Public Safety Committee on May 27th, 2014

[Randall Garrison, NDP, Esquimalt—Juan de Fuca, BC]

With a higher cost.

[Norm Tasevski]

If you think about a grant as 100% loss, that is actually the higher cost. For an SIB as an example, you don't spend anything until the social outcome is achieved. The government spends nothing until you actually see the results. This money that the government spends is actually the savings to the government.

If you reduce welfare rolls, the government is saving money in welfare cheques. You're not paying that in transfer payments. You pay a percentage of what you had saved to the intermediary; it's not a new outlay of capital.

[Randall Garrison, NDP, Esquimalt—Juan de Fuca, BC]

Of course, if you'd done that directly, you would capture all the savings and you wouldn't have to pay anything to anyone. It's comparing apples and oranges in a lot of ways to talk about it in those terms.

The other question would be, who makes the decisions on where these social finance projects go? In other words, who decides which are worthy projects or priority projects? What you're saying is these are essentially left in private hands rather than in government hands to decide which community or which part of the community will benefit from these kinds of investments.

[Norm Tasevski]

I don't think I actually said that.

Private investors can place capital in these initiatives. Often, a lot of projects that we do as a firm are generated by philanthropic foundations, by private philanthropists, by other government agencies. We work with the City of London to develop a social housing initiative. We didn't have a private conversation or private interest conversation six months into the project.

A lot of social finance is actually led by the social sector, by public foundations, and the like. This is not something that private individuals are going out to say, “I want to invest in this and this is the way it's going to be.” That's not the way it actually works. It's really the social sector that's being the champion of the cause.

[Randall Garrison, NDP, Esquimalt—Juan de Fuca, BC]

But they would decide what community they want to invest in or if they want to invest in housing or crime prevention. They are making those decisions. They aren't just saying, “There's lots of money here and anybody who wants it come and talk to us.”

[Norm Tasevski]

I can give you a quick example, if there's time.

One of the projects that we're doing right now is a social housing project with the City of London. The City of London was the group that actually hired our firm to help them design what we're calling the resilient communities fund. It's essentially a model to invest in the development of new affordable housing in the City of London. The groups that we're speaking to right now to develop that fund are the community foundations in the City of London. We haven't talked to a single private investor yet for that initiative, mainly because we know that the interests of certain family foundations in the city are already in the mindset of helping to invest in more affordable housing for the City of London. You have groups that already have charitable desire being the first people to invest in these new financing mechanisms.

[The Chair, Conservative, Daryl Kramp]

Thank you very much, Mr. Tasevski.

For seven minutes, Mr. Norlock, please.

[Rick Norlock, Conservative, Northumberland—Quinte West, ON]

Mr. Chair, through you to the witness, thank you for attending today.

I think you see the ideological divide here. Some of us think there is a place for government to invest in crime prevention, but sometimes, and from my ideological view, most of the time, the good ideas are already out in the community, and all we have to do is push these good ideas in the right direction. Then there are others who feel that unless the government completely controls it, there really will not be the outcomes that we really want, so we need more people on the government side to do things.

Immediately I think of, and I think I've said at this committee—and I'm not sure who said it, but I believe it was Albert Einstein—that the definition of insanity is doing the same thing over and over again and you expect better outcomes. You talked about Peacebuilders Canada,and you mentioned some of the positive outcomes that came of that, far better outcomes than, quite frankly, most government projects.

We heard from the previous witness of the corporations that hire specifically a percentage of their employees from the disadvantaged in our society: people on social assistance, people who come from a crime background, recently released prisoners, or people who may have gone through.... You talk about Peacebuilders Canada. I'm thinking of when I was leaving policing about 12 or so years ago, we were well into restorative justice. You talk about first nations. That comes from the Maori Indians from New Zealand, and the positive outcomes of, I think they call it positive shaming. It sounds really bad until you get into it and you find out that it really is good. I think that's the divide.

I wonder if you could give us some examples from your experience of how, with some government funding—and I'm talking about crime prevention funding or types of funding like that—working with agencies like yourself and other community groups, we were able to maximize taxpayer dollars in order to get good results. Can you advise us of some of those instances that you're aware of that had some positive outcomes so that we can look at them and see if we can't continue down that road?

[Norm Tasevski]

One of the examples I can give you is not an example that my firm has been engaged in, but it is a fairly well-known example. It's actually out of Yonkers in the United States. It's called Greyston Bakery. Greyston Bakery has a partnership with the local jail in New York. When certain individuals come out of the jail system—and I don't know the exact particulars of how it works—they automatically get jobs within Greyston Bakery.

For those who enjoy Ben & Jerry's ice cream, Greyston Bakery is the company that makes the brownies that are put into Ben & Jerry's ice cream. They have a fairly robust business just making brownies for Ben & Jerry's ice cream.

They hire directly from the jail system and they guarantee the person a job.

You can imagine a scenario where if a government were asked to finance directly a group that was taking such a risk, or perceived risk, that group would probably not be able to receive financing. A lot of the work that Greyston did was to harness private capital, because it's a bakery. This is a group that is selling goods into the marketplace to create an opportunity for individuals who have two-, five-, or ten-year gaps in their resumés to be able to give them a job.

