeting. I spent a term as the president of the National Association of Legislative Fiscal Offices. I've provided budgetary training to the staff of the parliament in Mozambique, and in 2014 I provided some analysis and recommendations to the Government of Jordan in Amman on their budgetary processes in their review of the budget.
In 2012 my colleague, Kyle McKay, and I began examining the issue of social impact bonds, or pay for success, because of a proposal by our Department of Public Safety and Correctional Services that was designed to attempt to reduce recidivism rates below those in programs currently in place by that department. Based on our analysis, we found that the savings from the proposed program would be about $250,000 against program costs of about $4.1 million. We determined that the program would not save funding for the state, and we recommended against their adopting that program.
Turning to the concept of social impact bonds and pay for success generally, as I'm sure you're aware, a social impact bond is not in fact a bond. It's a unique form of financing program for government whereby a third party financier provides multi-year funding for non-profit or private sector service providers. They are given a multi-year source of funding, which reduces the risk they have in securing government funding each year. The concept of the social impact bonds is that this multi-year funding would help spur development of innovative ideas and ways of providing services for government. The other allure for government is that you only pay when you have successful outcomes, and no funding is required up front.
Social impact bonds have become more popular in the last few years. The first example was the Peterborough Prison in England. As the evaluations are coming in, we're starting to see that perhaps that program is not as successful as was initially hoped.
One of the reasons I think social impact bonds have become more popular recently is that since the recession of 2008 the government in the United States, and state governments especially, have not seen a robust economic recovery, as was hoped, and as we saw after the 2001 recession. Resources are limited for the providers of these services. This is one mechanism for providing additional funding for government services without government providing the funding up front.
There are a number of concerns and observations that I have drawn from our work looking at the topic, as well as looking at some other social impact bond proposals in the U.S.
One reason, and I think the most important, is that social impact bonds will result in higher costs to government. This is because you have additional costs for an intermediary to align the financing with the government and the provider. You also have to pay a rate of return to the financier once the program is completed and assuming the outcomes are successfully reached. Nothing prohibits government from directly contracting with these service providers and paying for the service directly. I think this has become an issue of government having limited resources and providers looking at other sources of funding to try to expand the pull so they can expand services.
From what I can see, the rate of return is not limited in any way. As we know, in the bond market, risk is measured by interest rates. The riskier it is that repayment may not materialize, the higher the interest rate a government is going to pay on a capital bond.
The social impact bonds or pay for success is a form of borrowing. If the program works then government will pay this rate of return, which happens to be whatever was negotiated, whether 10%, 15%, or 20%. There appear to be no limits on that amount.
In some instances the financing is guaranteed by a foundation, or at least a portion of the financing is guaranteed by a foundation to ensure that some rate of return is provided to the financiers. If that's the case, then it really obviates the entire point of transferring risk to the private sector, because you're guaranteeing some portion of the return.
Another major point I would like to make is that in our research we have found in many cases that the proposed savings are overstated. I have seen proposed reforms over many years of budgetary proposals, and in many instances, advocates have fallaciously used the fixed cost per case when evaluating the savings. For example, if it costs $30,000 per year to house an inmate, that includes both fixed costs for operating the facility and the variable cost. If you save one or two or ten inmates from returning to prison, you save a variable cost of food and supplies and medical costs and we've found that to be about $4,600 per inmate. You don't save the full $30,000 unless you close the entire facility.
In many cases, if advocates are proposing that the savings are going to be the full fixed and variable costs divided by the caseload, that's overstating the savings. In some cases advocates are suggesting that you have a cost avoidance, so you save cases from requiring more expensive care in the future. This is also very difficult to prove and doesn't result in immediate savings to the government's actual funding in the budget.
Funding logistics are also a concern that I observe in that one of the selling points for social impact bonds is that the government pays only if a program is successful. The problem I see with this is that if you have a multi-year program and the government has not been setting aside funding for this payment, then when the program is successful, you'll have to provide the entire amount of money plus the rate of return all at once, which would be difficult for governments to appropriate at one time.
Moreover if government sets aside funding in advance each year for the potential payment as we're seeing, for example, in the pay-for-success program in Massachusetts, it does not really realize those savings, because it still has to set aside those funds annually.
