A pet-project of the Harper Conservatives, social financing taps private investors to underwrite social programs
OTTAWA—Social financing—it was supposed to be a panacea for governments looking to cut costs, put more money into social programming and improve the essential skills of Canadian workers.
And it sounded good: the concept that the previous Conservative government pushed hard during its last four years in office was picked up by the current Liberal government, which is dedicated to making it an integral part of the federal landscape.
The idea was to persuade private investors to underwrite or help finance social programs such as job skills training, but so far, the federal government’s foray into the world of social finance has been short of glowing.
Internal reports—some obtained by The Canadian Press under the Access to Information Act, others provided by Employment and Social Development Canada—paint a picture of limited investor interest, little improvement in outcomes, regulatory hurdles for those involved, and a federal funding apparatus that isn’t designed to handle community-funding models to tackle complex social issues.
Above all, the government has learned it is easier to talk about social financing and social impact bonds than it is to put into practice.
“Progress has been slow, ultimately, because this is a new way of thinking for government,” said Adam Jagelewski, director of the MaRS Centre for Impact Investing.
“It’s a new way of thinking about tackling a social issue and a new way of spending government dollars.”
Social finance demands data, rigour, and a close tracking of outcomes so that governments can accurately measure performance. And that’s radically different than the traditional approach to social policy, he added.
The previous Conservative government made its first push for community-financed social programs in 2011, believing that it could reduce government costs and spur innovation in how programs were delivered.
The current Liberal government feels the same way: Social Development Minister Jean-Yves Duclos has been mandated to craft a social finance strategy, and the Grits are keen on the idea that still remains in its nascent stages in Canada, but has picked up steam elsewhere in the world.
The way social impact bonds work sounds relatively simple. Private investors put money into a bond that funds a social program—federal pilot projects have focused on essential skills training—run by an organization which then can use federal funds to pay a premium to investors if certain benchmarks are met. What makes the approach attractive to governments is that social impact bonds shift the financial risk from taxpayers to investors.
“The social issues that we’re dealing with in Canada, such as homelessness or recidivism or essential skills, they’re not sexy topics. People don’t like to invest in them. Politicians don’t like to invest in them,” said David Kelly, director of Canadian partnerships with Colleges and Institutes Canada, which is running a first-of-its-kind social impact bond project for the federal government.
One departmental report suggests there is an estimated $2.2 billion available in Canada for so-called “impact investing.”
But federal reports on social financing pilot projects show that those who hold the cash just aren’t ready to invest _ even though they are involved in talks around how to make social financing work in Canada.
In some cases, they can’t get involved because of tax regulations.
Colleges and Institutes Canada realized its charitable status could be threatened if it got involved as the broker in a social impact bond. It had to create a separate, wholly-owned corporation to limit the risk, Kelly said. CICan had to push back the deadline for investors to opt-in for the impact bond until June 30.
“That was a major barrier and it delayed the project for months,” he said of the regulations.
“Many organizations just couldn’t afford to be able to do that or would not have the wherewithall. So I think that needs to change.”
The 2015 federal budget was supposed to make it easier for foundations and non-profits to get involved in social finance projects, but there’s limited data to suggest that has happened.
The government has found that private investors want to put their money into programs where there can be “timely success” and assurances of a return on investment, making it less likely that they will back programs for at-risk youth and aboriginals who aren’t close to being job-ready. Investors also wanted to see past results to know the program works, but that data isn’t available because these programs had never been tried federally.
There were some successes. In one case, Canada Goose partnered with an un-named service provider to train seamstresses for a new factory. Many were hired full-time after they had gone through a skills training program, leading to one finding: Employers were more likely to hire participants after their training program if they had helped cover the cost of their training or apprentice salary.
The reports suggest that was a rare case. In most pilot projects, there were marginal or no increases in outcomes. Nor did they clearly show the government saved money.
Employment and Social Development Canada said the results from the pilot projects will influence future policy directions and that the government continues to experiment with the delivery of social services.
“This isn’t going to work for every social issue area. There is some very strict criteria in which these tools could and should not be used,” Jagelewski said.
“To think this is going to have universal utility and be a bit of a panacea in cash-strapped governments is a false hope.”