Social Impact Bonds, Hot New Experiment

Both House and Senate bills have been introduced this summer to fund a model called “Social Impact Bonds.” The two bills (HR 4885 and S 2691) are bipartisan and they attempt to expand the use of a funding strategy that would attract private investment to address a social problem or challenge with investors rewarded with a pay-back by government only if specific outcomes and goals are reached over time.

HR 4885 was introduced in June by Congressman Todd Young (R-IN) with 22 cosponsors with the sponsorship split down the middle between the two parties—a rarity in recent congresses. S 2691 was introduced by Senator Michael Bennet (D-CO) and Senator Orin Hatch (R-UT) just before the August break. The House bill is called the Social Impact Bond Act while the Senate bill is called the Pay for Performance Act. Both bills amend the Social Services Block Grant (SSBG) by adding a subsection C with $300 million designated in the subsection but the funds are not necessarily drawn from SSBG (they do not alter the $1.7 billion for the base block grant).

The state or local governments could apply for funding. The general structure is that a non-governmental entity or agency would attract funding from non-profit and for-profit sources to address a specific social challenge. In England a project near London has become one of the earliest tests of the strategy by targeted recidivism rates among inmates exiting prison. If the agency/entity reaches the set outcome, for example a ten percent reduction in recidivism rates over a specific period of time investors would receive their investment with interest back with the government held harmless if the outcomes are not met.

Over the past few years the Center for American Progress has examined the strategy and issued reports including Investing for Success and also hosted a roundtable on the challenges and issues with such strategies. They have also created a factsheet on some of these “pay for performance” approaches to addressing social human service challenges.

The two bills are somewhat different in their structure with the House bill including 13 types of projects that would be eligible for funding and the Senate bill including 14 categories of projects. The common projects in both bills include:

Projects that can qualify:
• Increasing work and earnings by individuals who have been unemployed for more than six consecutive months;
• Increasing employment and earnings of individuals age 16 to 24;
• Increasing employment among individuals receiving Federal disability benefits;
• Reducing the dependence of low-income families on Federal means-tested benefits;
• Improving rates of high school graduation;
• Reducing teen and unplanned pregnancies;
• Improving birth outcomes among low-income families and individuals;
• Reducing rates of asthma, diabetes, or other preventable diseases among low-income families and individuals;
• Increasing the proportion of children living in two-parent families;
• Reducing incidences of child abuse and neglect;
• Reducing recidivism among individuals released from prison; and
• Other measurable outcomes defined by the State or local government that result in positive social outcomes and federal savings.

The House also includes
• Increasing adoptions of children from foster care
While the Senate specifies:
• Reducing the number of youth in foster care who are emancipated from care by increasing adoptions, permanent guardianship arrangements, reunification, or placement with a fit and willing relative for children and youth in foster care; and
• Reducing the number of children and youth in foster care residing in group homes, child care institutions, agency-operated foster homes, or other non-family foster homes, unless it is determined that it is in the interest of the child’s long-term health, safety, or psychological well-being to not be placed in a family foster home.

The Administration has also proposed in recent budgets $300 million in pay for success funding. In fact the former head of the White House Domestic Policy Council under President Obama, Melody Barnes issued a statement at the introduction of the Senate bill that said, “The Pay for Performance Act gives policymakers a critical, evidence-based strategy for dealing with major societal challenges. By connecting the tools of impact investing to a ‘what works’ approach, this bill takes us one step closer to a smarter, leaner, results focused government.”

HHS Refines TANF Reporting on Child Welfare Spending

On July 31, the Administration for Children and Families (ACF) in HHS issued new standards for how Temporary Assistance for Needy Families (TANF) funds are spent with a refinement in regard to child welfare spending. Beginning with the FY 2015 first quarter report (report quarter ending December 31, 2014, due February 14, 2015), TANF-ACF-PI-2014-02 (OMB approved Form ACF-196R State TANF Financial Report Form) should eventually lead to greater detail in regard to TANF funds used for foster care, adoption assistance and guardianship payments as well as other spending on child welfare services.

