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OP-ED | Different is Better

by Brian O'Shaughnessy | Mar 20, 2014 1:20pm
(6) Comments | Commenting has expired
Posted to: Opinion

Tipping points often come upon us unnoticed.

If you are paying attention, there is a great deal of discussion about income, poverty and the quality of life. Whatever the focus — the minimum wage, early childhood education, wealth disparity, academic achievement gap, unemployment, crime — at the core are economic issues. The root causes of these issues are complex and addressing them could also cost money. What if we could address these issues and save money?

Several weeks ago, I was part of a conference at the Legislative Office Building to promote the concept of social innovation financing. This was the second conference on the topic. The legislative expression of this idea is set forth in SB 105, “An Act Concerning Social Innovation Investment.”

The legislation still seeks to find “packaging” that legislators, government, and the public can embrace. This is unfortunate, because the idea is very simple. Unfortunately, the deviation from business as usual can be disorienting. Thinking different is hard.

The popular label is a social impact bond or pay-for-success contract. Government would agree to pay the provider of a social service program only if the services it delivers are proven successful. Hence, a pay-for-success contract. If the provider cannot establish success and significant financial savings, no payment is made. In a state where over $1 billion is spent each year for social services never measured for success, what exactly is the problem?

Central to a pay-for-success contract is the capture of data. The purpose of the data in a pay-for-success contract is to establish that services accomplish a stated goal and save money. Data in relation to public investment is growing as a topic of interest and pay-for-success contracts are part of this movement. A successful pay-for-success contract can establish a protocol for the future that, if adopted by government, will save money and improve lives. This is positive change.

There has been increasing concern with measuring the impact of a variety of public investments in areas such as workforce development, early childhood education, and recidivism reduction. Why these areas? Because when successful, they have the ability to save a huge amount of money. This is good.

The “impact investing” movement is not about making money. It is about saving money. It is also about improving lives. Unfortunately, all the “noise” around pay-for-success contracts is because the funding that enables the delivery of the “preventive” services comes from philanthropic, but private sector parties. If the services are successful, some of these parties are repaid, possibly with a minor return for the cost of funds. Many of the parties seek no return of capital.

The private sector is trying to prod government toward evidenced-based practices that will address root causes, improve living conditions, and save money. We have a legitimate interest in a well-educated, safe, and productive populace. As a state with increasing poverty and decreasing human productivity, we all should care.

Many of the people involved in the “impact investing” movement are visionaries who want to apply the lessons they have learned for the common good. Names like Buffett, Hewlett, Gates — even Bush, Bloomberg and Clinton — have achieved success and are looking to serve a higher purpose. To think these are rich people looking to get richer on the backs of the poor is the height of cynicism.

Our collective interest is served by using tools that seek to improve lives and save money. The federal government is taking notice and is increasingly rewarding states that have the ability to leverage data to increase effectiveness and save money. Both the federal Departments of Labor and Education are paying attention and the White House Office of Social Innovation is working with both to promote social service delivery that saves money. With increasing need and decreasing revenues, we have no choice.

For example, the parties that our Connecticut team attempted to use for a social impact bond program three years ago recently announced “our” transaction in New York State. More than $13 million will be invested in a reentry program that seeks to employ the formerly incarcerated. The economic impact of such a program is extraordinary (converting citizens that cost money to folks who can pay taxes) and the federal government has awarded a $12 million grant to New York State if the program is effective. A Massachusetts program that seeks similar results for juvenile justice will receive $11.7 million from the federal government, if it can prove success.

The visceral opposition to social innovation financing continues for a variety of reasons not associated with its’ true purpose.

Seriously, are things working so well that we don’t want better results at less cost?

Brian O’Shaughnessy of New Haven is a principal in the consulting firm Community Impact Strategies, Ltd.

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(6) Comments

posted by: Councilman1 | March 20, 2014  2:40pm

So how is it done for less, exactly? The govt says we’ll give you $X. The group getting the money will pay people less. Isn’t that what will happen? Privatization by another name? Or if it’s just by improved management, why don’t these non-profits do better now? If a different set of people will be motivated to jump in to solve these problems, why would they do that? By keeping a profit (gained from paying people less)? And by the way, it’s not cynicism to think the rich want to get richer on the backs of the poor…it’s an observable truth.

