Public Safety Committee on May 29th, 2014

[The Chair, Conservative, Daryl Kramp]

Good afternoon everyone, and welcome to meeting number 26 of the Standing Committee on Public Safety and National Security.

Today we will continue our study on social finance.

For our first hour of testimony today we welcome, from Deloitte Canada, Mr. Gianni Ciufo, partner and North American leader, infrastructure advisory and project finance. We apologize for the tardy start, sir, but the parliamentary schedule is not the most predictable thing in the world. So we're a little tardy, but you have up to 10 minutes for a statement, sir, and then after that we will go for close to an hour with a round of questioning.

The floor is yours, sir.

[Gianni Ciufo, Partner, Finance Advisory, Deloitte]

Thank you very much. It's a pleasure to be here.

As a contribution to the committee's considerations, in my 10-minute introduction, I hope to cover some of the underlying factors that may be promoting growth in the social finance sector; provide some discussion about how social finance works, and the benefits, particularly considering how it relates to crime prevention in Canada; and also maybe provide the committee with some knowledge and information from a market sounding that Deloitte has conducted.

I have French and English copies here, which you may avail yourselves of. My comments will probably be at a sufficiently high level that you do not need to follow on, but I'll certainly leave them with you if that's helpful.

To start, I'm a partner from Deloitte, based in Toronto, and I have looked at private finance and how it assists infrastructure development and the impact that it's having on social service delivery in Canada.

If you look at some of the underlying factors that are increasing the growth of social finance globally right now—and Canada is not a market leader in this area, I dare say, but will likely migrate to being so—governments are facing very difficult fiscal challenges and they are making choices among various priorities, so accessing outside capital and funding can help them meet additional priorities and meet additional needs of the taxpayer.

When we look at taxpayers, they're expecting more these days. They're expecting more issues to be addressed, they're expecting more accessibility to government services, and they're expecting higher levels of achievement.

If you look at some of the societal problems and how they're being addressed versus how they've been addressed traditionally, traditionally taxpayers and citizens looked to the government to solve a lot of society's problems that now are often being solved by the private sector. This may involve an economic return but also benefits them. They are looking for opportunities to earn economic benefits, but also to improve their brand, to be an instigator of social change and improvement, and contribute to the community.

If we look at that, and take a social finance example like a social impact bond, when you think about how that works, government finds a social objective that it believes it has considered and intervenes to improve that social objective. It brings an intermediary to bring forward service providers that can be of all types, and funders of the intervention—the funders potentially being private sector—and brings them together so that ultimately the cost of the intervention provided and the return to the investor are less than the economic benefit that's achieved by cost savings and cost avoidance across potentially all levels of government and across all departments.

We certainly see this in crime prevention where certain responsibilities are municipal, like policing; certain responsibilities are federal, like corrections at some levels; and certain responsibilities are provincial.

Considering some of the benefits, if you look at the benefits to government one of the key benefits is that it unlocks a new source of private funding. It allows government to access the innovative solutions that sometimes come with those sources of funding. They not only come with money, but with ideas about how to ameliorate the social problem, if you will.

Social impact bonds in particular are a system where government pays only for successful outcomes, and that's a very powerful tool.

Typically in programs like this, the results are clearly demonstrated to the public. That's usually part of the good stewardship.

The service providers like this, because they are acquiring a source of funding that can be longer term and that allows them to plan better, to scale and mature as an organization, and to focus on performance metrics and measurements so they can assuredly meet their obligations, and then the investor can get paid.

I think the last thing I'd like to touch on is that in the fall of 2013, Deloitte and the MaRS Centre for Impact Investing looked at and consulted with 80 potential investors in the social finance market and found, across banks, credit unions, foundations, and benevolent individuals that they are prepared to participate in this market and are looking for opportunities. There's a high level of interest, and we're starting to see a high level of preparedness.

