Public Safety Committee on May 15th, 2014

[LaVar Payne, Conservative, Medicine Hat, AB]

We could be saving all kinds of money on—

[Siobhan Harty]

Especially for downstream costs, as I said. You have to take a long-term view on this, which is also a risk because it's like patient capital. You'd be placing money in something that could only return in seven years.

[LaVar Payne, Conservative, Medicine Hat, AB]

I have another quick question. You talked about 150 non-profits across the country. Is that only from major centres, or is that from smaller centres?

[Siobhan Harty]

In our report we had over 150 concepts. You'll see in the report that we did break down the categorization. We didn't have it in all cases. In most of the country there were some gaps, but in terms of the urban/rural split, we didn't have that information, but you can sort of tell from reading some of the concepts.

I can't give you precise numbers.

[The Chair, Conservative, Daryl Kramp]

Very briefly.

[LaVar Payne, Conservative, Medicine Hat, AB]

I noticed one in B.C. for aboriginals, trying to provide trades training for them. That looks like an outstanding program and I see some huge benefits, obviously for B.C., and for first nations.

[Siobhan Harty]

Yes, many of these are being pursued by the relevant departments. It's up to other government departments. If they're interested in the concepts, they can launch some discussions with the concept holders. I know colleagues in Aboriginal Affairs and in other departments are doing so.

[The Chair, Conservative, Daryl Kramp]

Fine, thank you very much, Mr. Payne.

We certainly thank our witnesses very kindly for coming here today.

We will suspend for a couple of minutes while we arrange for a video conference for our next witnesses and bring them forward.

[The Chair, Conservative, Daryl Kramp]

We will reconvene. At this point we have two further witnesses.

Welcome to the Standing Committee on Public Safety and National Security.

Here with us today by way of video conference from Washington, D.C., we are very pleased to have from the Center for Law and Social Policy, Ms. Elizabeth Lower-Basch, policy coordinator and senior policy analyst. We also have with us Andrew McWhinnie, director, from Andrew McWhinnie Consulting.

At this particular point we have up to 10 minutes for a presentation, should you wish.

We will start with Ms. Lower-Basch. You can certainly have the floor for 10 minutes. We'll go to Mr. McWhinnie after that, then we will open the floor to questions.

[Elizabeth Lower-Basch, Policy Coordinator and Senior Policy Analyst, Center for Law and Social Policy of Washington]

Thank you for inviting me to testify.

Can you hear me?

[The Chair, Conservative, Daryl Kramp]

You are loud and clear, thank you. Go ahead.

[Elizabeth Lower-Basch]

I appreciate the technology that lets me join you.

I am Elizabeth Lower-Basch. I'm the policy coordinator at CLASP, the Center for Law and Social Policy. We seek to improve the lives of low income people by analyzing and advocating for good practices and policies.

Earlier this year we released a report I wrote that looked at social impact bonds, or SIBs, from the perspective of assessing whether they're a good way to expand services for the disadvantaged populations that we care about. The paper looks at the stylized model of a social impact bond, reviews how the projects that are currently under way in the U.S. and in the United Kingdom compare to this model, and lays out the possible benefits and drawbacks of using SIBs. It is based on our review of the literature on SIBs, as well as on our knowledge and experience with performance measurement systems, performance-based contracting, and generally, strategies to link public policy and implementation with research evidence for programs serving low income and other disadvantaged populations.

Let me begin with a quick review of the main features of the stylized model to make sure that we're all on the same page. At the core of a SIB is a prevention or early intervention service. An intermediary organization, not part of the government, lines up private investors to provide upfront funding, which it uses to hire organizations to offer the preventive service.

At the same time, the government enters into a contract with that intermediary, in which it promises to pay a certain amount at the end of the performance period—typically five to seven years—if specified impacts have been achieved. This amount is enough to allow the investor to recoup its upfront investment, and also to make a profit, to compensate it for both the use of the funds, and for the risk involved in the project.

There is risk, because if the specified impacts are not met, the private investor is not paid and loses its investment. In some cases, the amount of the payment is also based on savings that the government expects to realize as a result of the project meeting those specified outcomes.