States have a great deal of flexibility in how they spend their federal TANF funds on families and on child welfare services. National surveys by Child Trends and others have indicated that, nationally, over 20 percent of federal funding for child welfare services comes from the TANF block grant. States vary in their utilization of TANF funding with some not allocating any TANF funds for child welfare services to some states such as Texas usually drawing more than 40 percent of their child welfare funding from the TANF block grant.
When AFDC was eliminated in 1996 and converted into a block grant some states had already been using it as a partial source of funding for child welfare services. AFDC was the sole funder of foster care in the 1960s and 1970s until Title IV-E was created in 1980.

When AFDC was converted into the fixed TANF block grant to states in 1996, each state’s permanent allocation of federal TANF funds was based on an average of what states had been spending in AFDC in the previous years. For states that were operating an Emergency Assistance or “EA” program as part of AFDC, that spending was incorporated into the state’s TANF grant. States are allowed to use federal TANF funds for the same services they had funded under AFDC and EA. That is significant because many of the approximate 30 states that had an EA program used some of the short-term EA funding for non-IV-E eligible foster care, adoption assistance and juvenile justice. That meant that under the new TANF spending requirements states could spend the flexible TANF funds on any program or services that fit the four purposes of the act (including purpose one, “provide assistance to needy families so that children may be cared for in their own homes or in the homes of relatives.”) as well as services authorized under the AFDC law.

Although the Child Trends surveys show states getting more than 20 percent of child welfare funds from TANF, those numbers are not verified under current annual TANF spending reports. Yearly reports by state TANF agencies show states spending TANF funds under the categories of: cash assistance and non-assistance and within these two large categories are spending on child care, transportation and a few other categories including “other.” Child welfare is not specifically reported and may fall into various categories such as other, assistance and non-assistance.
In recent years Congress has been seeking more detail especially as some states reduce their support for families more historically typical of welfare: families headed by a parent and a child or children. Under the new reporting requirements states will begin to break out TANF spending by:

Relative Foster Care Maintenance Payments and Adoption and Guardianship Subsidies: basic assistance provided for a child or children that the child welfare agency has legal responsibility and is living with a caretaker relative; or children living with legal guardians. This category includes ongoing adoption subsidies. All expenditures are for cases not eligible for IV-E foster care assistance or subsidies.

Assistance Authorized Solely Under Prior Law: activities that are not consistent with the four purposes of TANF but are an allowable use of federal TANF funds but are activities which the state was allowed to spend on under the AFDC. These include foster care assistance, Juvenile Justice Payments, and Emergency Assistance Authorized under section a state’s AFDC or Emergency Assistance state plan.

States will also report in a separate category Child Welfare Services which include:
• Family Support/Family Preservation/Reunification Services, (community-based services, provided to families involved in the child welfare system that are designed to increase the strength and stability of families so children may remain in or return to their homes. Services include respite care for parents and relative caregivers; individual, group, and family counseling; parenting skills classes; case management),
• Adoption Services (services and activities designed to promote and support successful adoptions including pre- and post-adoptive services to support adoptive families, as well as adoptive parent training and recruitment), and
• Additional Child Welfare Services (other services provided to children and families at risk of being in the child welfare system, or who are involved in the child welfare system. This includes independent living services, service coordination costs, legal action, developing case plans, assessment/evaluation of family circumstances, and transportation to or from any of the services or activities described above.

Congressional Problems With Spending on Child Welfare

It happened again, just before Congress left for the summer break on July 31, Congress gave children in foster care their heartfelt support but were much more limited in their financial support. In blocking passage of the child welfare bill, HR 4980, the “Preventing Sex Trafficking and Strengthening Families Act,’ Senator Tom Coburn offered several criticisms of the bill but he used a not uncommon issue when it comes to child welfare, federal spending:

“Lastly, the spending in this bill largely occurs in the first three years, while the reductions in mandatory spending do not provide savings until the second half of the ten year window. As a result this bill violates budget point of order 302(f) because it exceeds Senate Finance Committee allocation under the Ryan-Murray Budget.”

The spending criticism regarding cost was not without irony because hours later a block of a supplement funding request to aide Israel and its maintenance of their iron dome missile defense system was approved before the Senate (and Congress) left until September 8. Originally it had been blocked because the allocation of an additional $225 million in assistance was not paid for and was designated as emergency spending not requiring a cut in other spending—something child welfare legislation in never allowed.

