Human Resources Committee on March 26th, 2015

[Dr. John Loxley]

You could argue that it could be negative if the social impact bond project reduces recidivism or the number of children in care or brings an end to homelessness at a higher rate than what was happening previously. The government would save quite a lot independently or over and above what it's paying out to the impact bond. I think that's the rationale behind them, that the savings are potentially much larger. That remains to be seen. My argument is that in most areas you can get that result without social impact bonds. The returns from early childhood education are seven to one, without any mention of social impact bonds. I would argue that there is much more that we can do before we look at social impact bonds. That said, they're a reality. They're going ahead. I'm just saying I'm somewhat skeptical of how important they should be.

[Sadia Groguhé, NDP, Saint-Lambert, QC]

Okay.

Mr. Johal, could you please give us your opinion on the recommendations we could make to set a framework for the use of social finance? Based on what I've heard, there would be limits to its use. I think that before moving forward, we need some recommendations to determine whether it would be appropriate to replace the social service agencies in a given area.

[Sunil Johal]

I can give you three or four recommendations in that area. These are all the kinds of questions where it goes back to first principles.

What is the federal government's objective in potentially considering the use of social finance? Is it to supplement existing federal funding or federal service delivery in a certain area? Is it potentially, down the road, to replace federal service delivery or funding in an area? I'm agnostic as to what the policy choices of the federal government are, but I think, in any event, in all of those cases you'd want baseline information. What do we do? What do we do well? Where do we have areas that we might want to improve? Maybe social finance opportunities could help us in those areas.

The types of recommendations would be baseline information for where to spend money, what the outcomes are for the money we spend, and where we might potentially be able to do better in looking at other opportunities in the social finance field, whether it's SIBs or something else.

Those are the types of things I think the federal government is probably looking at already and needs to continue to look at.

[Sadia Groguhé, NDP, Saint-Lambert, QC]

Okay, thank you.

[The Chair, Conservative, Phil McColeman]

Thank you.

Mr. Boughen, five minutes, sir.

[Ray Boughen, Conservative, Palliser, SK]

Thank you, Chair, and let me add my voice of welcome to our resource people who are with us this afternoon.

Dr. Loxley, looking at your presentation and hearing it as well, I wasn't quite sure what you were referring to when you stated that the first priority is to improve delivery of service. Could you expand on that a bit to tell us what you're considering service and how it should be delivered if it's not delivered the way it should be now?

[Dr. John Loxley]

I think the responsibility of government should be to ensure that service delivery is optimal at all times. We should have mechanisms in government that review and assess performance. In some areas we have that; in other areas we don't. We've heard that areas like health are more developed. I think this should be a requirement of all public sector organisations and not just those directly governed by the federal government or provincial governments, but also agencies funded by the government, such as universities. I think we should be required to explain what we're doing and what our performance is, and if and where it could be improved.

[Ray Boughen, Conservative, Palliser, SK]

How would you apply that to the whole idea of social impact bonds?

[Dr. John Loxley]

The assumption with the bond is that you will find an intermediary who will bring some outside money and that you will find an appropriate service delivery agency and will set targets that would not otherwise have been set. The assumption is that you're forcing efficiency on service delivery. There are different ways you can do that depending on the targets you set. It could be a cost target, for instance, and you could do that by offering lower wages, as an example. I hope we're doing something more constructive than that. I think the basic assumption behind social impact bonds is that you are requiring innovation by virtue of the model of delivery. What I'm saying is that we should be requiring that innovation regardless of the model of delivery.

[Ray Boughen, Conservative, Palliser, SK]

Thank you.

Jamie and Sunil, in your view what are the main benefits of social finance in the employment and training policy domain, and what are the main challenges?

[Sunil Johal]

In the employment and training domain, I know that in the city of Toronto, for example, we have all three levels of government heavily involved in funding services. There's very little information about how that's working and what the coordination issues are. I think it's a perfect example of an uncoordinated, fragmented system that we currently have in Canada.

