Public Safety Committee on June 10th, 2014

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

Would you agree with that, Mr. Tansey?

[Prof. James Tansey]

I would agree. The mechanism of ultimately trying to mobilize more non-government capital than government capital over time I think is a good test of the viability of the investment. I think that typically 35% to 50% from government is a fair number and a reasonable number, because it means that the balance of the shareholders and investors have real equity at risk in these kinds of programs.

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

Being that the shareholders of the government are the people of Canada and looking at, to use your statement, Mr. Tansey, the abject failure of the current system in rehabilitation, wouldn't the shareholders have an appetite to see that their investment is better taken care of and that we're bringing partners to the table in order to do that?

Mr. Broderick, do you have any comments on that?

[Andy Broderick]

Yes, broadly speaking, I think absolutely there is plenty of opportunity for improvement. As a taxpayer in Canada, I would appreciate a greater level of success and better outcomes, and would welcome that kind of approach.

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

Mr. Tansey, would you agree with Mr. Broderick?

[Prof. James Tansey]

Yes, I would. I think the status quo in the criminal justice system and in the health care system is that we're treating the symptoms rather than the underlying causes of some of both these health and social ills. We're intervening as a society once most of the damage has been done. Working upstream towards rehabilitation and ultimately towards prevention has a very positive impact on the tax system. As a shareholder I'd agree that I think we should be trying these kinds of things.

[The Chair, Conservative, Daryl Kramp]

Fine, thank you, Mr. Norlock.

Now we will go to Mr. Easter, please. You have seven minutes, sir.

[Wayne Easter, Liberal, Malpeque, PE]

Thank you, Mr. Chair.

Thank you to both people who have presented.

In the federal government's 2013 report entitled, “Harnessing the Power of Social Finance: Canadians Respond to the National Call for Concepts for Social Finance”, Vancity, Mr. Broderick, claimed to be among the leaders in the social finance sector, to which the government was looking to help identify a way forward.

That having been said, in your remarks you have indicated that you remain skeptical and that the whole idea of social finance lacks clarity. You remain skeptical in what way?

[Andy Broderick]

Let me clarify my remarks.

I'm not skeptical about social finance or community investment as an approach to resolve a lack of access to capital within a community. I tried to make clear that I think that can be quite successful.

There hasn't been a huge amount of experience on social impact bonds, as a concept. We're talking about maybe three or four deals across a couple of continents, so my skepticism is really just around that vehicle. It is bolstered by the fact that I see the environment for social finance in Canada is really just beginning to develop strongly. I would say that trying to move into a fairly sophisticated pay for performance approach, not that it's impossible, but it will be challenging where there hasn't been an environment built with strong community players who are used to managing other people's money.

[Wayne Easter, Liberal, Malpeque, PE]

One of the concerns I have and that I wanted to ask you about, too, is how you bring more clarity to this issue. I'm not against new concepts. I think it's a wonderful idea, but I believe it was you who said earlier that investors will go to where the easiest return on investment is, basically, or something along those lines.

My concern is in terms of crime prevention in the country as a whole and the leadership required from the federal government in that area. We have to relatively ensure—you can't be absolute—that crime prevention in some of the northern communities is as good as it is in the bigger communities like Vancouver and Calgary, where there is more money and there are more investors, and versus P.E.I. as well, where I'm from.

How do you ensure that under this system? I do think there's a real danger here. The federal government is saying that we don't need a national crime prevention program anymore, that the private investors will look after that. Then you'll have a patchwork quilt of programs across the country.

I'll ask both witnesses this: how do you wage against that happening?

[Andy Broderick]

James, do you want to go first?

[Prof. James Tansey]

Again, the starting point is already a patchwork quilt, with different levels of intervention by community.

I would say that seeking some kind of standardization too early in this area is also a mistake. I think it needs the kind of approach that was taken in the U.K. in what was a very successful program, which was a reasonable pilot and a reasonable prototype. It really needs to start at that kind of scale and not raise expectations about private capital or returns on investment, because, as I said before, the primary goal of this kind of intervention is improving effectiveness, which is really about reducing costs to the public purse. Once you can prove that out and demonstrate it at scale, then you can start to worry about whether private or philanthropic capital can be mobilized.

Just to reinforce the point, I do think it's going to be very hard for private investors in the early stages to mobilize on this, not because it's not a good idea, but because there are so many other good things for them to invest in that this comes with a lot of risk and potential reputation risk.

[Andy Broderick]

Big surprise: I'm going to agree with James.

I think we're going to talk about some demonstration projects, in fact, hopefully a number of them in various areas, and should they be successful.... Again, it is too early to worry about private capital replacing government investment. We're 10 years from ever having to worry about that. If that does become a worry, there are ways.... Again, in my experience in other jurisdictions, you increase the incentives in areas where you're worried about this investment. In other words, if you're fearful that there will be unequal uptake, you increase.