In fact this child welfare bill is paid for and the Congressional Budget Office (CBO) said it actually generates savings over ten years.

The juxtaposition of members of Congress making sweeping statements of concern and support for children and youth in foster care while only passing legislation that is offset (paid for) by cuts in other child welfare programs or in other human services is not new. In late April of this year, the House Ways and Means Committee passed six tax bills in the same hearing when they passed HR 4058 the Preventing Sex Trafficking and Improving Opportunities for Youth in Foster Care Act (the same bill delayed in the Senate). The tax bills extended several business-related tax deductions and cost more than $300 billion over ten years and the costs were not offset. The child welfare legislation not only had to be paid for but a section of the bill was pulled because it would cost approximately $1 million a year.

The section in question required states to provide certain documents such as birth certificates and Social Security numbers to youth leaving foster.

Another incongruity is that while Washington is increasingly demanding that human service programs offer rigorous evaluation or evidence based-practices that demonstrate they have their intended impact, no one is arguing that tax credits designed to promote job creation undergo any evaluations let alone evidence-based results.

In fact one of the on-going challenges of the current and recent past discussion of “finance reform” of the way we address child abuse and child welfare services is predicated on a “cost-neutral” basis because there is no money. The challenge is what we can cut in one part of child welfare before we fund what is needed in another part of child welfare services. At a recent national preschool meeting someone offered up a joke about how we could fully fund preschool and they joked that by cutting off funding for teenagers in the last year of k-12 education we could provide the funding for the early years. It was a joke, but at times it seems like a reality for child welfare.

Pre-KNation Summit in New York City

On Tuesday, August 5, New York City became the site for a “Preschool Nation Summit.” The summit, the first one, was a bicoastal event broadcast through a webinar presented by Scholastic Inc based in New York City. The nation’s largest city was an appropriate setting since Mayor Bill de Blasio ran on a campaign that included a proposal to expand universal preschool in the city.

Mayor de Blasio’s opened the event with keynote remarks that discussed his support and belief that providing universal preschool is vital to addressing a range of issues including poverty. He recounted his recent visits to some of the city’s preschool programs and what they were accomplishing and discussed the experiences of his own children and how they were helped by effective programs. As far as New York City, the Mayor said that the just completed school year resulted in 20,000 children enrolled in full-day Pre-K and that this coming September that figure will increase to 50,000. He also said more would be needed because they estimated the need to be approximately 70,000.

The opening panel focused on the current status of programs across the country and how effective models are being put together and how state and local programs are leveraging funds. That panel included comments by Carmen Fariña, New York City Education Chancellor, Kris Perry, the First Five Years Fund, Celia C. Ayala, Los Angeles Universal Preschool, Steve Barnett, National Institute for Early Education Research, Aaron Lieberman, Acelero Learning; CEO, Shine Early Learning.

Their presentation was followed by a discussion of pre-k’s relevance to a cross-section of key
stakeholders including law enforcement, businesses and the military. The discussion included comments by Rob Dugger, Co-Chair of the ReadyNation Advisory Board, Frank Fowler, Syracuse Chief of Police a member of Fight Crime: Invest in Kids, Major General Mike Hall (ret.) and member of Mission:Readiness and Suzanne Immerman, Senior Advisor to U.S. Secretary of Education Arne Duncan. Explaining Mission Readiness’s reason for being involved in this issue, Major General Hall indicated that 75 percent of youth aged 17 to 24 could not enter the military due to being poorly educated, having health care issues or having a serious criminal record.

The final panel focused on advocacy and strategies to increase the support and implementation of preschool programs nationally. This group included Patti Miller, Too Small To Fail, Adrián Pedroza, Partnership for Community Action and member of President’s Advisory Commission on Educational Excellence for Hispanics, Helen Blank, National Women’s Law Center and Albert Wat, the National Governors Association. Participants were urged to raise the issue during the upcoming elections and that members of Congress need to hear about the importance of expanded access to universal preschool.

For additional information on the event go to Preschool Nation Summit 2014.