Because of this concept of a performance-based return on investment, I think rather than encouraging innovation, social impact bonds or pay for success will actually encourage a flight to quality. Investors are going to want to see programs that work and programs that are successful.
We've seen an example in Chicago, Illinois, where they just entered into a social impact bond in November 2014 for early education services using programs that have already proven to be effective over multiple years. Investors are not going to want to see these programs fail. So if you do have a situation in which multiple programs fail as they're trying to encourage innovation, then, getting back to our market-based model, you're going to see higher interest rates. Investors are going to demand a higher rate of return because there's higher risk.
Evaluation concerns that I have are first and foremost that, because you have this return-on-investment component, there is a greater pressure to produce results and you may have a situation where one study produces an outcome that's positive resulting in payment to the investors and to the service providers, but in many cases in public policy it can take years and sometimes multiple observations and multiple studies to determine if a program is really successful or not. In some cases I've seen it take 10 years before it was determined that a certain course of action really wasn't the best course of action, really wasn't working, and had to be ended. This places more of a premium on ensuring success early.
Also there's the question of methodologies and whether or not there's a treatment and control group and full randomization to ensure that fair and objective analysis and evaluation are completed. The U.S. Congress was considering social impact legislation last year in 2014, and I noticed in that legislation that they were considering allowing quasi-experimental designs, which may not require this sort of randomization.
In conclusion, social impact bonds are a new concept that has recently become more popular. A number of states and countries are looking at this concept, but I believe it is a more expensive way of providing services. It is essentially government by credit card. You're potentially borrowing funds, and it's not necessarily good fiscal policy. If you can pay for these services, pay for them directly. Why would you pay a third party intermediary a rate of return that is in no way limited or restricted?
Secondly, I would point out that instead of encouraging innovation, there would be a flight to quality, and so I don't see the concept of innovation there.
Finally, I would just say there are logistical issues as to whether or not government actually saves money, because you either have to set aside funds or you'll have a very large payment to make upon the completion of the proposal.
Thank you very much.
On behalf of the Saskatoon Downtown Youth Centre, I'd like to thank you for this opportunity to present to your committee.
I am the executive director of this wonderful organization that I have been proud to be a part of for 22 years of its 25 years existence.
How did our Sweet Dreams program come about? ln 2013 we were approached to look at an issue of young people attending school and students' attendance being low to nonexistent, and, when they did come to school, they were unable to focus and stay in school for the whole day. That school requested a study to be done looking into sleep disorders. The individual completing the study came back to them and stated, “There were no sleep disorders. These young persons had no place to go.” The evaluator was so passionate about this cause that she put forward $50,000 of her own personal money if we could try to find a way to make a difference.
Over the next year we put together a group of individual front line workers representing Health, Ministry of Social Services, Education, EGADZ, and two individuals who were from the community. They were retired but still carried a passion to assist disadvantaged people.
We began meeting weekly to try to prioritize who was the most vulnerable population that needed to be served. We agreed that these mothers and their children not having a safe place to live and being provided supports put them at risk as well as having their children enter the social services system.
lt was aIso agreed that we needed to continue supporting those mothers who had worked so very hard to regain custody of their children. We needed a home that was respectful of parents so they would not have to put their children into care to receive services, while parents in an existing program would not to have their children in care any longer than need be.
During the first year of meetings and discussions we began to look at how the home would work, a business plan, and options of funding for this home. The social impact bond became an option.
During our first year of creating a business plan, we were looking at options of funding this home. We had applied for and received Services Canada funding, along with this year's $50,000. Our budget for the project was as follows: the purchase price of the home was $50,000, and renovations and legal fees were about $85,000. The total cost was a little over $1 million.
Colleen Mah had committed $25,000. The homeless partnering strategy had committed $320,000, a private donor had committed $20,000. The City of Saskatoon had committed $140,000, which left us $534,000 and left a shortfall of $500,000 capital and $500,000 operating.
There were two meetings with then Minister Draude to look at ways to fund this program. From the very first meeting it was made clear that the government would not be put in a deficit position. The minister liked the second proposal because it was creating a home for mothers and children, which we did really well.
The options for us to fund this home were to wait for up to a year and a half to get into the funding cycle with still no promises, to try to raise the needed dollars with an organization that already needs to raise about $100,000 per year to keep our doors open, or to go with a new and innovative way of funding called the social impact bond that bases funding on outcomes.