I'm going to focus on two of the claims that are made about SIBs. One is that they will increase the focus on outcomes of services, rather than inputs, and the other is that they will save governments money.

It's definitely true that SIBs increase the focus on outcomes of services. It pushes to the forefront the question of what are the outcomes we care about, and how much we are willing to pay to achieve them. Because there’s a contract involved that's paid for success, the government has to be clear about what success would look like.

SIBs also force people to think hard about the impacts of programs—the difference between what happens because of the program and what would have happened without them—not just outcomes. This can involve a random assignment evaluation, but doesn't have to. But it does require identification of a counterfactual, in some way, based on either a comparison group or underlying trends with controls. I think everyone agrees that it's a good thing to focus on the impacts of programs in these ways. It’s also important to be careful that what is incentivized is actually what we care about at the core, and not just what's easy to quantify and measure.

I'm not going to get into details today, but in the paper I spend a fair amount of time on the possible distortions that can be caused when we attach high stakes incentives to measures that are only part of what we actually care about. What do I mean by this? If you're looking at, say, a job training program for young adults who are at risk, you might see that it reduces incarceration rates as well as promoting employment. And you might consider entering into a social impact bond to support replicating this program, with the payments tied to incarceration rates. This could have unintended consequences. For example, the program might realize that very few of the women in the control group wind up in jail, so it might decide to only serve young men. Or it might decide that it doesn't really want to focus on job training at all, but only on mentoring or other services aimed at the incarceration, if that's what the payment is tied to. So you just want to think carefully about what your goals are and what would be acceptable.

The second claim that people make is that SIBs will save the government money. It's really important to distinguish here between two distinct claims. The first is that prevention focused services can save the government money, and the second is that SIBs themselves save money.

In the idealized version of the SIB, these go together. The services save the government so much money that government spending can decline even after repaying the investors. There may be some cases where this is possible, but SIBs have been proposed in a range of areas, and in only some of them is there likely to be this sort of savings.

First, it's important to recognize that in not all cases does investing in prevention save the government money. That said, criminal justice is probably one of the areas where the case is strongest that preventive services can save money in a short timeframe. Putting people in jail is very expensive, so there's a lot of potential for savings, even in the short term.

In many other areas, such as early childhood or job training, the preventive services are definitely beneficial to both the participants themselves and to society as a whole, but they may not directly lead to government savings, or they may lead to savings only over a very long time period, and it is not clear that investors are willing to wait that long to be repaid. This is why so many of the early SIBs are focused on justice populations, and particularly on ex-offenders and preventing the incarceration.

But it's also important to understand that for any possible services SIBs are going to be more expensive than funding those same services and activities through a more traditional financing mechanism just because the SIB itself has incremental costs. There are the returns that have to be paid to the investors, there are also the costs of the intermediary and the evaluation, and there's also some upfront costs in negotiating and figuring out what your baselines are and what the contract's going to look like.

I'm not going to get into all the details, but McKinsey & Company has done a pro forma analysis of the costs of a SIB, which I thought was really helpful.

I will note that SIBs can potentially save money if the programs fail to meet the outcomes, and therefore the government does not have to pay the intermediary. This is obviously not desirable. In a mature market, of course, profit motivated investors will demand the profit that accounts for this risk of failure, so it gets built into the overall cost across the portfolio.

There's also a risk that when a SIB is failing to meet its target, it would be rational for the intermediary to cut their losses and stop providing services. In some cases that may be okay, in other cases the government will need to step back in to fill that gap, which itself incurs costs.

It would seem you could save the most money by investing in more preventive services without the social impact bond. Even if you had to borrow the funds, the interest rates would be much lower than the carrying costs of the SIB, but the reality is that in many cases policy-makers, advocates, have not been able to make that successful case for expanding investments in prevention. That seems crazy. It can be very frustrating to those of us who have worked in these areas, so if SIBs are able to overcome this problem of underinvestment in prevention, it may well be worthwhile to pay the incremental cost.

I have a few recommendations.

The first is to be realistic about what can be accomplished by SIBs, or social impact bonds. Don't oversell them. Recognize it's a new approach, that it's still in the experimental stages. None of them in the world have reached the payment stage yet, so there's still a lot to learn. For that reason, I'd say they should not displace existing spending, and that you should recognize that they're not a panacea to cure the problem of underinvestment in social programs.