Greyston Bakery has been able to show very low turnover in its staffing. They have been able to show that individuals who have come through Greyston Bakery have been able to move into full-time employment. In a lot of ways, from the testimonials of the Greyston Bakery, if you speak to anyone there, they'll say this is the only business that actually hired them out of the court system. They probably would have re-committed and then gone back into the court system.

My understanding is that most of that financing was coming from private sources. I don't know the exact breakdown of how much government funding was put in place. I think if government was involved, or government moneys were involved, it was more the, forgive the pun, icing on the cake versus the core funding that Greyston needed to operate.

I think that's one of the things the committee should keep in mind. In a lot of ways, the government's role is to incentivize and to create the mechanisms by which social finance could operate, not necessarily to be the one that actually takes the main risk of putting the capital in place. In a lot of ways, it's all a mix. In some models, government financing is the minority financing in place.

[Rick Norlock, Conservative, Northumberland—Quinte West, ON]

Thank you.

You mentioned that sometimes some groups, non-profit organizations, may want to get involved in this, but it's a bit risky. If the government were to do some seed funding for them, they would foresee that as reducing the risk, and it might, and in some cases they would go ahead with projects that actually have results, that reduce recidivism significantly, compared to a solely government program. In other words, “We've got six months. We'll hire somebody. We'll pay their salary to that company for six months, and then when that's done, they're gone.”

[Norm Tasevski]

Absolutely. The space I know the best is housing. That's one of the areas we focus on.

I'll give you a quick example of something called the New York acquisition fund. This is, I think, one of the great examples of how three different groups have come together to place capital to create an impactful outcome. What the New York acquisition fund does is it acquires properties in New York City and converts them into affordable housing units on a range of scale. It could be just affordable housing for low-income people, or it could be supportive housing for people in need of that.

The government plus, I think, about seven different community foundations in the fund as it is today placed about $40 million of capital in total. The private sector placed $170 million in capital for this project.

Now, who is actually controlling the deployment of that capital? It's not the private hands that are controlling the levers of the New York acquisition fund. It's the actual service providers that are finding and developing the properties, and finding the tenants to move into the properties. There is a level of independence that occurs. What we call the finance-first investors are just looking for their return. So long as the fund can generate the return.... When you think of rental income and property appreciation, you can do that. But now the social-first investors, instead of having $40 million in capital, have $210 million in capital to actually build affordable housing.

[The Chair, Conservative, Daryl Kramp]

Thank you very much, Mr. Tasevski. We're a little over time there.

Mr. Easter, please.

[Wayne Easter, Liberal, Malpeque, PE]

Thank you for your presentation.

The fact that we're doing this study versus some other public safety issues we could be looking at obviously shows that the government is interested in social finance. I'm still trying to figure out why. I'm still trying to figure out what social finance is, to be honest with you.

What do you see as the benefit to government from promoting a more extensively social finance? What's the benefit to a government as a result of social finance? Does it reduce their costs? Can they download some programming? Why do you think the government is so interested in this issue?

[Norm Tasevski]

I think there's a multi-dimensional answer for that question. There are a number of benefits back to the government.

One of the benefits is that social finance provides a mechanism for creativity. There is so much innovation happening in the social finance ecosystem, and it's created by the people delivering the services. One of the challenges that exists with government financing programs is that the time it takes to create the program and the rules you have as a government to implement programming essentially contain them in a certain set of actions. Private individuals, charities, and non-profits are looking for innovative and creative ways of fixing social problems without the burden a government agency might have in terms of how it actually creates programming, so the ability to create new innovations is massive.

Think of the analogy to technology. Up until the mid-2000s, the people defining how we engage with technology were Google, Microsoft, and IBM. Steve Jobs created the iPhone, and now we have millions of apps created that define how we engage in technology in a fundamentally different way. You open the door to both charitable and private sector creativity, and you can find mechanisms to deliver government programming differently.

The other benefit is the ability to save funds for the government. I think there are a number of ways those savings can occur, and I can go into detail if you like. It's one of the things that...not just saving money, but finding new pots of capital to inject into a certain social sector that government alone can't address. Social housing is a perfect example of that.

It's trying to tap a number of different concerns the government has when it delivers social programming.

[Wayne Easter, Liberal, Malpeque, PE]

Is the fact that we're into social financing for social housing a problem because we're not emphasizing our housing strategy enough as a country from a government level?

We've seen some cutbacks in that area this year. My concern is that when you look at the country as a whole, you're in London and there may be ample opportunities for social finance in London, Ontario, but I can tell you that in Kensington, P.E.I., there aren't a heck of a lot of social finance opportunities. If this gives the governments the opportunity to say, “Okay, this has been looked after by communities, so now we don't have to be involved in social housing anymore”, you will have a patchwork quilt of programming across the country. You'll have cities where there are some wealthy people with the ability to provide funding, and there will be other areas where you won't.

Is that a danger?

[Norm Tasevski]

I haven't seen people pulling out yet. I'll give you an example. I'm actually from the city of Toronto. In the city of Toronto, every year we build about 65,000 new units of housing. The size of the city is growing. Of those, I'd say less than 1,000 are affordable housing units.