They are also willing to accept social intervention and government objectives that cut across the range of crime prevention, homelessness, and education, and they're very open to considering and thinking about how they can contribute to ameliorating problems across all those areas. They do see some challenges about working with government, about initial projects, and about the steep learning curve. However, they do know and appreciate that, over time, transaction costs and the knowledge transfer around this should become quite prevalent quite soon. We see this in other markets. They would like to participate as a consortium and they see the intermediary role as being very important to this.

But again, there's a high level of interest, and we're starting to see a high level of preparedness as they learn from international examples and look for a successful Canadian pilot, and a Canadian pilot project that they will be able to participate in.

That concludes my prepared comments.

[The Chair, Conservative, Daryl Kramp]

Thank you very much, Mr. Ciufo.

We will now go to a round of questioning. The first round is for seven minutes.

First up is Mr. Maguire, please.

[Larry Maguire, Conservative, Brandon—Souris, MB]

Thank you, Mr. Chairman.

Thank you, Mr. Ciufo, for your presentation today. Obviously, I want to ask you questions about the whole process.

Some groups have had some concerns, but you've just mentioned that in some of the studies you've done, a great interest has been shown by 80 potential investors, I believe, who would be really ready to participate. I wonder if you could give us an update on what you see when you mention the “high level of preparedness”. Can you just talk for a minute about what that would be? What all is involved in that? Are they looking at how they could become integrated with other partners in the industry and with other social partners? What would be involved in a definition of high-level preparedness?

[Gianni Ciufo]

For the financial investors we've spoken to, I think many of them have learned a lot from the recent evolution of the Canadian infrastructure market and are comfortable in taking on risk associated with performance-based contracts. Performance-based contracts have been used effectively in that market, so they see the potential benefits transferring nicely to a market that includes providing social services and an amelioration of social conditions as well. That's one type of preparedness: they see the role for private investment on a risk basis.

The other preparedness is also in terms of understanding the pilot projects that have been implemented in other jurisdictions, such as the U.S, the U.K., and Australia, which have implemented projects that coincidentally are squarely within crime prevention and the broader sort of justice and corrections area, around reduction of recidivism and around ensuring at-risk youth remain engaged and out of institutions, and other similar areas like that. They studied them and learned from them and see themselves participating in programs like these that would exist in Canada and that maybe would be somewhat tailored to the yet-to-be-established Canadian market.

[Larry Maguire, Conservative, Brandon—Souris, MB]

Thank you.

One of the articles a while back—you've done many, and I don't know if you've had a chance to mention them—was a Peterborough article in regard to the United Kingdom. They were looking at referencing the fact that there was relatively little spent in the U.K. on helping short-term offenders overcome their challenges.

Do you see anything like that coming to fruition here in Canada, or would the same be true? What data can you provide to us on that?

[Gianni Ciufo]

I believe the rate of recidivism in Canada is a published rate. Certainly lowering that would be a good objective. It does make for a very good potential social objective to implement a pilot project on that, for a variety of factors. The sample populations that you can identify can be well structured so that you can really look at cause and effect around the impacts your programs are having.

There are always externalities that have to be taken into consideration, but by and large you can construct a target population whereby you can be reasonably assured of knowing and understanding the potential impact that your program is having on that population. I think that's important.

That's how I'd answer that question.

[Larry Maguire, Conservative, Brandon—Souris, MB]

We've heard throughout the discussion from some of the presenters, and from some of the opposition, comments in regard to concerns, at least, with the social impact bonds and some of the other programs to help with private industry being involved in these areas. We've heard that this model brings out investors who want to make money on the social ills of society, if you will, I guess.

Can you tell us whether you agree with that being the case? Or are these investors mainly looking to invest for the social good as opposed to financial gain?

[Gianni Ciufo]

I think different investors will have different objectives. A commercial bank may have a different objective from a pension fund or a private individual in a community where they have a tie to the social objective. For example, they live in the community where they were hoping to reduce recidivism, or they're an employer or a pension fund in a community where they would like to see perhaps a reduction in the unemployment rate or an increase in the skills level of potential employees. So I think it depends on the specific objectives.