I'd also specifically urge you to start with the analysis of the desired outcomes, and how much you are willing to pay to achieve them, whether because of savings that will be achieved or because of the value to society. This framework is core to a successful SIB. You can't move forward without it. But it's also a really important conversation to have that adds value to your budgeting and to your decision-making process, whether or not you decide to move ahead with social impact bonds.

Thank you.

[The Chair, Conservative, Daryl Kramp]

Ms. Lower-Basch, thank you so kindly for taking your time to be here with us, and certainly we do appreciate this bilateral conversation.

We have now another guest with us here today. We have Mr. Andrew McWhinnie.

I would just bring to the committee's attention that Mr. McWhinnie had a number of documents that he presented to the committee to be distributed today, but as they have not been translated, they will not be distributed today. They will be given to the committee at a later date, obviously.

Of course, we will now hear from Mr. McWhinnie and perhaps in his narrative he can attest to some of the documentation that he has and make his case. After that we will open the floor to questions for both of our witnesses.

Please stand by, Ms. Lower-Basch.

You have the floor now, Mr. McWhinnie.

[Andrew McWhinnie, Director, Andrew McWhinnie Consulting, As an Individual]

Thank you, Mr. Chairman, and committee members.

It's a pleasure to be here to address parliamentarians in my country and to talk to you about something that I'm very passionate about. Unfortunately, I don't have a formal presentation to make to you today. My call to the committee came the day before yesterday while I was on retreat in the country with a group called Circles of Support and Accountability, or CoSA.

I'm going off of whatever is on my brain pan right now on Circles of Support and Accountability. I have been doing this for the better part of 20 years, so let's just see how far we can get with that.

Circles of Support and Accountability addresses the needs of a group of people that makes us all kind of squirrelly and itchy and not feeling too good, and that is high risk, and let's just start there, not low risk, not medium risk, but high-risk sexual offenders returning from prison to communities. Nobody wants to work with that group. They scare us. They have caused irreparable damage in our communities. They have harmed people in ways that they will never recover from in most cases, and they are a worry, and they are a social problem as a group in our society.

In 1994 these people were returning to communities at the end of their sentence, after being detained to the very end of their sentence, to the very last day of their sentence, and put out in the community and told, “Take care of yourself and don't do that again.”

One of those fellows, his name was Charlie Taylor. He is deceased now. He was released to the community of Hamilton. He had spent most of his life in jail or incarcerated in one form or another, beginning with foster homes when he was eight years of age. I think the estimate was that he had never spent more than a couple of months on the street without being locked up someplace.

Charlie was a very high-risk sex offender. He was the kind who scares us, the kind who is actually very rare in our society, believe it or not, but the kind who would, when he wasn't feeling good, when he needed to soothe himself or take care of himself, go looking for a victim. Those victims were pre-adolescent boys, very young boys around the ages of five and six. I'll spare you the details of what he might have done to them.

He was coming from Warkworth penitentiary to the City of Hamilton. I know, sir, that's your riding and you know about Warkworth Institution. The police in Hamilton were worried. Everyone estimated, including Correctional Service Canada, that his chances of reoffending were about 100%. That's rare in our society, but it does happen.

Some members of a Hamilton Mennonite street church under the direction of Reverend Harry Nigh had been visiting Charlie in jail and knew that he was coming back to the community and they thought they needed to do something about it. “What if we pulled a group of volunteers together around Charlie and stayed with him every day and walked with him through his re-entry into the community? If anything comes up, we'll make sure that he has his needs met, but more importantly than that, we'll make sure that he's held accountable for his behaviour, that we know what he's doing, and that he can answer to us for his behaviour.”

The estimate was of 100% recidivism within a month. Charlie died 12 years later without another offence, the longest period of time that he had spent on the street in his entire life.

Since 1994, Circles of Support and Accountability has been replicated across this country in many of our major cities from the east coast, from St. John's, Newfoundland, to Vancouver and the Fraser Valley. There are 152 such people being served this month, high-risk sexual offenders in Circles of Support and Accountability, by 650 to 700 committed citizens, ordinary citizens with no particular expertise at all forming these circles of support and accountability around those 152 people.

