Human Resources Committee on May 12th, 2015

[Dale McFee]

It's a great point. When you look at this and you look at absenteeism, just as you look at correctional facilities in Saskatchewan, there's a large aboriginal component in both of those cohorts. When you open it up and deal with the root causes, you get away from culture or race in identifying the problem and you get into culture or race in identifying the solution.

I think this is all inclusive when we're looking at this. The one I was mentioning was absenteeism, but the other one is straight remand and running facilities. As a bit of a rebuttal, if you do this before jail in relation to remand, it's an automatic savings because you have to put them into a facility. By moving upstream there's a significant amount of money and a better way of doing this business.

When you look at Saskatchewan, 58% of remand in Saskatchewan is for 1 to 14 days, and in remand you get no services, so how can you expect anything other than a baby-sitting service? If we could put something in the front end through a third party provider, we could get right out of this business. I think that's one of the focuses in that particular area.

When you talk about race and culture, I think they are entrenched in everything we're looking at, because a lot of the issues when you're dealing with human services are focused on marginalized people who, in Saskatchewan, are overrepresented by first nations.

[Ray Boughen, Conservative, Palliser, SK]

Right.

Donald, what can you add to that?

[Donald Meikle]

I can tell you that with our Sweet Dreams program, as well as all of our residential programs, we have three elders on staff to assist our clients with their needs. The majority of our clients are first nations or Métis, so it's important for them to have that culture.

What I really like about it is that when I talk about first nations, Métis, aboriginal people being a big industry, it was actually an elder who brought that up while she was advocating for a youth in court. I think what's equally as important with our programs is that ours are youth-centred, youth-driven, and the client has a say in their plan.

I think we're slowly getting out of institutional care where we take people's liberties away in group home settings throughout our province. I'm looking forward to it.

And with our board, we have aboriginal representation.

[The Chair, Conservative, Phil McColeman]

Thank you very much.

That ends this first group of witnesses.

On behalf of the committee, I want to thank all of the witnesses for coming in and sharing your thoughts today.

There was a mention of Gretzky, from I believe it was Mr. McFee, and a guy like me from Brantford takes that to heart. I know his father Walter real well, and I know Wayne real well. Walter, as my Junior B hockey coach, said that you have zero per cent chance to score if you don't shoot at the net.

I believe that all of you today have shot at the net. We're the net. We thank you for your comments here.

We'll take a break now, and then come back to have our second group of witnesses.

[The Chair, Conservative, Phil McColeman]

Welcome back, ladies and gentlemen.

We're now continuing our study to explore the potential of social finance in Canada.

Joining us for our final hour, we have, from the Social Research and Demonstration Corporation, Mr. Jean-Pierre Voyer, the president and chief executive officer; along with Ms. Sheila Currie, the principal research associate. Joining us by video conference from Edmonton, we have Dr. Barret Weber, the research manager with the Parkland Institute.

Each of the organizations will have up to 10 minutes to present. I will give you a warning at nine minutes with about a minute to go, if I'm able to interrupt. Then following that we will have questions from committee members.

Why don't we proceed with the Social Research and Demonstration Corporation?

[Jean-Pierre Voyer, President and Chief Executive Officer, Social Research and Demonstration Corporation]

Thank you, Mr. Chair.

Thank you very much for inviting us to appear before the committee today.

Let me offer a few words about us.

SRDC is a not-for-profit, independent social policy research organization. We were established in 1991 at the request of Employment and Immigration Canada to design, pilot, and evaluate new social programs. Now, 24 years later, we have completed more than 200 projects for federal departments, provinces, municipalities, private foundations, and other non-profit organizations. Our work spans all areas of social policy writ large. In recent years, SRDC has been engaged in several projects on the application of performance-based funding and a social finance approach applied to the field of employment services, adult education, and training.

One reason we are here today is that more specifically, in January 2014 ESDC contracted us to be the independent evaluator for two essential skills training projects. Essential skills, as probably many of you know, are defined as literacy or foundational skills that are required for work, learning, and life in general.

These projects are the first two social finance projects launched with the support of the federal government. This was announced by Minister Kenney at the World Social Enterprise Forum in Calgary in the fall of 2013.

In both projects, private investors pay for the training up front and are repaid by the government if the training is successful in achieving pre-established outcomes. You may wish to look at the diagrams we have circulated to get a sense of the architecture supporting the delivery of the training.