I was in New York City speaking to some of the members who contributed to the development of the acquisition fund. New York City has an affordable housing target of 200,000 units. The only way they've been able to achieve that target is by creating the mechanisms for social financing to occur in the States.

It's not as though a government agency is pulling away its funding. If anything, governments are investing more, because the idea of catalyzing funds is that the more one party puts into the mix, the exponentially greater the financing placed by other partners will be. So, I'm not seeing a reduction, or people saying, “I'm going to pull out of participating.”

[Wayne Easter, Liberal, Malpeque, PE]

I'm worried about the government pulling out in terms of a housing strategy.

In my area, we depend on some charitable groups. It's not really social finance, but Habitat For Humanity provides a lot of housing for a lot of individuals in Prince Edward Island, and that's a good thing. You also have to lock the government into its responsibilities as well, and not have someone else take it over and let the government off the hook.

That's my concern on some of these issues.

[Norm Tasevski]

I find that with the amount of need we have in our society, some of the responses we have are simply inadequate. If we can find a mechanism to be able to increase the number of actors and the amount of money in some of these programs.... I worry less about government pulling out and more about the amount of financing in total today just not being adequate. We just need to find more mechanisms to invest.

[Wayne Easter, Liberal, Malpeque, PE]

In terms of social financing and where it's coming from, it's certainly a new concept to me. Is there any national coordination in terms of how this social finance system works, or is it everyone on their own and different groups with different ideas? Is there any national coordination or any body that coordinates this stuff across the country, or does it just happen to be in specific geographical areas?

[Norm Tasevski]

It depends on how you define coordination.

In Canada, there is no regulator for social finance and no national group that espouses to be the one main entity. We have pieces of that in other jurisdictions. The United Kingdom is probably the most developed social finance jurisdiction in the world. They have something called Big Society Capital and they have something called the Third Sector that is, at a policy level, coordinating a lot of the effort in social finance in the U.K.

I would say they're 10 to 15 years ahead of where we are in North America. We don't have those elements in place yet, but we do have my colleagues at the MaRS Centre for Impact Investing in Toronto acting as an instigator for some of these developments.

[The Chair, Conservative, Daryl Kramp]

Thank you, Mr. Tasevski.

Once again we're over time a little bit. We'll give you an opportunity to add to that when answering other questions, if you wish to follow up. That's not a problem.

We're going to go to Madam Rosane Doré Lefebvre, s'il vous plaît.

[Rosane Doré Lefebvre, NDP, Alfred-Pellan, QC]

Thank you very much, Mr. Chair.

Mr. Tasevski, thank you for being here with us today.

I have a few short questions for you.

At the end of your presentation, you mentioned that social finance was but one of a number of available tools. Are there any places or sectors where social finance would not be an option?

[Norm Tasevski]

What I would say is there are some types of interventions that have no return expectation whatsoever. The whole world of social finance is premised on the ability to create innovative products and services when someone is willing to pay for those products and services.

You can imagine a scenario like food security. In some cases the food bank system, unfortunately in Canada, is a requirement. There is really no mechanism to monetize that type of strategy, nor would a lot of people try to do that. I think that is the extreme of what is tolerable in the business of social finance.

I would say that if there are interventions.... For me, housing and real estate provide rental stream. There is a known business model there to be able to generate revenues that could be shared with the investors in that intervention, but other models, disaster relief as an example, might be where social finance might not apply.

Things that require speed like to be able to generate results. As was noted earlier in one of the other questions, you need to be able to measure the impact of your intervention. In some of those cases the intervention takes years to generate, so you need to have certain areas that require some degree of patience to be able to generate results.

It's not a very specific answer to your question, but it is not a panacea. There are places where it makes sense, and there are places where it doesn't make sense.

[Rosane Doré Lefebvre, NDP, Alfred-Pellan, QC]

In your presentation, you gave three examples of social finance. The third point you mentioned was directly financing social value obligations.

If the private sector can directly fund these activities, why go through the government? Why go through social value obligations? Could you tell us more about the third point you presented?

[Norm Tasevski]

On the third point, if I understand the question correctly, one of the models that I spoke to is the idea of catalytic capital. Catalytic capital works to essentially incentivize second or third investors into a capital stock to invest in an intervention. Someone needs to initiate it.

If you remove social finance from the equation, if I were to develop an investment opportunity—forget about whether it's socially motivated or not—the first investor is the one who is going to be the catalyst for the rest of the investors. If someone says, “This is actually a legitimate investment. It can generate the returns I'm looking for. I'll be the first in”, the second and third investors will come in line. Some often wait until the first investor comes on board before they decide to invest.

The same thing occurs in social finance. In the case of social finance, you have the additional complication of, at this stage in the space of social finance, not understanding what opportunities exist, how social financing works, what it means, or how you guarantee that social outcome gets generated. How do you measure it? How do you count it?

Someone needs to kick-start that equation. In some cases it's government; in other cases it could be private foundations or philanthropists. There's always a spark that needs to happen to create the investment opportunity.