SIBs or social finance might, if designed properly, offer an opportunity to collectively target the efforts of the three levels of government more effectively so that they're driving toward specific outcomes. I think social impact bonds, payment for performance, and some of these outcomes models could potentially, if designed properly, help coordinate in a more focused way efforts in areas like employment services, which for the most part are currently not particularly well coordinated.

[Ray Boughen, Conservative, Palliser, SK]

Jamie, what do you think of that?

[Jamie Van Ymeren]

That is one of the challenges that a lot of these outcomes models run into, especially when you are in complex areas like that. It requires a lot more coordination and planning to streamline these services.

At least in the area of social impact bonds, you've actually seen more the opposite. Social impact bonds are more likely to be introduced in an area where the benefits are accruing to one single level of government or one single area, so that there is less coordination on the back end for governments when they are trying to kick-start action in these new areas.

[Ray Boughen, Conservative, Palliser, SK]

Sure.

[The Chair, Conservative, Phil McColeman]

Okay, thank you very much.

Now we move back to Madam Groguhé.

[Sadia Groguhé, NDP, Saint-Lambert, QC]

Thank you, Mr. Chair.

Are there any data that confirm that the performance compensation mechanisms reduce the risks that governments run in funding and delivering social services? If so, how can this reduction be measured?

Mr. Johal, you may answer, and then Mr. Loxley.

[Sunil Johal]

I personally don't know that. I don't know if Jamie has information. We may not know anything about that.

[Jamie Van Ymeren]

There is just not enough history on these new tools yet for there to be any definite evidence on that.

[Sadia Groguhé, NDP, Saint-Lambert, QC]

Mr. Loxley, do you have any comments?

[Dr. John Loxley]

I would agree with that.

[Sadia Groguhé, NDP, Saint-Lambert, QC]

You're saying that there isn't enough. Okay.

As for the capacity of the public service to resolve social issues today, Mr. Loxley, you mentioned that there is room for those services and organizations to innovate. What do you think the benefit would be for these organizations to begin the social finance initiative if they are already equipped?

[Dr. John Loxley]

I think there will always be an attraction to the social service agency of social impact bonds, and that attraction is guaranteed funding for a certain number of years.

What we've tried to do in our province is to guarantee three-years of funding for social enterprises, but social service delivery agencies generally have an annual budget. I think from that point of view, that's the attraction.

One of the great difficulties, I think, in ascribing too much to social impact bonds is that many of the problems that your committee is dealing with are quite complex and interrelated. If you take unemployment—we were discussing this earlier—it is very complicated and multi-faceted. It's a function of housing, education, child care, addictions, and mental health issues, and trying to work these into one social impact bond is going to be almost impossible, whereas different arms of government and social service agencies could cooperate across the board to try to make an impact. That would be very difficult to replicate in a social impact bond.

[Sadia Groguhé, NDP, Saint-Lambert, QC]

Thank you.

I remember that we spoke with our first witnesses about the difficulty of assessing and measuring results. In terms of support and the qualitative social result, I am not aware of anywhere in the world where the qualitative aspect of any social support work can be measured for issues such as poverty, for example, or employment. We don't yet have a way to do this and no one else does either. In that regard, we are asking questions — and you have as well today — about the assessment measures that are still a major challenge for social finance.

Mr. Johal, do you have any comments about that?

[Sunil Johal]

That's an excellent point. Qualitative information forms an essential part of the arsenal of the governments as they make decisions. We can't and don't run cost-benefit and economic analyses for everything we do. Obviously, we are talking about social finance, and investors want to know, “Am I going to get a return on my investment, or am I not?” That is very difficult to do with qualitative information.

How to bridge this is certainly something the committee may want to explore further and that researchers may be exploring further, the fact that we sometimes have more qualitative than quantitative information. That doesn't necessarily lend itself to some of these new approaches.

[Sadia Groguhé, NDP, Saint-Lambert, QC]

Thank you.

Mr. Loxley, do you have anything to add?