This is all going to be based to some degree on government involvement in terms of the return, how it flows, and what the contract pays, so that the government, through good policy and oversight committees like this, can make sure it designs a program that will equalize and make sure that if private capital does become more significant, the incentives are appropriate to drive it where you need it to go.

[Wayne Easter, Liberal, Malpeque, PE]

I would say that I'm not really worried about private capital replacing government funding. I'm worried about government withdrawing its funding and using the fact that private capital is investing in crime prevention as an excuse to do so. That's my worry.

Do either of you see any way in terms of how you could develop these concepts of social finance by way of national coordination in the projects across the country in order to ensure that there is some balance?

[The Chair, Conservative, Daryl Kramp]

Make it a very brief response, please, from either one of you.

[Andy Broderick]

James, I'll just jump in. There are a number of national tables we spoke to that have been set up that could take on a responsibility to coordinate and share best practices and best outcomes in a way that keeps a national focus, rather than allowing it to be a series of one-off experiments.

[The Chair, Conservative, Daryl Kramp]

Do you have anything to add, Professor Tansey, or are you comfortable?

[Prof. James Tansey]

I concur with Andy.

[The Chair, Conservative, Daryl Kramp]

Thank you very much.

Now we will go to Madam Doré Lefebvre, for five minutes.

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

Thank you very much, Mr. Chair.

Mr. Broderick and Mr. Tansey, thank you for telling us about social finance.

I would like to go back to what Mr. Easter mentioned about social finance. I am referring here to its repercussions on various communities and to the fact that this will not necessarily replace what the government does.

One of you spoke earlier about the percentage of rehabilitation and how this was done. When inmates have access to good programs, the rate of rehabilitation is extremely high in society, in Canada. One witness talked to us about support circles, which offer reintegration programs to inmates who committed serious crimes such as sexual assaults. This system functions really well, but unfortunately the government is going to cut the funding for that group over the next few months.

This concerns me and I think that a lot of people share that concern. I fear that the government is offloading its responsibilities, for instance by abolishing a service like support circles, by claiming that private investors could fulfil that function just as well.

What do you think about that?

You also said that we have 10 years before we have to worry about the government's lack of accountability. I think it was you, Mr. Broderick, who said that.

Can you tell me why you are talking about a 10-year period?

[Andy Broderick]

Why don't I go first. I was just speaking about how primary the development of social finance is in this area, so that if in fact there were a growth of a private investment approach around these issues, a social investment approach, it would take a long time to develop, and therefore it wouldn't be able to impact the government's provision of services even if you wanted it to. That was my only point there, that it will take time.

To your first comment, and then I'll let James step up, I don't see any basis for social finance to replace government funding of programs that have proven to be successful. In fact, as James quite well articulated, there are a number of areas where there is not success. If you are looking for innovation, focus on those areas. Whether it's new government programs or redesigned government programs or social finance or private capital, those are the things you focus on, not areas that are successful.

[The Chair, Conservative, Daryl Kramp]

Go ahead, Professor Tansey.

[Prof. James Tansey]

I would agree that social impact bonds and pay for performance are in no way a solution for every social challenge or social issue. In the beginning of my presentation, I tried to explain why I thought in this specific example it could make sense because of the cost, the lack of success in the current system, and the relatively short pathway to success where you can demonstrate within a year or two the level of reoffending rates. That made it potentially a good candidate for some form of intervention.

I don't think we have to be afraid of private capital displacing public money in this area for a long time, because I just don't think investors will look to this for five to ten years. But I do think we could see foundation, government, and philanthropic funding made available in partnership with the federal government if there was an interest in testing this.

[The Chair, Conservative, Daryl Kramp]

Thank you very much. Your time is up.

Mr. Payne, you have five minutes, please.

[LaVar Payne, Conservative, Medicine Hat, AB]

Thank you, Mr. Chair, and thank you to the witnesses for coming.

I find this area quite interesting. Innovation I always think is great, because it gives us an opportunity to look at some ways that maybe we can improve things that for some reason may not have given us the best results.

First of all we know that CoSA has not been cut. The contract expires after five years. I think they know that. We're studying this area because we want to see how we can make programs more successful.

I thank both of you for being here. Dr. Tansey, you talked about potential and also the concern about experimentation. If we can find a great project that we could support, obviously I think the government has to be involved in the process. We've seen from a number of other witnesses that you have to set out some of the criteria as to what it would look like if it's successful. I'm wondering if you have any comments on that if we were looking at trying to prevent some recidivism in our system.