Social Innovation Legislation Conditionally Vetoed by Governor
On November 9, 2015, Governor Christie announced that he had conditionally vetoed A-2771 (Fuentes/Johnson)/S-452 (Ruiz/Cruz-Perez), “The New Jersey Social Innovation Act.” As passed by the Legislature, the bill would have piloted a “pay for success” funding model by creating a five-year social innovation loan program within the New Jersey Economic Development Authority (NJEDA).
Sometimes referred to as “social impact bonds” or SIBs (although there is no bond involved), “pay for success” is a fairly new funding model that ties program payment to successful outcomes. Specifics may vary, but structures often involve an outside investor who provides the payment for the program to a service provider; a government agency, which repays the investor only if the agreed-upon outcomes were achieved. Additional incentives are sometimes included so that if desired cost savings are also achieved, the investor would also be paid a percentage of the government’s savings. In a SIB/pay for success arrangement, much of the risk is transferred from the government funder to the outside investor or to the entity performing the services.
A-2771/S-452 would have created an initial “pay for success” pilot, administered by New Jersey Economic Development Authority (NJEDA), to focus on the provision of “nonprofit health care services with the purpose of encouraging private investment in preventive and early intervention health care to reduce federal, State, and municipal expenditures related to those services.” The bill would also have established a study commission to assess the effectiveness of the program; and provided for up to $15 million in loan guarantees for the private investors over the five-year period, to be raised from private philanthropy if a legislative appropriation was not adopted for this purpose.
In his conditional veto message, the Governor expressed his concern about the mixed results of such financial arrangements and the uncertainty of the likely costs/benefits associated with the bill. He recommended instead that the New Jersey Healthcare Facilities Financing Authority (NJHCFFA)be assigned the task of examining the issue and use its existing authority to issue loans with its own funds. The amended language offered by the Governor eliminates most of the provisions of the original bill; instead, it permits the NJHCFFA to initiate a loan program to fund the construction of preventative health care facilities, and directs the Authority to track the health care costs and benefits that may be attributed to any preventative health care facilities constructed under any loan program.
The bill, having been conditionally vetoed by the Governor, is now back in the Legislature, which must decide whether to concur with the Governor’s recommendations. If the bill is not enacted before the current two-year legislative session ends January 11, 2016, it will need to be re-introduced and start the process again in the next legislative session.
For more background about social impact bonds/pay for success from a variety of perspectives:
- Third Sector Capital Partners – “Pay for Success Programs: An Introduction,” http://www.thirdsectorcap.org/articles/policy_practive_pay_for_success.pdf
- Nonprofit Finance Fund – “Pay for Success 101” web page, http://payforsuccess.org/learn-out-loud/pfs-101
- Nonprofit Quarterly – “Social Impact Bonds Not Well Received at [U.S.] Senate Budget Hearing,” May 8, 2014, https://nonprofitquarterly.org/policysocial-context/24149-social-impact-bonds-not-well-received-at-senate-budget-hearing.html
- New York Times – “Investors Profit by Giving through Social Impact Bonds,” November 9, 2012, http://www.nytimes.com/2012/11/09/giving/investors-profit-by-giving-through-social-impact-bonds.html?pagewanted=all&_r=1
- Hudson Institute, “SIBling Revelry: Are Social Impact Bonds the Next Big Thing?” – Two-hour panel discussion, January 16, 2013, http://www.youtube.com/watch?v=m07W2jKYeEc&feature=youtu.be&a
- Nonprofit Quarterly – “Does Pay for Success Really Pay Off?” – October 17, 2014, https://nonprofitquarterly.org/policysocial-context/25003-does-pay-for-success-actually-pay-off-the-roi-of-social-impact-bonds.html
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