The first pilot project, on the slide that has “SIB pilot project for unemployed” in the title is led by Colleges and Institutes Canada, CICan, which plays the role of SIB intermediary. They are working with four colleges across Canada as the service providers.

The project proposes to enrol 400 unemployed, lower-skilled Canadians to receive a program called Foundations, which is an established essential skills training program developed by Douglas College in B.C. This project is testing what would be considered a true social impact bond model in which private investors will recover their initial investment plus a financial return of up to 15%, if the training is successful.

The second project is the flip side. This one is addressed to people who are already employed. It's led by the Alberta Workforce Essential Skills Society; they are the proponent of the project and the intermediary for this pilot.

In this case, the private sector employers will be reimbursed up to 50% of training costs for up to 800 workers, if the training achieves target outcomes. This is a variant that we call “employer as the investor”. It's a departure from a formal SIB, because the investor is not motivated by return on capital investment per se but by the prospect of economic returns from a better-trained and more productive workforce as well as reimbursement of training expenses.

In both of these pilots, government reimbursement of training costs is triggered based on gain in literacy skills. These are measured pre- and post-training, and they are used as a proxy for labour market outcomes success.

Up to this point our organization has been supporting the leader of these projects in the design of the program and has developed reimbursement formulae for both projects. We worked on investor risk-reward scenarios to establish graduated payment schemes and comparability of the SIB offering with market investment. It gets fairly technical, as you can see.

Positioning these projects in the social impact bond literature, I would say that they have some of the core features. First of all, the private investor pays the full cost of the intervention up front; the SIB addresses a well-identified social environmental problem or goal—that is, the high vulnerability of low-skills workers in the Canadian economy; and the activity generates a social dividend and economic return to investors. There are social and economic benefits associated with a more skilled workforce, and private investors in both cases are achieving returns on investment. The payback to the investor is from government and is tied to measurable results.

There is the presence of cashable savings for government. The more people who are trained, the more earnings they make, the more tax they pay, and also, the less reliance on employment insurance and social assistance programs.

Some or all of the risk is borne by the private sector. If desired outcomes are not achieved, private investors bear a large part of the costs.

But they're not like some SIBs we have discussed before in the sense that we're focusing on intermediate outcomes to trigger the payback—that is, skill gains—and not directly associated with measurable cash savings to government.

It goes to show that there is no one unique SIB model, and we came to this realization fairly early in this process, when we were looking at the literature and were looking at what other countries were doing. There are different ways of orchestrating these arrangements.

To conclude, here are some key observations about what we've learned so far. We're not an advocacy group. We could advocate, but we're not going to advocate. We're evaluators, so we present a neutral point of view.

First, we observe, of course, that social impact bonds and social finance schemes in general can be very complex. Defining success outcomes, reimbursement terms, and appropriate metrics to measure success, all of that is fairly complex. Our approach was to ground the rationale for the repayment scheme in evidence of point gains from previous essential skills training intervention to define a benchmark. We look for benchmarking in the process. Then we calculated risk-reward scenarios to prepare a graduated payment scheme that rewards higher levels of success with higher returns on investment. This we had to engage into, while we expected something much simpler at the beginning.

SIBs involve substantial transitional costs because there are a lot of people involved in the process, from investors to intermediaries to service deliverers. All of these people have to work and interact together and come to agreements, and it's a long process, so transitional costs are high.

At the beginning what we realized is that, despite the political interest and support for these projects, the legal and regulatory environment in Canada had never heard of SIBs and it was not adequately prepared. The intermediary for the SIB for the unemployed—that is, Colleges and Institutes Canada—which is structured as a non-profit and charitable organization, had to examine and review alternative corporate structures to be able to receive and administer the SIB funds. It spent a fair amount of money on consultants to figure out how to go about it.

Attracting private investment can be challenging. Potential investors range from benevolent investor foundations and the like to those who are more commercially oriented and who seek market returns on their investment. People whom we call “finance-first investors” may sometimes accept the risk of lower returns if their investment is supporting a good cause but that is not yet the general norm.

ln the case of the workplace essential skills training model, we have learned from the project leads that there can be hesitation to make the significant up-front investments from investors. They are not used to the formula and they are often tempted to rely on other government programs where the subsidies or the support from government is known and more tangible.

