1. S2196: Creates a 5-year pilot program for “social impact bonds”. (S Finance; Thu, May 22)
What’s a social impact bond? The bill says that…
According to this model, investors contract with a government agency to purchase social impact bonds, the proceeds from which are dispersed to a nonprofit organization service provider. The nonprofit organization is then required to deliver services to the target population. If the results of the services provided by the nonprofit organization meets pre-determined, defined financial and social outcomes, the government agency repays the bonds with financial returns to the private investors.
Note that this law doesn’t say that the bonds are to be repaid specifically with money that’s saved; it only says that if “pre-determined, defined financial and social outcomes” are achieved, investors will receive “financial returns”.
Later on, the bill says…
The debt obligation of the state shall be limited to the amount of public sector savings realized from the social impact bond program. If additional funds are required to secure the bonds, the department shall identify additional funding sources, such as those that can be provided by philanthropic organizations.
And, of course, there’s the “boilerplate”…
The provisions of any other law, rule, regulation or order to the contrary notwithstanding, the bonds, refunding bonds or other obligations of the department issued for the purposes set forth in this chapter shall be special and limited obligations of the department, payable from and secured by such funds and moneys as determined by the department and shall not be in any way a debt of liability of the state or of any political subdivision thereof, except as otherwise provided in this section, and shall not create or constitute any indebtedness, liability or obligation of the state or of any political subdivision thereof, either legal, moral or otherwise, and nothing contained in the provisions of this chapter shall be construed to authorize the department to incur any indebtedness on behalf of or in any way to obligate the state or any political subdivision thereof, and all bonds and refunding bonds issued by the department in connection therewith shall contain on the face thereof a statement to that effect.
Anyone who is favor of creating social impact bonds and in favor of paying the 38 studios bonds cannot honestly support this bill, until they get some clarification on the meaningfulness of the boilerplate, and perhaps amend the bill accordingly.
If a project funded with social impact bonds fails, will the outstanding debt be treated as state debt? That will strongly depend upon whether RI legislators (and other policymakers) intend to follow what the law says about what constitutes real state debt, or to look elsewhere when making this determination. Legislators who believe that pronouncements from of outside-of-government organizations can outweigh the plain text of the law in issuing and allocating debt and who support social impact bonds should insist upon amending this bill, 1) striking any language about SI bonds not being state debt and 2) requiring that SI bonds which create more than $50,000 in debt be submitted to the constitutionally-mandated referendum process, in order to be fully honest with the public.
And all advocates for social impact bonds have a responsibility to do their due diligence and tell the public whether they believe there are conditions under which these bonds could become state debts, but this time before they borrow the money.