We agreed to do the funding through a SIB. We were allowed to be involved in the process of how the social impact outcomes would look. We were able to support mothers and children at time of need and not have to separate the mother and child bond. The province communicated with our board of directors and management, answering any questions that may have arisen. The social impact bond was based on outcomes, that if successful, could be cost neutral and allow added savings to be shown as the benefits of government and communities doing things differently. We've been working on outcomes reporting for the past five years and see the direct benefit to the most important people in this equation: the clients we serve.
This process allows our organization to stay true to our vision statement that every child deserves to grow up to become a contributing citizen. That includes the mother with children who remains in a home with domestic violence and physical and verbal abuse, who is often too scared to come forward because she believes her children will be taken away because she has perceived herself as a bad parent. That includes the parents who have worked hard at regaining custody of their children only to have no support to ensure that they are able to take advantage of employment and educational opportunities while having a roof over their heads.
We needed this as a part of a continuum of residential services we have created since 1997, with 16 homes providing safety and shelter to over 120 children.
Every mother will enter the home based on a motivational interview looking at the risks to the mother and the child, her willingness to be a part of the plan, and what she is willing to contribute.
We believe that the Government of Saskatchewan is interested in undertaking innovative approaches to social issues to improve the lives of its most vulnerable citizens. We believe social innovation has a number of tools that can be used and governments are interested in exploring ideas that can deliver better services to our province's most vulnerable.
Our investors in the social impact bond include Wally and Colleen Mah from North Ridge Development Corporation, with $500,000 towards this project. The Mahs have been involved in our residential services since we began, by contributing over $800,000 towards 11 of the 16 homes that we currently operate for children, mothers, and hard-to-serve youth in Saskatoon.
Expansion of our residential services, such as Baby Steps, to include two bedrooms in the home so that mothers can live with their children while the children are in the care of social services; Mah's Place; and a number of our My Homes would not have happened without the generosity of the Mahs. Colleen Mah has been a huge advocate for the mothers, looking at ways to provide long-term housing support for successful candidates.
The Conexus Credit Union is giving us $100,000 per year for five years. Credit unions are very involved in our community. They loved the concept of helping parents and their children, and they wanted to become more involved by offering educational services and financial literacy to our clients while they are in the home. They also have a huge willingness to be a part of looking at ways to assist moving forward in this project.
I'll talk about the early indicators, so far, of Sweet Dreams. We are embarking on our first anniversary of Sweet Dreams. For us, with the social impact bond, the program is able to work based on outcomes and need. Many of our clients coming into the program have lived in situations involving domestic violence and addiction, fearing that if they were to come forward, their child would be taken away. Now parents are able to leave those situations with hope and support for them and their children. Young moms can now continue loving bonds with their children and have the opportunity to break the cycles that have kept them in poverty for years.
We have a process-driven program that is now based on a partnership including government, community and, most importantly, our client. For years, there has been a gap. Once the parents had their children returned to them, the supports stopped. Now, with Sweet Dreams, we are able to continue the support until the parents are strong enough to move on in their lives.
Outcomes to date include the following: mothers have transitioned into independent living; a mother is working at regaining two of her children, who have been made long-term wards of the government, while caring for two children currently in her care; a mother has moved out and found employment in a career she loves; and we were able to provide housing support to a pregnant mom until she could find a safe and supportive family to live with.
Thanks to the SIB, we are able to meet the need of our community, which was previously seen as out-of-the-norm for government. We have received requests from all over the province from mothers wanting a chance to make a better life for themselves and their children with support and guidance. This process has allowed our organization the ability to support mothers and their children, keeping them out of social services.
I would add that anything we're looking at in relation to it right now is costed back in the formula going forward, as Don said, if it's small enough and the intermediary is not involved.
I think, in something like this, the other thing we haven't really spoken about but could go on at length about here is the status quo in relation to social costs and social services costs. They're not affordable. It doesn't matter if the government is trying to make them affordable or not, unless we connect these two economies together.... Some of the data analysis that we give on that.... We did the mining in relation to the economy in my ministry and in relation to social expenditures. As a long-time police chief, and an entrepreneur, and business person, right now the economy is growing at $2 and we're spending $4.