In other jurisdictions, the availability of funds for SIB investment has led to more rapid development and implementation of SIBs than in Canada, for good reason. As you well know by now, in the U.K., the creation of the Big Society Capital independent financial institution was a major lever to get them going.

The third point is accounting for all costs and benefits. SIB arrangements would be more likely to attract interest and popularity not only if governments were willing to reimburse investors on the basis of cash savings that their own fiscal frameworks will record but also if they would take into consideration all social and environmental benefits that can be generated through SIB intervention.

As I mentioned, SIBs could be very resource intensive. Without a large definition of benefits, including those going to society as a whole not only those affecting the fiscal framework, they would be harder to popularize.

One other difficulty for Canada is that many of the cash savings don't end up with one government. A lot of social policy is managed by the provincial governments, and they are the ones that will realize the bulk of the cash savings. While the federal government will also realize some cash saving through increased tax or other means, connecting the two is something that has to be achieved if you want to make sense of SIB implementation.

My last remark is to say that we are in favour of further exploration of SIBs in Canada, but please evaluate them carefully. It's not a proven recipe, as we've heard from previous speakers.

[The Chair, Conservative, Phil McColeman]

Thank you.

Now we have Dr. Weber, from Edmonton.

Please proceed.

[Dr. Barret Weber, Research Manager, Parkland Institute]

I work for Parkland Institute, a think tank here in Edmonton that's based out of the University of Alberta. We don't receive funding or anything else from the university, and we are a non-partisan group that tries to shed light on public policy issues that emerge in Alberta.

I was really pleased to be invited to speak to the committee today, as we've just finished a report that looks at the relationship between the not-for-profit sector and the Government of Alberta and how that relationship has evolved through time and how it's playing out.

One part of our project dealt with social impact bonds and social financing. It was really wonderful to hear from you that you were looking for someone to speak on this. We'll be publishing that report in June, and we'll be glad to share it with the committee members and anybody interested, which will give a larger context to what's been happening with these sorts of issues in Alberta.

In 2014 Alison Redford brought in legislation that would bring social financing to Alberta by using some moneys from the Heritage Savings Trust Fund as start-up moneys and use $500 million over two years to get these social impact bonds going. I'll give the position I take with regard to these sorts of things.

In the current tax-cutting frenzy among governments of the day, there's a keen interest to find solutions to the underfunding of social problems, especially in commodity-based low tax regimes like Alberta's, where oil prices periodically decline and government revenues can evaporate in an instant. Speculative ventures like social financing and social impact bonds are seen as a potential way out of this morass and to look at how we can fund costly social programs.

The problem that we see is that the social finance that's been introduced to date diverts our attention from spending cuts and gets us into a whole conversation that ultimately is regrettable, in the sense that it leads toward a commodification of social services and focuses us on the intricacies of numbers and not people. One of our main problems is that social financing in this sense is a dead end. It's not an avenue to get us anywhere, and it leads us into conversations like I'm sure you've been having about the possibilities that exist. But at the end of the day, we take our attention away from the proper funding of social programs.

Our report examines how ideas like social financing undermine not-for-profit organizations. Our focus has been on social welfare not-for-profit organizations, ones that deliver front line services to Albertans. We just don't understand how it's possible that these arrangements can benefit not-for-profits. We have to look at the context of how not-for-profits have been affected by the financial downturn in 2008 and how they've been struggling to gain some sort of footing in this new environment in Alberta, following a quite turbulent period, as you all know.

I would argue today that social financing and social impact bonds are not only hard on front line workers and people who use the services, but also hard on policy-makers and politicians who have to be the face of these arrangements, which are cumbersome, expensive, require a lot of upfront capital, and whose results are speculative at best. I've read a lot of the literature, and even the most glowing literature will show you that the results just aren't there. We do not have the literature in place to move forward with anything like this.

Look at the case of Alberta and why it has shelved this sort of project. Alison Redford was the biggest proponent of social financing and she talked about it in her leadership bid in 2011. Even right toward the end of her tenure in 2014, she introduced a bill that fell on deaf ears. As we know from the Big Society project in the United Kingdom, these are hard concepts to communicate to people, to give them a sense of what we're doing and how this is important and how this strengthens our society, as opposed to pulling away from it and making it weaker.