posted by: lkulmann | March 20, 2014  4:19pm

This is truly the best post I have ever read anywhere ever…snif snif sniffles..
I think I might cry… so sweet and nice and innocent like an untouched newborn sleeping peacefully and quietly…life is good…pleaaasse!
~~In a state where over $1 billion is spent each year for social services never measured for success, what exactly is the problem?~~
White Collar Crime defined. The money never reaches the public and services are nonexistent.
~~To think these are rich people looking to get richer on the backs of the poor is the height of cynicism.~~
Corporate Welfare defined again…how precious! Instead of giving the amount of services required by law and very nicely documented, btw. The money never reaches the public and the services are nonexistent.
~~Seriously, are things working so well that we don’t want better results at less cost?~~ Actually, yes ... I’d say it works very well! Its quite profitable actually just the way business is intended to run. If you put people above profits you might have to do things in an emotionally feeling sort of mushy way…money trumps feelings any day of the week! $$$$$$$$$$$$$$$$$$$ I hope I didn’t hurt your feelings…You realize these things are happening, right? Corporate Welfare and white collar crime… don’t you? corruption??

posted by: Matt from CT | March 20, 2014  5:41pm

>So how is it done for less,
>exactly?

You give us the money.

We manipulate the data like Wall Street bankers snorting coke so it looks like we achieved our goals.

An extra layer of political hacks are employed as the middlemen. Win!

The author lists folks like Buffet, Gates, and Clinton supporting this—all three are also Common Core boosters…just shine some sunlight on that deal and watch the cockroaches scatter.  Pearson lobbies for Common Core, states adopt Common Core, states found PARCC as an NGO, PARCC contracts with Pearson for the tests.  Gives Pearson (im)plausible deniability they bribed politicians to give them the contract, you get to stuff some political hacks and their wives into PARCC, life is good.

And somehow the new nationwide tests, which should have the industrial efficiency of scale since the same test will be administered in 47 states ends up being more expensive   than the Connecticut Mastery Test that was developed and administered just for our state.

posted by: BrianO | March 20, 2014  10:06pm

I apologize for not providing more detail. 

PFS contracts are only for preventive services for which there is rigorous data that establishes a later cost was avoided. Most government programs don’t qualify and only the best state nonprofits are being used. The fear of privatization expressed by government employee unions is not warranted. So far, providers are spending more than usual to ensure success for a stated goal.  Payment is delayed for years - until after the services are delivered and proven successful - and is far less than the actual government savings. 
 
The idea is to demonstrate the cost savings involved in addressing a root cause.  For example, in Utah there is a program that has shown to avoid elementary school special education costs for low income children by teaching pre-school reading skills.  These transactions are intended to be illustrative. They don’t provide a risk of privatization because government in the US spends $7 trillion dollars, 3x the entire economy of India—a country of over 1 billion people.  Who is going to spend that kind of money?

posted by: Stingy Blue | March 21, 2014  9:17am

On the one hand, there are innumerable investments that state and local government could make that would reduce future costs far beyond the cost of the initial investment.  Early childhood education is a great example.  So, a funding mechanism that would increase this upfront investment and then pay out the investors once the savings are realized seems like a great idea.  The problem, however (and this is what I think the first three commenters are getting at, their shrill tone notwithstanding) is that there is a problem of measurement.  Folks in Mr. O’Shaughnessy’s industry seem to think (in my view) that proxy data points are sufficient to measure social outcomes.  This is a “leap of faith” in statistics that I fear is misguided.  For example, there is the assumption in the educational reform industry that test scores are an appropriate proxy for educational outcomes.  The unfortunate result of this is so-called “teaching to the test.”  I fear that Mr. O’Shaughnessy’s proposal would lead to the manipulation of proxy data points (sufficient to trigger payouts to the social innovation financiers) at the expense of the desired social outcomes.

posted by: BrianO | March 21, 2014  2:02pm

SB:  Thank you for a thoughtful comment to which I can respond.

The issue you have raised is of great concern to the parties involved in the few pay for success contracts that exist.  It is of great concern because the goal of the contract is to create a future protocol that will save government money and improve results.  The integrity of the data is core to the philanthropic goal.

Again, this is not about making money, but saving money.  Will the data generated be better than the protocols that presently exist?  Yes.  Why?  Because there is no evidence and protocols for the vast majority of the social services we deliver.  What happens when no measurement standard exists?  US government spending goes from 7% to 42% of GDP and population results get worse.

What I don’t understand is why are we protecting a system where data and measurement is absent, especially as the population results we seek to improve are worsening and there is less money?  When it doesn’t make sense, you have to ask: who benefits?  http://ctmirror.org/op-ed-data-and-democracy/