First of Its Kind: Federal SIB Legislation Introduced

The pace of exploration regarding Social Impact Bonds (SIBs) has picked up at the federal level. President Obama’s FY2015 Budget included nearly $500 million in Pay-for-Success-related (PFS) funding, including a $300 million Treasury “Incentive Fund” and millions in Social Innovation Fund (SIF) grants. There are clear indications that the SIB conversation is moving forward at the federal level in a fashion already embraced in red and blue states – from Utah and Oklahoma to New York and Massachusetts.

On June 18th, Rep. Todd Young (R-IN, 9th) and Rep. John Delaney (D-MD, 6th) released the first federal-level PFS legislation, the “Social Impact Bond Act.” The draft legislation advances an approach to SIBs that provides an accountable, bipartisan basis on which to bring this still nascent market to the national level. Young and Delaney were joined by four Republicans (Reps. Griffin, Reed, Ross, and Schock) and three Democrats (Reps. Larson, Polis, and Kennedy) in introducing the legislation.

The goal of Rep. Young’s April legislative draft, one shared by the current legislation, was to “Improve the lives of families and individuals in need by funding social programs producing real results; to ensure effective use of federal funds; to scale effective social interventions already being implemented at various government levels; [and] to scale pay-for-performance within the social sector.” This bill represents a good first step toward making that goal a reality.

The $300 million legislation empowers the Treasury Secretary, with the assistance of a Federal Interagency Council, to fund feasibility studies, pay independent evaluators, and provide SIB outcome payments for contracts inked with state and local governments. The SIB Act identifies social policy areas that applications may address as projects with “measurable, clearly-defined outcome[s].” Smartly, policy areas listed are not limited to those appealing primarily to Republicans or Democrats. The bill would support projects focusing on a variety of outcomes – from increasing employment for the long-term unemployed to reducing dependence on federal means-tested benefits to reducing the incidence of low-birth-weight babies.

As a first step towards a SIB contract, states and localities can submit feasibility study applications, which at Treasury’s discretion, the federal government may fund at up to 50% of expected costs (although Treasury may spend no more than $10 million on feasibility studies in total). These extensive feasibility studies will essentially allow for extensive pre-vetting of SIB contract applications, owing to the mandated inclusion of outcome goals, intervention descriptions, target populations served, evidence demonstrating success, projected costs/savings, and other salient factors.

The Act is well-aligned with SIB goals to date. Particularly, both the feasibility and final SIB applications place a high priority on outcomes. And PFS contracts, at their core, allow government jurisdictions to determine an acceptable price to pay for social outcomes. Additionally, by purposing federal money – equal to any federal savings resulting from the contract within a ten-year horizon – towards additional outcome payments, the legislation may open up the market to projects with benefits that accrue across various agencies and levels of government. This is particularly exciting in the healthcare arena, where the Medicaid cost burden is shared by federal and state governments and the federal government picks up the Medicare tab.

The group sponsoring the SIB Act further demonstrates the inherently bipartisan appeal of a concept that promotes the accountable use of taxpayer dollars and an intense focus on measurable social policy outcomes. The legislation provides a strong foundation on which future federal involvement in the SIB market may rest.

Entry by Daniel Rubin, Associate

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