The amount of speculation that we see regarding social finance, even from advocates—there's a huge critical literature on the topic—shows that, basically, future governments are responsible for helping the vulnerable no matter how we cut it, no matter how we look at it. I think that should be our focus in social policy. How can we support and help the vulnerable? How can we support and help these grassroots organizations across Alberta that have been built since the 1960s and the Social Credit government? These non-profits need to be built up and supported and given generous funding, because, at the end of the day, they're actually preventing social problems in local communities. We should be seeking to strengthen our public services and our public sector, not undermining them by turning our attention away into this sort of speculative, what you could call maybe, venture capital in relation to social problems.

There may be some areas in which social impact bonds and social financing works, but I'm saying in terms of social welfare organizations, we're turning our attention away from the sorts of areas that need our focus, and those areas have to do with how we are delivering our social programs, how we are supporting our not-for-profits, and whether we are adequately funding these organizations through time.

In our report, we traced the geneology of this movement towards offloading of government responsibility onto not-for-profit groups, and how this has become an obsession and a fascination in a sense that it shouldn't be. Really, for what it is, it's actually a form of privatization. Unfortunately, the responsibilities for a lot of these problems and a lot of these speculative ventures fall not into government's hands—or maybe they do—and not into private hands, but onto the not-for-profits themselves.

Social impact bonds are built around partnerships, but these are partnerships that are formed for all the wrong reasons. In the case of social welfare, this is the profit on social problems and democratic grassroots organizations such as non-profits. So while the promise of new money for social services is certainly inviting, we have a responsibility to be aware of the potential costs that these ventures could have as they undermine grassroots organizations in small communities, in places like Rimbey, Alberta, for example. We need to really look at that.

There exists a precarious balance between government funding, charitable donations, and the not-for-profit sector in Canada, in Alberta. Social finance threatens to undermine that balance by imposing altogether new responsibilities on non-profits and governments alike. Ironically, the result of these efforts in Alberta, as elsewhere, may be long-term damages, not only to the not-for-profit sector but to its clientele and to government and society at large.

Let's remember for a moment the list of generally accepted benefits that the non-profit sector brings in providing social services: first, there is an efficient use of voluntary labour; second, there are flexible and rapid responses to specific local needs; third, not-for-profits are less bureaucratic; and fourth, Albertans have a lot of respect for not-for-profit organizations in their communities. The more non-profits are asked to take on larger, more complex tasks, the less these same tasks can be met through the often part-time or volunteer labour. There needs to be more and better trained professional staff to take on these new arrangements. They cannot be attained through the traditional sources of charitable giving, and must instead be obtained from government or somehow through the social impact bond model. But since this new financing model is based on markets and competition, which are not areas the not-for-profit sector is accustomed to dealing with, non-profit agencies find themselves having to hire or contract professional staff whose tasks include writing grant applications.

[The Chair, Conservative, Phil McColeman]

You have about one minute left, sir.

[Dr. Barret Weber]

That sounds great. Thank you very much.

Unfortunately, this undermines each of the well-documented strengths of the non-profit sector.

Since I do have one minute, I really will cut to the chase and say that instead of focusing on social finance, we should be looking at how we can strengthen the public sector, public programs, and the not-for-profit sector in a way that suits those grassroots organizations and is sensitive to the unique issues that they face in a place like Alberta.

I'll just leave it there for now. Thank you very much.

[The Chair, Conservative, Phil McColeman]

Thank you very much.

Thank you for your testimony, and we'll move on to questions from committee members.

Go ahead, Madam Groguhé,

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

Thank you, Mr. Chair.

I want to thank the witnesses for their contribution to this study.

According to Dr. Weber, social finance is clearly not a panacea or a tool that is going to revolutionize social policy as we know it and help us meet the challenges that are out there.

Dr. Weber, I listened to you closely. You put things in perspective. We have been under the impression that social finance is the magical tool that will truly solve all of today's social problems.

There are many pitfalls, including one related to the fact that we do not have enough data on the use of SIBs, or Social Impact Bonds. In your study, you say that we mustn't go too quickly and that we must take precautions before moving forward with social finance.

I would like your opinion on one thing in particular. When we talk about social finance and social programs run by non-profit organizations, and taking care of people who are having difficulties for example, what does an organization stand to gain from social finance when it has the means to do its work?