When I try to explain that to people who work in my correctional centre, I explain it in terms of jobs. Our government wants to create 60,000 jobs by 2020. If you break that down, if those are $50,000 jobs and it's the only way you had to take in revenue as a government—we know there's more, but if it's a job—it takes the revenue of 12 of those jobs based on provincial income tax to house one inmate, without any other costs.
If we were going to grow by 195 inmates, we need 23,040 jobs annually to pay for inmate growth. You forecast that out to the year 2020, that's 60,000 jobs, and 16,230 of those jobs pay for inmate growth. I'm not talking about health costs, social service costs, or education costs; I'm talking about room and board at our correctional facilities. When we cost that further and realize that remanded offenders cost $80,000, and sentenced offenders cost $43,000, it doubles it. So 33,000 of those jobs will be needed today if it's based on income tax to pay for inmate growth in Saskatchewan. We don't need to go into the whole preamble upstream about what that means because I think that's ultimately what we're talking about.
You know, that's a great question. It's better to reverse-engineer it and have a look at how we can make a positive change.
When we started to look at this from a multi-agency perspective and looked at the correlation with criminal activity, it became everybody's responsibility. When you start mining into it, you find that in Saskatchewan there are 6,700 kids missing. I don't mean missing as in missing persons, but registered at one school and then not registered somewhere else. How do you increase graduation rates unless you can actually find where they are?
The old, traditional methods obviously, in an enforcement perspective, don't work. But if you think about this in an intervention perspective, if you had a third party actually looking at it as an opportunity to do an intervention that is designed around our hubs and cores; if you started seeing those as opportunities, you could change the way the business is being done.
A lot of this is based in poverty, as you know. If you take a financial income as the starting point to get in, if you need to increase from a 40% attendance rate—let's just use that number, which is actually high—and want to get it to a 90% variance rate, then you can determine what mechanism to use. Is it a social impact bond? Is it pay for success—in other words, impact investing? Perhaps we can use our own money as the investor through incentive-based, or we can bring a third party in.
The point is that this is what we're analyzing now: what is the best way to operationalize this? We know that going from a 40% attendance rate to a 90% attendance rate and maybe throwing a parenting class into the middle of it and attached to it is absolutely a gold mine of return, based on data. But it's a question of putting the right mechanism in to get it right, with what you just described: it needs to be horizontal across sectors.
The problem we have is that every sector is trying to own stuff. That is putting everybody in a silo and then trying to fix something when you know 10% of the story.
Thank you very much for inviting us to appear before the committee today.
Let me offer a few words about us.
SRDC is a not-for-profit, independent social policy research organization. We were established in 1991 at the request of Employment and Immigration Canada to design, pilot, and evaluate new social programs. Now, 24 years later, we have completed more than 200 projects for federal departments, provinces, municipalities, private foundations, and other non-profit organizations. Our work spans all areas of social policy writ large. In recent years, SRDC has been engaged in several projects on the application of performance-based funding and a social finance approach applied to the field of employment services, adult education, and training.
One reason we are here today is that more specifically, in January 2014 ESDC contracted us to be the independent evaluator for two essential skills training projects. Essential skills, as probably many of you know, are defined as literacy or foundational skills that are required for work, learning, and life in general.
These projects are the first two social finance projects launched with the support of the federal government. This was announced by Minister Kenney at the World Social Enterprise Forum in Calgary in the fall of 2013.
In both projects, private investors pay for the training up front and are repaid by the government if the training is successful in achieving pre-established outcomes. You may wish to look at the diagrams we have circulated to get a sense of the architecture supporting the delivery of the training.
The first pilot project, on the slide that has “SIB pilot project for unemployed” in the title is led by Colleges and Institutes Canada, CICan, which plays the role of SIB intermediary. They are working with four colleges across Canada as the service providers.
The project proposes to enrol 400 unemployed, lower-skilled Canadians to receive a program called Foundations, which is an established essential skills training program developed by Douglas College in B.C. This project is testing what would be considered a true social impact bond model in which private investors will recover their initial investment plus a financial return of up to 15%, if the training is successful.
The second project is the flip side. This one is addressed to people who are already employed. It's led by the Alberta Workforce Essential Skills Society; they are the proponent of the project and the intermediary for this pilot.
