Social Impact Partnerships: No Social Solyndras | Citizens Against Government Waste

Social Impact Partnerships: No Social Solyndras

The WasteWatcher

Too often, Congress seems to blindly throw money at the problem du jour and then, without any measure of effectiveness, consider its work to be complete.  This tired (yet persistent) approach may help to explain why federal spending has metastasized unabated, while many social ills remain unsolved.

Fiscal conservatives can (rightfully) argue whether the federal government should be considered the solution to such ills in the first place.  But until that debate has been won by proponents of less expensive (and less expansive) government, the fact remains that Congress churns out unfathomable amounts of money for the sake of, well, churning out unfathomable amounts of money.  Or less cynically put, to appear to be “doing something.”

Citizens Against Government Waste (CAGW) has long suggested that members of Congress, in allocating scarce resources, focus instead on outcomes.  Logic dictates that, if lawmakers are intent on solving problems with taxpayer dollars, elected officials would be held in higher regard if they could prove that the expenditures were worthwhile.

A bipartisan effort in the House of Representatives attempts to do just that.

On May 6, 2016, Rep. Todd Young (R-Ind.) introduced H.R. 5170, the Social Impact Partnerships to Pay for Results Act.  Along with original co-sponsor Rep. John Delaney (D-Md.), Young shepherded the bill to final passage in the House of Representatives on June 21, 2016.  A companion bill (S. 1089) has been introduced in the Senate by Sen. Orrin Hatch (R-Utah).

“Too often, Washington focuses on inputs instead of outcomes,” according to Rep. Young.  “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.  Since the 1990’s, just ten of these programs have been subject to rigorous scientific evaluation, and nine of them were found to have little to none of the desired impact.  And yet we continue to fund these programs.  It’s time we shift the focus to achieving desired outcomes, evaluating our social programs more carefully, and only paying for what works.”

Just as importantly, according to Rep. Delaney, “This bipartisan legislation offers a new solution that improves government services, helps those in need and reduces taxpayer costs.”

Essentially, the bill allows for public-private partnerships in the provision of social services, paying for only what works while reaping savings for taxpayers.  Administered by the federal government, the level at which the economies of scale make it more realistic that the private sector will be able to realize profits, the providers are not paid unless an independent auditor certifies that the program’s objectives have been accomplished.  Unlike more conventional crony-capitalist ventures with government dollars, where the provider receives taxpayer support (in the form of subsidies, loan guarantees, and the like) regardless of success or failure, this approach ensures that the risk is privatized, while socializing the benefits.

As Rep. Young tells CAGW, “We don’t want social Solyndras.”

In the best case scenario, the market provides the service at a cost lower than what the federal government would have spent on its own.  Even when the overhead costs of administering the program are factored in, the taxpayer enjoys savings that would not otherwise have occurred.  And in the worst case, unlike Solyndra and its ilk, if the private sector providers do not meet their required metrics, they don’t get paid.

But Rep. Young believes that the story doesn’t end there.  Federal, state, and local governments, as well as their private partners, can even benefit from market failures.  As providers apply lessons learned from each experience, successes can be reinforced to achieve even greater savings as the efforts mature.  Indeed, according to a cost estimate by the Congressional Budget Office (CBO), the legislation would reduce spending by $10 million over the next ten years.

The concept is based on the Social Impact Bond (SIB) model from the United Kingdom (U.K.), where Rep. Young had earned a graduate degree.  When he later visited the U.K. as a congressman, Young met with the former Conservative Party leader Iain Duncan Smith (then a member of Prime Minister David Cameron’s cabinet) on the subject of SIBs.  On March 15, 2015, the American Enterprise Institute (AEI) hosted a presentation entitled, “Welfare reform and lessons from the United Kingdom:  A conversation with UK Secretary of State for Work and Pensions Iain Duncan Smith.”  In describing the U.K. as a model for effective welfare policies, Duncan Smith said that “Welfare should be a journey people are on, not a destination where people stay.”  Rep. Young followed Duncan Smith’s presentation by highlighting three takeaways from the U.K. experience for inclusion in conservative welfare reform in the U.S.  As summarized by AEI:  First, make work pay so that “joblessness never pays more than employment”; second, pay for what works and invest in programs based on evidence of success; and third, look at each individual holistically to establish a flexible, individualized program.

Young also worked with Harvard University’s Social Impact Bond Technical Assistance Lab (SIB Lab) at the Kennedy School, to develop the concept legislatively in the U.S.  In what it refers to as the pay-for-success (PFS) model, the SIB Lab has promoted the concept by working with New York, Massachusetts, and Chicago to become some of the first state and local governments in the U.S. to use SIBs.  Under this model, “governments partner with private sector investors who provide up-front funding to promising service providers.  Investors only receive a repayment from the government if the service provider’s work is measurably successful.  Because governments pay only if the programs work, the PFS model has the potential to more effectively allocate taxpayer dollars while increasing funding for programs that deliver improved social outcomes.”

Finally, through the bipartisan leadership of Reps. Young and Delaney, Congress has demonstrated a willingness to throw metrics, not just money, at problems that it purports to solve.

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