What I do believe, though, is that the added potential value can be a very powerful tool if they are aligned with the social outcome and they are a stakeholder in it. They do want the outcome to be positive because they are a participant in the community and they're trying to return to the community as well as the financial return.

I think it would be healthy for Canada to have a potential social impact bond—remembering that social impact bonds are just one tool of social finance—where there's a real level of commercial due diligence between the investor and the service provider, where they have a chance to review and assess the provider to understand their capability in delivering these services, get a high level of confidence, and so require a potentially lower level of return. That would increase value to taxpayers.

[The Chair, Conservative, Daryl Kramp]

Be very brief, please, Mr. Maguire.

[Larry Maguire, Conservative, Brandon—Souris, MB]

Yes.

You've...[Technical difficulty--Editor]...a number of areas, but could you just expand, please, on the “Paying for outcomes” document that Deloitte just put out?

[Gianni Ciufo]

That's with regard to the social impact bond.

[Larry Maguire, Conservative, Brandon—Souris, MB]

Yes.

[The Chair, Conservative, Daryl Kramp]

Mr. Ciufo, the time has expired on that. With regard to the honourable member's question, if you wish to respond to it in another round of questioning and/or give the response to one of the other members when they question, feel free to do so.

In the meantime, now we will go to Mr. Garrison, please.

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

Thank you very much, Mr. Chair.

Thank you very much to the witnesses for being here today.

I'm going to make some remarks before I turn to the witness, and these are meant with no disrespect to the witnesses. They have to do with the misplaced priorities of this committee.

We've been hearing from witness after witness on social finance, which is not something I am saying I oppose. It's something that obviously results in a lot of good in many communities, but there are many more urgent things that we believe the committee has in its mandate and that the government should be looking after.

Today we just became aware of a very urgent matter with regard to the RCMP and suicides within the RCMP. The deputy commissioner admitted that they had done no study of suicides in the RCMP even though there were 16 documented suicides by serving members in the last eight years, and, in that same period, 13 suicides by retirees. We are losing three to four RCMP members every year to suicide, and yet the RCMP has failed to report on that. Today we asked the minister if he had asked for a report on suicides, and he did not give any indication that he had.

This rate of suicide, this rate of death, is actually quite shocking. It's higher than it is for military members, and, in most years, it also exceeds the number of people killed on duty in the RCMP. So the fact that we have not paid attention to this is a matter that is much more urgent than the things we've been doing in this committee.

With that in mind, I am going to give notice of a motion. I have a copy for the clerk in both official languages. The motion is as follows:

That the Committee conduct a study into the urgent crisis of suicide among members of the Royal Canadian Mounted Police and report its findings to the House of Commons.

I am not asking that we debate this motion immediately, but I think that very soon this committee has to take a look at what it's doing and how it's spending the little time it has left in this session.

[The Chair, Conservative, Daryl Kramp]

That's fine, Mr. Garrison. In committee business, you have every right to do so, sir. Your motion is duly presented, so if you'd just go back to the topic of question here now, the chair would appreciate that.

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

Okay. Thank you very much, Mr. Chair.

With my apologies, this has very little to do with any of the good things that our witness has to talk about. Again it's a question of our priorities here as a group.

We heard from Elizabeth Lower-Basch from the institute in Washington, D.C., who talked about social impact and pay for success. Her conclusion from the study she did was that when government enters into those agreements, it accomplishes a purpose that it would have accomplished more cheaply had it done this work itself. By the time you filled in the extra infrastructure costs for a private group to do this, and by the time you built in some kind of pay incentive or return on investment, her conclusion was that the government, if it wanted to accomplish the objective, would have done it more cheaply by proceeding directly.

I just wonder if you have a comment on that.