In this case, the private sector employers will be reimbursed up to 50% of training costs for up to 800 workers, if the training achieves target outcomes. This is a variant that we call “employer as the investor”. It's a departure from a formal SIB, because the investor is not motivated by return on capital investment per se but by the prospect of economic returns from a better-trained and more productive workforce as well as reimbursement of training expenses.
In both of these pilots, government reimbursement of training costs is triggered based on gain in literacy skills. These are measured pre- and post-training, and they are used as a proxy for labour market outcomes success.
Up to this point our organization has been supporting the leader of these projects in the design of the program and has developed reimbursement formulae for both projects. We worked on investor risk-reward scenarios to establish graduated payment schemes and comparability of the SIB offering with market investment. It gets fairly technical, as you can see.
Positioning these projects in the social impact bond literature, I would say that they have some of the core features. First of all, the private investor pays the full cost of the intervention up front; the SIB addresses a well-identified social environmental problem or goal—that is, the high vulnerability of low-skills workers in the Canadian economy; and the activity generates a social dividend and economic return to investors. There are social and economic benefits associated with a more skilled workforce, and private investors in both cases are achieving returns on investment. The payback to the investor is from government and is tied to measurable results.
There is the presence of cashable savings for government. The more people who are trained, the more earnings they make, the more tax they pay, and also, the less reliance on employment insurance and social assistance programs.
Some or all of the risk is borne by the private sector. If desired outcomes are not achieved, private investors bear a large part of the costs.
But they're not like some SIBs we have discussed before in the sense that we're focusing on intermediate outcomes to trigger the payback—that is, skill gains—and not directly associated with measurable cash savings to government.
It goes to show that there is no one unique SIB model, and we came to this realization fairly early in this process, when we were looking at the literature and were looking at what other countries were doing. There are different ways of orchestrating these arrangements.
To conclude, here are some key observations about what we've learned so far. We're not an advocacy group. We could advocate, but we're not going to advocate. We're evaluators, so we present a neutral point of view.
First, we observe, of course, that social impact bonds and social finance schemes in general can be very complex. Defining success outcomes, reimbursement terms, and appropriate metrics to measure success, all of that is fairly complex. Our approach was to ground the rationale for the repayment scheme in evidence of point gains from previous essential skills training intervention to define a benchmark. We look for benchmarking in the process. Then we calculated risk-reward scenarios to prepare a graduated payment scheme that rewards higher levels of success with higher returns on investment. This we had to engage into, while we expected something much simpler at the beginning.
SIBs involve substantial transitional costs because there are a lot of people involved in the process, from investors to intermediaries to service deliverers. All of these people have to work and interact together and come to agreements, and it's a long process, so transitional costs are high.
At the beginning what we realized is that, despite the political interest and support for these projects, the legal and regulatory environment in Canada had never heard of SIBs and it was not adequately prepared. The intermediary for the SIB for the unemployed—that is, Colleges and Institutes Canada—which is structured as a non-profit and charitable organization, had to examine and review alternative corporate structures to be able to receive and administer the SIB funds. It spent a fair amount of money on consultants to figure out how to go about it.
Attracting private investment can be challenging. Potential investors range from benevolent investor foundations and the like to those who are more commercially oriented and who seek market returns on their investment. People whom we call “finance-first investors” may sometimes accept the risk of lower returns if their investment is supporting a good cause but that is not yet the general norm.
ln the case of the workplace essential skills training model, we have learned from the project leads that there can be hesitation to make the significant up-front investments from investors. They are not used to the formula and they are often tempted to rely on other government programs where the subsidies or the support from government is known and more tangible.
In other jurisdictions, the availability of funds for SIB investment has led to more rapid development and implementation of SIBs than in Canada, for good reason. As you well know by now, in the U.K., the creation of the Big Society Capital independent financial institution was a major lever to get them going.
The third point is accounting for all costs and benefits. SIB arrangements would be more likely to attract interest and popularity not only if governments were willing to reimburse investors on the basis of cash savings that their own fiscal frameworks will record but also if they would take into consideration all social and environmental benefits that can be generated through SIB intervention.