I have to say that when we first came out with our statistics, we had to rerun these numbers again because we didn't believe them ourselves. In the Toronto pilot project we showed a 70% reduction in sexual recidivism among people who were in circles, compared to a matched sample control group who did not have a circle.

We didn't believe that. We ran it again and again and we came up with the same results and so we published them. In fact, the Correctional Service of Canada published that study in 1996, I believe it was.

We decided that we needed to replicate that study, and we did. We replicated it across the country in our projects and we came up with numbers that blew us away: an 83% reduction in recidivism; a 73% reduction in violent recidivism, including sexual reoffending; and a 70% reduction in all types of offending.

Those numbers are startling. They're startling to us, and if people wanted to question those, I think they'd be well within their right to say, “Wait a minute, there has to be something else going on here.”

These studies have then been replicated in Great Britain by Circles United Kingdom. After a 10-year follow-up of their circles, they came up with numbers that were very similar to ours in terms of reoffending. In the United States, in Minnesota, the Minnesota Department of Corrections—Grant Dewey—have run the only random clinical trial for circles of support and accountability in Minnesota. They don't really want to publish anything until they're at the five-year mark, but when they go in and do a little data snooping and see where they're at, at the three-year mark, which matches where our follow-up period was, they came out with numbers almost identical to ours, in a random clinical trial.

It seems like they have something here.

Through the National Crime Prevention Centre, starting in 2009, we did a five-year evaluation of circles of support and accountability. What the National Crime Prevention Centre did was fund circles to their capacity so that they could operate at capacity in Canada, and then evaluated the circles of support across the country. It went through a process of identifying outcome measures, what those outcome measures should look like, what meaningful measures were, including recidivism. That study is due on September 30 or October 1 of this year.

We are doing a recidivism update on the numbers that I just gave you, where we had the 83%, 73%, and 70% reductions. We're updating those. That's happening right now. Those will be ready on October 1. We're finding that we have to do a complicated analysis. Looking at recidivism this way is going to test us, and we're going to find out what those numbers look like at the 8- and 10-year mark, which will be very meaningful.

Circles of support. I know you've wrestled at times with the idea of crime prevention versus recidivism, and should social impact bonds be used for what group of people—both, and one or the other. Circles of support and accountability is at once an absolutely astounding primary crime prevention tool to reduce victimization by people who are repeat offenders, and it is a recidivism prevention project. It's both in terms of recidivism and crime prevention. If you think of the numbers 83%, 73%, and 70% replicated in this country and in other countries around the world, think also really of the number of potential victims who were not victimized by these people. If we're serious about crime prevention and about lowering recidivism rates by preventing sexual assaults against our citizens, circles of support and accountability has to be one of the tools that we can use.

The Americans have come up with a cost-benefit analysis that demonstrates for every dollar spent on circles of support and accountability, there's an 82% return. The British came up with an 18% return on investment.

The Mennonite Central Committee of Ontario has done a social return on investment study, just published this year, that shows a $6 return for every dollar spent or invested on circles of support and accountability. It's early days in terms of social impacts and social returns, but we're beginning to identify what those factors might be. What would be the indicators for a social return? Reduced victimization, for sure. Mental health costs, for sure. A third of our people in circles of support and accountability suffer from mental health problems, and 50% suffer from mental health and addictions problems. These people are being addressed within a circle of support and accountability.

Unfortunately, the funding that brought circles of support and accountability to its capacity ends on September 30. We knew that this was going to happen. The reason that we did an evaluation study and partnered with the National Crime Prevention Centre was to demonstrate the effectiveness of circles of support and accountability.

It is kind of a mind boggler for us, and you're probably aware of this. Around about March 15, the Correctional Service of Canada, which is the major funder of circles of support outside of the National Crime Prevention Centre, said it was going to end funding March 31 of this year. We had our skirmish, and funding was restored until March 31, 2015, but my last conversation with the Correctional Service of Canada yesterday indicated that it will not renew the funding for Circles of Support and Accountability.