[Gianni Ciufo]

I have one comment based on casual observation rather than anything studied. In my work with public sector organizations, I have observed something of a transformation taking place such that government is less interested in perhaps providing direct service delivery and more interested in focusing on the core business of policy regulation and really focusing on the welfare of its constituents in some circumstances where it may see benefits from having other providers, on their behalf, for services, financing, or management skills. It's a tool that is certainly available, and I do see benefits from that in individual cases, though not in all cases.

Certainly we see and we have analogous examples from other sectors of our economy, such as the infrastructure market, for example.

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

Members on this side like to imply that when we raise these questions, we're ideologically objecting to the idea of social financing, and I would just say that, to me, it's the same as any other charitable role. I welcome corporations or philanthropic groups that wish to get involved in the public good, but I am concerned if the government is financing that with funds it's raised from taxpayers when it should be doing that work itself. In that case, there's no net gain if the government is actually doing that financing.

Again, as I've said, others have said it's probably a loss, because it becomes more expensive to do it through a third party.

[Gianni Ciufo]

That's a very good point. I would respectfully submit that from time to time government has been involved in social finance of a type when it supports, for example, particular industries via low-income or no-income loans or grants that aim to strengthen an industry, or help to preserve jobs or employment in a community. I certainly leave it to government to decide on the design of those programs and the implementation of those programs, but I would say, based on their prevalence in Canada, both at the provincial and federal level, that perhaps there is a role. I also would encourage, if I may say, the committee to look at other examples of social finance too. When I look at, for example, microloans, which have been around for decades, and how enabling they can be for individuals who are trying to start their own businesses in their home, or start their own businesses period, and support themselves and their families, I see that as a really positive vehicle.

[The Chair, Conservative, Daryl Kramp]

You have half a minute.

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

Another concern we have on this side is that certain communities may not be as well served as others because they lack the philanthropic organizations within their communities, or certain groups in the population—we had the group that worked with sex offenders here—wouldn't get equal access to these kinds of projects because they're seen as less attractive and more difficult to deal with.

So I just wonder if you have an comment to make on the selection of projects.

[Gianni Ciufo]

I like to think that Canada is quite a benevolent society and that we can recognize those who deserve support in our communities, and that we recognize affected groups as well as those affected from a geographic or a socio-economic standpoint. That's always going to be a problem, but I'm optimistic that Canada reaches out and tries to help those groups when it identifies those groups.

[The Chair, Conservative, Daryl Kramp]

Thank you very much, Mr. Ciufo.

And now Mr. Richards, please.

[Blake Richards, Conservative, Wild Rose, AB]

Thanks, Mr. Chair.

I appreciate your being here. I've been listening so far and appreciated your comments.

There seems to some criticism from the other side of this idea of social financing, and they seem to be doing it from both directions. There seems to be this idea that somehow government would spend less money on crime prevention if it were to go this route, then, on the other hand, it might actually spend more because they're doing this and there's going to be profit for private industry, whatever their argument might be. I think they're missing the point.

There's actually a really interesting quote in the “Paying for outcomes” report that you commissioned by Tim Draimin, the executive director of Social Innovation Generation. I'm just going to read it because it's very brief, and I think it makes a really strong point:

The Social Impact Bond is really an amazing form of social finance: what it’s doing is that it’s basically letting government catalyze interventions on the preventions side, instead of being just trapped at the end of the pipeline. It takes risk off the shoulder of government:

And then he makes this key point:

if no positive benefit is generated, the government is not on the hook to pay any money.

So I think if you want to get to the heart of that comment, what he's saying is that this is something that ensures outcomes, and that's really the point of the social impact bond. The idea here is that the government is going to have partners that it's going to work with, and we're going to ensure that there are outcomes for taxpayers' money. That's the key point that I see here.

And I wonder if you could comment on that a bit. Would that be something you would see as well? Would you see that as a way of ensuring there is maximum value for taxpayers' money, and ensuring there are outcomes? Would you see it as way whereby everyone can benefit, not only government by ensuring there's value for the taxpayers' money, but a model in which everybody is winning?

Would you think that would be a fair characterization and why?