As I mentioned, SIBs could be very resource intensive. Without a large definition of benefits, including those going to society as a whole not only those affecting the fiscal framework, they would be harder to popularize.
One other difficulty for Canada is that many of the cash savings don't end up with one government. A lot of social policy is managed by the provincial governments, and they are the ones that will realize the bulk of the cash savings. While the federal government will also realize some cash saving through increased tax or other means, connecting the two is something that has to be achieved if you want to make sense of SIB implementation.
My last remark is to say that we are in favour of further exploration of SIBs in Canada, but please evaluate them carefully. It's not a proven recipe, as we've heard from previous speakers.
I work for Parkland Institute, a think tank here in Edmonton that's based out of the University of Alberta. We don't receive funding or anything else from the university, and we are a non-partisan group that tries to shed light on public policy issues that emerge in Alberta.
I was really pleased to be invited to speak to the committee today, as we've just finished a report that looks at the relationship between the not-for-profit sector and the Government of Alberta and how that relationship has evolved through time and how it's playing out.
One part of our project dealt with social impact bonds and social financing. It was really wonderful to hear from you that you were looking for someone to speak on this. We'll be publishing that report in June, and we'll be glad to share it with the committee members and anybody interested, which will give a larger context to what's been happening with these sorts of issues in Alberta.
In 2014 Alison Redford brought in legislation that would bring social financing to Alberta by using some moneys from the Heritage Savings Trust Fund as start-up moneys and use $500 million over two years to get these social impact bonds going. I'll give the position I take with regard to these sorts of things.
In the current tax-cutting frenzy among governments of the day, there's a keen interest to find solutions to the underfunding of social problems, especially in commodity-based low tax regimes like Alberta's, where oil prices periodically decline and government revenues can evaporate in an instant. Speculative ventures like social financing and social impact bonds are seen as a potential way out of this morass and to look at how we can fund costly social programs.
The problem that we see is that the social finance that's been introduced to date diverts our attention from spending cuts and gets us into a whole conversation that ultimately is regrettable, in the sense that it leads toward a commodification of social services and focuses us on the intricacies of numbers and not people. One of our main problems is that social financing in this sense is a dead end. It's not an avenue to get us anywhere, and it leads us into conversations like I'm sure you've been having about the possibilities that exist. But at the end of the day, we take our attention away from the proper funding of social programs.
Our report examines how ideas like social financing undermine not-for-profit organizations. Our focus has been on social welfare not-for-profit organizations, ones that deliver front line services to Albertans. We just don't understand how it's possible that these arrangements can benefit not-for-profits. We have to look at the context of how not-for-profits have been affected by the financial downturn in 2008 and how they've been struggling to gain some sort of footing in this new environment in Alberta, following a quite turbulent period, as you all know.
I would argue today that social financing and social impact bonds are not only hard on front line workers and people who use the services, but also hard on policy-makers and politicians who have to be the face of these arrangements, which are cumbersome, expensive, require a lot of upfront capital, and whose results are speculative at best. I've read a lot of the literature, and even the most glowing literature will show you that the results just aren't there. We do not have the literature in place to move forward with anything like this.
Look at the case of Alberta and why it has shelved this sort of project. Alison Redford was the biggest proponent of social financing and she talked about it in her leadership bid in 2011. Even right toward the end of her tenure in 2014, she introduced a bill that fell on deaf ears. As we know from the Big Society project in the United Kingdom, these are hard concepts to communicate to people, to give them a sense of what we're doing and how this is important and how this strengthens our society, as opposed to pulling away from it and making it weaker.
The amount of speculation that we see regarding social finance, even from advocates—there's a huge critical literature on the topic—shows that, basically, future governments are responsible for helping the vulnerable no matter how we cut it, no matter how we look at it. I think that should be our focus in social policy. How can we support and help the vulnerable? How can we support and help these grassroots organizations across Alberta that have been built since the 1960s and the Social Credit government? These non-profits need to be built up and supported and given generous funding, because, at the end of the day, they're actually preventing social problems in local communities. We should be seeking to strengthen our public services and our public sector, not undermining them by turning our attention away into this sort of speculative, what you could call maybe, venture capital in relation to social problems.