The funding of a nationwide program, a Canadian innovation in both crime prevention and recidivism reduction, involving ordinary citizens across this country who are invested in risk management within communities and community safety, is over as of March 31, 2015.

[The Chair, Conservative, Daryl Kramp]

Thank you, Mr. McWhinnie. Certainly you went a little over time, but we'll just carry on here, sir. It was a most interesting reality. Thank you very much.

Now we will go to a round of questioning.

Mr. Maguire, please.

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

Thank you, Mr. Chairman, and through you, I want to thank both presenters for their presentations to us here this afternoon.

This is a situation that I want to ask a number of questions on, but I'd like to go back to Ms. Harty, who just made a presentation earlier, with something to put in your minds before I ask this question. She indicated there were about 150 concepts in the study that they've done, 150 responses from people who would get into being a partner with government in these areas, in these kinds of investment bonds, and that sort of thing as well.

Ms. Lower-Basch, you made a comment that there was sometimes quite a long time before there was any kind of return seen on the investment. I think you talked about six or seven years in some cases. Is that any different from some other major investments, or some other investments? Many wait a long time anyway before they see the full return on their investment. Do you see that as being a big concern or a reason not to move forward with investment bonds as well?

[Elizabeth Lower-Basch]

I think the question is really what the market will sustain. The social impact bonds depend on private investors being willing to wait however long to get paid back. The ones we've seen so far, which as we've said are very new, the pilot ones, are of relatively short periods. It's possible that, particularly if you have philanthropic investors rather than profit-motivated ones, they might be willing to wait longer periods, but that's not yet known.

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

We just talked about the SIBS. Have you looked at the other areas that were mentioned, or do you have others that you could add that would be feasible options as far as having a complementary source for government to look at this kind of social development as well?

[Elizabeth Lower-Basch]

I think there's a range of things that are labelled social investments. I certainly think, to the extent that there are enterprises that are able to bring in revenues, that's a positive thing, though again, you need to think about what your outcomes are and make sure that the design to bring in profit doesn't come ahead of the social goals, but my research specifically focused on the—

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

Either of you can answer this question then. Do you see investments that would have maybe fewer barriers than what you see in these particular areas that we've been talking about? Are there any new areas that you would like to think would have fewer barriers than what you're seeing here?

[Elizabeth Lower-Basch]

I do think, as I said, that the justice area is one of the ones where you see the most immediate payoffs because prison is so expensive. Homelessness prevention is another one where there may be quite short-term payoffs. In the U.S. context, people have looked at some of the very chronically ill who have not historically always received treatments. Those are some of the ones that seem more promising in the short term.

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

Mr. McWhinnie.

[Andrew McWhinnie]

I think the social justice and criminal justice areas are probably the places where you'd find the most immediate benefit. Certainly, I would recommend a program like ours, to be selfish about it, and say it's ready for that kind of investment. I don't know who would invest in it.

Also, I'd probably have to say that there's an ethical issue there in that there are some things that I think government should fund and should be a collaborator with—at least with whoever the investors are going to be. And maybe there's a question about whether we should be making money or allowing people to make money off the social ills of other people?

I don't have the answer to that. I just raise it as one of the concerns. We collaborate with all levels of government, criminal justice officials, and law enforcement people, so I think that's an area where you would need to have the collaboration of government and investors.

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

I have another question in the time I have left.

Ms. Harty mentioned that there were four parts to the program that they have. A couple of them have already been implemented. So this isn't a new concept, it's been around for quite some time.

In the UK, we saw the other day, and it's mentioned here again too, that their big society capital program has been a leader in the world in regard to how it's been accepted.

So given that timeframe and that it's been out there, Mr. McWhinnie, can you provide me then with your thoughts as to how you have maybe, over the last couple of years, prepared yourself for a partner? You indicated there may not be some there. Have you looked at partners who might, or even thought of partners who might, consider joining with you?

[Andrew McWhinnie]

Not particularly. We haven't gone after individual investors. We have been educating ourselves as much as possible in terms of what this is. The findings from Great Britain, I understand, are actually quite mixed in terms of success and effectiveness, so we're mindful of that. At this stage, we're still looking to government as being the primary funder—governments from the federal government all the way down to municipal governments—and individual police forces, but we have not, no.