Social Impact Bonds, or “Pay For Success” programs, exist in many states around the country. To date, Delaware has only participated in a handful of these kinds of programs and none in the education arena. Social Impact Bonds began in the United Kingdom and since 2011, companies have slowly started bringing them to different states. Basically, these are programs where an investor (like Goldman Sachs) decides they can change some type of society issue (like getting pre-Kindergartners the resources they need so they don’t have to go into special education programs when they enter elementary school). They go to the state, sign a very lengthy contract, and based on the goal (like 99% of over 200 students in Pre-K programs won’t get IEPs after their investment) and they get the money back. If they exceed the goal, they may get more (like $277,000 for Goldman Sachs in the Utah Pre-K special education prevention program).
This issue has come up a bit in the past couple months because of a few entries in the Every Student Succeeds Act mentioning Pay For Success. Today, Diane Ravitch wrote about it again based on a recent editorial in The Salt Lake Tribune by two federal US government employees. One of them is the Deputy Assistant Secretary of Policy and Early Learning at the US Department of Education, Libby Doggett, and the other is the Director of The White House Office of Social Innovation, David Wilkinson.
Instead of tearing down new ideas and innovative approaches before they have even had the chance to be fully implemented, let’s applaud those who recognize the urgency of educating children differently and better. Let’s roll up our sleeves. Let’s celebrate what’s working and improve where we are learning lessons.
The validity of the Utah Pay For Success program came under immediate scrutiny because of the 99% victory Goldman Sachs claimed. Issues immediately surfaced around the reliability of the district’s data when it came to being able to identify these students for special education services. This could never happen in Delaware though, right? I wouldn’t be too sure about that. Delaware Governor Jack Markell is all too aware of what Goldman Sachs was doing in Utah. In fact, he praised them for it in a joint editorial in the online magazine called Roll Call in December, 2014. In the opinion piece, Markell and his co-contributor stated:
In Salt Lake County, Mayor Ben McAdams is pioneering a new way for government to focus on what works best. Knowing the impact that quality pre-kindergarten programs have, particularly in lower-income communities, McAdams is using Pay for Success Bonds, where private investors pay for the up-front costs of pre-school and get paid back if the programs succeed in saving taxpayers money from fewer at-risk kids using more expensive programs such as special ed. This pay-for-success model gives government the tools to fund an ounce of evidence-based prevention on the front end out of cost savings on the back end—and can be applied to a variety of social services.
The same year, a company called Start It Up Delaware formed. Using Social Impact Bonds as their source of funding to new companies, the company was formed based on capital provided by Discover Bank. The funding for the Social Impact Bonds came from the Delaware Community Foundation, also the chief source of funding for the Rodel Foundation of Delaware. While this particular company did not begin any education related projects, the link back to the Delaware Community Foundation and in turn, Rodel, could open this possibility in Delaware. Markell was also well aware of this venture because he gave the opening remarks at their launch reception in June of 2014.
In 2013, Newsworks wrote about a program Delaware participated in along with the Corporation for National and Community Service. This initiative placed AmeriCorps members in Delaware to give relief to the National Guard. The program used part of its funding from Social Innovation Funds. Markell, along with US Senators Chris Coons and Tom Carper, was on hand for the big announcement.
Last summer, the Delaware Department of Health and Human Services met to plan a potential new program called “Healthy Neighborhoods”. One of the potential long-term funding machines for this initiative is social impact bonds. In fact, the Chair of the Delaware Center for Health Innovation is also the Executive Chairman of Innovative School Development Corporation, Matt Swanson. It was his idea for social impact bonds as part of the funding for the Healthy Neighborhoods project. In the meeting minutes for the Delaware Health Care Commission, from July 2nd, 2015, Swanson explained the concept of social impact bonds:
Dennis Rochford asked how social impact bonds work in terms of the long term sustainable funding. Mr. Swanson stated that a social impact bond is a funding mechanism that allows philanthropy. Instead of making one time grants that have an end date it is more of a renewable approach where philanthropy can come in through bond funding that will eventually be repaid through marketable innovations that have a future cash flow. Sometimes that offset of dollars is measured against social impact. Instead of repaying actual dollars on the bond there is a measurable impact that offsets the dollar repayment.
And where would these funds come from?
Mr. Swanson stated that they have state resources available and have had multiple meetings with the Delaware Community Foundation.
So we have the Delaware Community Foundation/Rodel connection, and now an Innovative Schools connection. Anyone else?
There could be a very large part of the Delaware Department of Education looking to use social impact bonds in their initiatives, especially since their funding from Race To The Top expired on June 30th, 2015. The Office of Early Learning, which oversees pre-Kindergarten in Delaware, is getting $11 million in Governor Markell’s proposed Fiscal Year 2017 budget, if approved by the General Assembly. But I could easily see this area of the DOE utilizing the part of Every Student Succeeds Act to bring in investors to “Pay For Success” in Delaware nursery schools. I recently attended a presentation by the Director of the Office of Early Learning, Susan Perry-Manning, at the Senate Education Committee a couple of weeks ago. She talked about the funding this program needs now that the feds money has dried up. Throughout the presentation I heard the words “corporation” and “business” several times. It wasn’t just myself that took notice of that either.
In terms of legislation which would allow this in Delaware, it already happened when nobody was even thinking about it. Last year, Delaware Senator Bryan Townsend sponsored Senate Bill 75 which allows more advantages to “social enterprising” companies incorporated in Delaware. According to The National Law Review, this bill was huge:
Although not an early adopter of social enterprise legislation, Delaware has become one of the fastest growing jurisdictions in which social enterprises are incorporated, and is now home to some of the largest and best known benefit corporations, including newcomers Laureate Education, Inc. and Kickstarter, PBC. Along with other amendments to the Delaware General Corporation Law (DGCL), Senate Bill 75, which was signed by Governor Jack Markell on June 24, 2015, amended Delaware’s public benefit corporation law (Sections 361-368 of the DGCL), effective August 1, 2015.
While I am certainly delving into areas outside of my comfort zone when it comes to corporations, I’m seeing this as a backdoor entrance for “benefit for profit” corporations to operate easier. Was this done in anticipation of the Every Student Succeeds Act? It wouldn’t surprise me. I doubt Senator Townsend was aware of this unintended consequence, but Markell signed it and it is now a part of Delaware State Code. House Bill 235, which was recently passed in the Delaware House of Representatives, could definitely be seen as a boon to companies looking to start-up in Delaware. This bill, introduced on January 8th of this year and shot through the General Assembly at lightning speed and signed by Governor Markell on January 27th, “reforms Delaware’s business tax code to incentivize job creation and investment in Delaware, to make Delaware’s tax structure more competitive with other states, and to support small business by making tax compliance less burdensome.” As well as potentially being a pawn in the opt-out House Bill 50 veto override scheme, House Bill 235 would certainly benefit Markell’s education buddies in the corporate world if they planted their company flag in Delaware.
As I told folks on a Facebook thread about social impact bonds earlier today, if Delaware ever tried something like what Utah did with Goldman Sachs, I would not rest until social impact bonds were gone from Delaware. But since many of these type of companies tend to incorporate in Delaware, we have opened up the gates for the rest of the country and the Social Impact Bond invasion. This is just yet another example of the raiding of public education dollars in another Ponzi corporate education reform scheme.