There may be some areas in which social impact bonds and social financing works, but I'm saying in terms of social welfare organizations, we're turning our attention away from the sorts of areas that need our focus, and those areas have to do with how we are delivering our social programs, how we are supporting our not-for-profits, and whether we are adequately funding these organizations through time.
In our report, we traced the geneology of this movement towards offloading of government responsibility onto not-for-profit groups, and how this has become an obsession and a fascination in a sense that it shouldn't be. Really, for what it is, it's actually a form of privatization. Unfortunately, the responsibilities for a lot of these problems and a lot of these speculative ventures fall not into government's hands—or maybe they do—and not into private hands, but onto the not-for-profits themselves.
Social impact bonds are built around partnerships, but these are partnerships that are formed for all the wrong reasons. In the case of social welfare, this is the profit on social problems and democratic grassroots organizations such as non-profits. So while the promise of new money for social services is certainly inviting, we have a responsibility to be aware of the potential costs that these ventures could have as they undermine grassroots organizations in small communities, in places like Rimbey, Alberta, for example. We need to really look at that.
There exists a precarious balance between government funding, charitable donations, and the not-for-profit sector in Canada, in Alberta. Social finance threatens to undermine that balance by imposing altogether new responsibilities on non-profits and governments alike. Ironically, the result of these efforts in Alberta, as elsewhere, may be long-term damages, not only to the not-for-profit sector but to its clientele and to government and society at large.
Let's remember for a moment the list of generally accepted benefits that the non-profit sector brings in providing social services: first, there is an efficient use of voluntary labour; second, there are flexible and rapid responses to specific local needs; third, not-for-profits are less bureaucratic; and fourth, Albertans have a lot of respect for not-for-profit organizations in their communities. The more non-profits are asked to take on larger, more complex tasks, the less these same tasks can be met through the often part-time or volunteer labour. There needs to be more and better trained professional staff to take on these new arrangements. They cannot be attained through the traditional sources of charitable giving, and must instead be obtained from government or somehow through the social impact bond model. But since this new financing model is based on markets and competition, which are not areas the not-for-profit sector is accustomed to dealing with, non-profit agencies find themselves having to hire or contract professional staff whose tasks include writing grant applications.
I agree with the general idea there, that social innovation and social enterprises are not necessarily a bad thing, and I certainly wouldn't want my remarks to be misunderstood in that respect.
As I said, our focus is quite narrowly on the social service area, and I think part of what my talk would indicate is that we should be placing some pretty firm limits around what it is we are talking about, and what it is we are not talking about, because at the end of the day, when there is this kind of broad speculation going on, it impacts these grassroots organizations. The number one thing, I would say, is to keep an eye out as to how this affects not-for-profits, which now have to figure out how they are going to play in this new regulatory regime and how they can get up to speed.
One thing I would definitely advise—and this is something that comes out of the U.K. as well—is to make sure this sort of thing isn't understood to be mandatory, that you have to use some sort of social financing mechanism if you are going to receive the coupled government funds. That would be one of the big points I would make, because that truly undermines not-for-profits.
I have spoken with people in Alberta who have worked in the not-for-profit sector their entire careers as social workers, consultants, and so on. They are very much concerned that this kind of model changes the focus of not-for-profits from one that is, as I said, less bureaucratic and actually based on serving community needs, to one where all of a sudden you have not-for-profits that are concerned about delivering a profit to for-profit organizations that are involved in these arrangements in one form or another. That changes the fundamental mission.
I would say, again, look at the history of not-for-profits in Alberta. It's a unique one. It's not built around this idea of “let's see how big we can build the state” and all these sorts of things. In some ways, we've had a really interesting mutual back-and-forth between the government and these organizations that created a unique history in Canada. That is one of the ways we can justify saying that we focused almost exclusively on Alberta, because Alberta has a unique history in terms of delivering social services or preventative social services through groups like these. Our concern is very much Alberta-based. Whether there are implications elsewhere....
The last thing I would say in terms of the welfare state is that I just don't see governments doing a good enough job of securing the revenues needed to actually support these sorts of programs. The sky has been falling in Alberta for a long time. Why? It is because the case for proper taxation policies that would be able to deliver on the promises that are made to everyday Albertans has not been made. I think the current government change is an example of that, where the NDP was able to make a case for why increasing the corporate taxes could be beneficial to the average Albertan.