[Dr. Barret Weber]

Okay, what would the added value of social finance be? I guess I should say that the reason we inaugurated our study wasn't necessarily to look into social finance per se. We actually were looking into the struggles that not-for-profits were already facing in Alberta, and social finance is just part of the picture. In some ways there are aspects of social finance that aren't that new, in the sense that there's a long tradition of trying to find alternative ways of funding social programs, especially in a place like Alberta.

We went through in detail all the way from 1966 when the Preventive Social Services Act was passed by the Social Credit government up to 2014 essentially. We looked at that period of time and at the relationship between the Government of Alberta and the not-for-profits in Alberta. What we found is an absolutely fascinating story in which Alberta passed the PSS Act in conjunction with other programs like medicare during this period. It was really a growth period of building up the social safety net in Canada writ large and also the Canada assistance plan during this time.

What we see through time in Alberta is a real push under the Klein government from 1993 forward, especially at the turn of the 2000s and on, to privatize social service delivery in any way they can. Ralph Klein set his sights and that of his government on ways to control expenditures as much as possible; and one of those ways, in terms of a real tangible example, is children's services. They tried to take the aspects of children's services, maybe not in terms of child intervention, but in terms of these preventive programs that helped to keep families intact and keep families together. They tried to see if they could download that responsibility onto other organizations than the government.

Based on our work, I see the precursors to this push towards social finance in these kinds of pioneering efforts towards privatization in Alberta.

Just to finish quickly, the initial impetus of the Social Credit in the sixties, seventies, and eighties wasn't necessarily towards privatization: we certainly did not find that. We actually see a really interesting policy—and I would encourage you to look into it—based around preventing social problems as they come about in small communities across the land.

[The Chair, Conservative, Phil McColeman]

That's the five minutes.

Mr. Eglinski, your five minutes, sir.

[Jim Eglinski, Conservative, Yellowhead, AB]

Thank you.

I have a question for Dr. Weber. I'm quite surprised at the outcome that you came to in your study. Did you go outside the province of Alberta in looking at programs or at any ways that social financing could be improved?

[Dr. Barret Weber]

No, we did not.

We looked broadly at the Big Society initiative in the United Kingdom and how that set of ideas was brought to Alberta. Danielle Smith from the Wildrose Party actually used the term in 2011, and Alison Redford was clearly influenced by it, but there's no direct link. These ideas certainly circulated in Alberta following, say, around 2010. It really was something that people were talking about, no question.

[Jim Eglinski, Conservative, Yellowhead, AB]

Did you ever get the $500,000? Was it put aside from the....

[Dr. Barret Weber]

It was $500 million.

[Jim Eglinski, Conservative, Yellowhead, AB]

The $500 million, yes.

[Dr. Barret Weber]

No, right before it was about to be transferred, Jim Prentice killed Bill 1, in December 2014.

[Jim Eglinski, Conservative, Yellowhead, AB]

You're very positive in your thoughts here and they somewhat bother me a bit. I'm from Alberta, but I'm also formerly from British Columbia. Are you familiar with a couple of groups, such as Northern Development Initiative Trust out of Prince George, which started with $250 million and spread out $55 million over 10 years in social finance? They're still at the same amount. They were given the money by the government, they are managing the money independently of the government, and they're doing social finance in education, in business, in training, etc. And it's the same with a group down in Vancouver who are working very similarly; they're dealing with the banks and using credit union money.

I'm surprised that you would not go outside of your own province but come back with a very strong paper saying that it would not work in the province of Alberta.

[Dr. Barret Weber]

Parkland Institute is an Alberta-based institution, and that's mostly our focus. That's why it would certainly read that way. It was our focus.

I understand that British Columbia is much more enthusiastic about the concept. To be honest with you, if Alison Redford had been premier for longer, we would certainly have gone down the road further.

But I think it is indicative that one of the first things Jim Prentice did was to kill Bill 1. I salute him for it, in that, again, as you know from my paper—not to be disrespectful to anyone on the committee or anything of this sort—the literature is pretty definitive that we need a lot more time for discussion and gestation before we'd move forward with this in a confident way, especially in regard to social services.

Again, that's our focus. It's in terms of how this could be used in social service organizations.

[Jim Eglinski, Conservative, Yellowhead, AB]

Your belief, I take it from your paper, is based on the idea that social services should be left in the hands of government.

[Dr. Barret Weber]

That's correct.

[Jim Eglinski, Conservative, Yellowhead, AB]

That's the end of my questions. I don't want to go into too....

Thank you.