Social services bonds: Penny spent is a dime saved

Kim Weaver doesn't know much about state bonding, except that it pays for bridges and roads and buildings. But under a first-in-the-nation proposal at the Legislature, state bonds would fund "human capital" as well. That could help folks such as Weaver, who is participating in a job training program.

Specifically, the bill would create a $20 million pilot program for agencies that can demonstrate they've saved the state money through investments in health and social services. A juvenile delinquency program, for example, might report that for every $1 invested, it saved the state $10 in unused prison space.

The proposal is being watched by nonprofits and foundations across the country, which are searching for new ways to fund social programs -- as well as ways to make them more accountable.

"I think it's a fascinating idea," said Art Rolnick, former research director at the Federal Reserve Bank of Minneapolis, noting that national studies found that government investments in preschool education have paid back tenfold.

"I'd like to see what happens with it," he said. "But you have to be able to measure the savings if this is going to work."

But Rep. Karen Clark, DFL-Minneapolis, has questions.

If expanded, would the project end up replacing state funding for social and health programs? she asked. And what effect would it have down the road, for services that can't offer a return on investment, such as support for the severely disabled?

The plan was unanimously approved by the State Government Finance Conference Committee Tuesday. It is backed by dozens of influential Minnesotans, including three former state finance commissioners, CEOs and ex-CEOs and a bipartisan mix of such civic groups as the Minnesota Chamber of Commerce, Greater Twin Cities United Way, Center of the American Experiment, and Growth & Justice.

Weaver, who is in a job training program at Twin Cities Rise in Minneapolis, has no doubt that job training can be a good investment for the state. She expects to be placed in a job soon, pay taxes and leave government support behind.

"There's a lot of people like me," said Weaver, sitting at the reception desk last week. "They have a situation where they sometimes lose their way. This puts us back on track."

How it works

Twin Cities Rise is the type of nonprofit likely to benefit from the "pay-for-performance bonds." On a recent morning, a steady stream of job seekers walked into its downtown offices. Some headed to a computer class, others to a workshop on communication skills. Weaver worked the reception area as part of an internship.

When the program provides job training services to Weaver, it doesn't get a penny until it places her in a job that pays at least $9 an hour and offers health insurance.

Twin Cities Rise gets $9,000 from the state when it places Weaver in a job, and $9,000 more if she stays a year.

The nonprofit calculates that for every dollar the state invests, it gets $7.24 in the form of reduced costs for subsidized housing, food stamps, health insurance and more.

Weaver, for example, expects to move off food stamps and MinnesotaCare, the state's subsidized health program.

"And I'll probably cost an employer less," she said. "I'm not going to go job to job. I'm stable. And I won't be in prison, costing taxpayers' money.

The bond proposal was the brainchild of Steve Rothschild, a former vice president at General Mills who founded Twin Cities Rise in 1993.

He believes the bonds could be a good match for programs that keep Minnesotans in stable housing, in college and school, that help the disabled lead productive lives, which prevent more serious health problems.

"This is an idea that can cut across all areas, education, health care, human services," he said.

Return on investment

One of the trickiest issues is how nonprofits will prove their return on investment. The bill calls for the commissioner of Management and Budget to establish an oversight committee that would determine a method for calculating that, as well as other policies.

"It is best if legislation of this magnitude spells out these details to show how it will work in practice," he said.

Rep. Keith Downey, R-Edina, the chief sponsor of the House bill, said he's hopeful that the bill will be approved in conference committee. Gov. Mark Dayton has not taken a position on the plan, staff said.

However, Management and Budget Commissioner Jim Schowalter has called the bill "well intentioned but not advisable." Selling bonds would cost more than a direct appropriation, he said, and adds unnecessary administrative costs.

The bonds are just one incarnation of a hot trend sweeping human services funding, namely linking government funding to program effectiveness, said Bill Pinakiewicz, a program director at the Nonprofit Finance Fund, a New York-based nonprofit lender and adviser to nonprofits nationally.

Pinakiewicz said there's considerable interest in Minnesota's bonding idea, which could wind up in other statehouses if approved. "It has tremendous potential."