Performance Bonds are a way for private investors to finance social
service providers (mostly nonprofit organizations) able to demonstrate
economic value that is above the state's cost of borrowing the funds.
Economic value is a combination of incremental cash to the state from
taxes paid and lower public subsidies realized as a result of the
providers' social value creation. The state pays a portion of this
cash to the successful provider, and interest to investors. A proposal
to pilot this program-in part already shown to work with one Minnesota
nonprofit-is making its way through the legislature this session.
For the complete
interview summary see:
Readers have been asked to rate, on a scale of (0) most disagreement,
to (5) neutral, to (10) most agreement, the following points discussed
ratings shown below are simply the mean of all readers’ zero-to-ten
responses to the ideas proposed and should not be considered an
accurate reflection of a scientifically structured poll.
(8.8 average response) Traditional
means of financing social services, via appropriations from
government, will not be sufficient in the future, given incredible
budgetary pressures at the state and national level.
(7.8 average response) Successful
social service providers will also need private investment.
(8.6 average response) o attract such
investment, providers must measure outcomes in economic terms and
possess sufficient cash flow to repay investors.
4. Twin Cities
(7.4 average response) Twin Cities
RISE!, a job-training non-profit organization, has demonstrated that
economic outcomes can be measured and that such an organization can
attract private investment.
(7.4 average response) The Minnesota
Governor and Legislature should enact a pilot program for
pay-for-performance via Human Capital Performance Bonds.
4. Twin Cities
Broden (10) (10) (10) (10) (7.5)
Ayotte (10) (10) (10) (7.5) (10)
A. Lundeen (10) (10) (10) (7.5) (5)
4. Twin Cities
RISE! The interpretation of economic realities is always subject to
the bias of the person summarizing the results.
White (10) (10) (10) (10) (10)
Angevine (2.5) (5) (7.5) (5) (7.5)
Smart (10) (7.5) (10) (0) (7.5)
4. Twin Cities
RISE! We cannot say that it can attract private investment if they
require the state to float bonds first until there is a measurable
return. This may be a necessary first step, but it essentially states
the Twin Cities RISE! has not demonstrated that it can attract
bonds. It is an innovative idea that is worth exploring and piloting
to get some real results. The only additional factor I would like to
see is that the benefitting participants also pay back a portion of
their increased income directly to the program investors so they also
have some ownership of the program. Maybe there is a way to structure
it so these payments would be an investment on their part that they
could cash out after 10 years or continue investing after this for as
long as they wanted until they chose to cash out the investment.
(Bill) Hamm (10) (2.5) (5) (2.5) (0)
financing. While I agree with the statement here, the logic here
doesn't follow. Let's look at that model of retraining criminals to
earn a living wage. Wouldn't it have been nice if our prison system
had accomplished this while they had him instead of dealing with this
issue after we have just wasted $45,000 plus per year housing this
criminal. The very example he chose was an example of the total
failure of the criminal system to give us the added value of
rehabilitation. Add to this the extreme ignorance of housing the
mentally ill and drug users in our prisons and you quickly see this
group is working against reducing cost and supporting increased cost.
investment. I see this as an unworkably complex solution to a very
real problem. I also see it as an overly cerebral attempt to convince
us of real value where little value really exists or where real value
should have taken place before the individual needing help got to the
point of needing this help.
outcomes. Good luck. You haven't convinced me of anything here.
4. Twin Cities
RISE! As I said above, if our correction system had done its job to
begin with the need for RISE would not exist. While RISE is doing a
commendable job, it is not an example of added value, but rather an
example of the need for a service because of the failure of Unionized
public employees to do the job we pay them for. Your example here
convinces me of nothing but the needs of self-serving elitists to
continue to get us to pay their wages.
bonds. I am far from convinced of anything but self-serving interests
being served by this Ponzi scheme.
Anderson (7.5) (7.5) (5) (5) (7.5)
investment. How will you stimulate all private investment to
bonds. It’s worth a try.
Dennis L. Johnson (7.5) (7.5) (7.5) (7.5) (2.5)
outcomes. May be worth a trial in one or more services, but could
invite corruption through favoritism in award of contracts. Must be
closely monitored. Many states now contract for certain services such
as MH/MR, detention facilities, health services, etc.
Hennessey (7.5) (2.5) (2.5) (5) (2.5)
financing. Well, yes, government must re-examine precisely what its
duties are under the state and federal constitutions, limit its
activities to those duties, and make sure they can do so within the
investment. I am sure you will get quite a reaction to the notion of
private "investment" in social services, as if the activity were a
profit-making enterprise. And if it does prove to be profitable, you
will reap quite a howl about the morality of reaping profits from the
suffering of poor people. Also you will raise quite a few eyebrows if
the state is seen as engaging in a scheme that looks like
profit-making private business. You could make a case for the
notion that the State will see a benefit from a successful job
training program two ways: reduction in its expenditures on welfare,
plus increases in its tax revenues as newly trained workers are placed
in a job. This hardly qualifies as a "return on investment" on the
money that the state spent on welfare payments and job training.
More importantly, the only way to make the program successful -- the
only way the benefits from social services and their "social and
economic value" can be "monetized" -- is if somebody else in the
private economy is in a position to give the trainees a job. That of
course depends on the State's other policies that determine the
economic climate. There will be nothing gained if trainees end up in
government jobs -- the state will still have to tax the productive
members of the private sector in order to raise the money to pay these
trainees; from the point of view of the state and its budget, there is
no difference between welfare payments and government employee
salaries. In both cases it is money that the state must raise from
taxes. Even if a privatized job-training program is successful, you
will see serious legal and moral objections raised to "profit-sharing"
payments made to private "investors" from state funds (the increases
in tax revenue). The program would cost less to the state if these
"returns on investment" payments were zero. Plus, we have
philosophical and moral traditions which see welfare as something we
should do out of the goodness of our hearts, not with an eye on the
bottom line. Perhaps we should see what could be done to transfer the
state's current welfare programs to private charities. Perhaps a
less costly way (less costly to the state) to do this would be to make
welfare payments dependent on participation in a legitimate
job-training program, designed such that the trainer's income depends
on the successful placement of the trainees in a real job, similar to
the payment of a placement fee. This approach would not require
drawing funds from "human capital performance bonds" issued by and
therefore guaranteed by the state.
outcomes. Yes, this is how it works in the private sector, but if this
is truly a successful business model, then why do you need government
bonds to start it up? The answer is that the model is flawed and
therefore investors will be attracted only if someone -- the
taxpayers, as always -- remain as guarantors of last resort to protect
the investors from loss.
4. Twin Cities
RISE! I have no idea or the means to verify this claim. I have to
accept the claim at face value, and hope that it is true. Look, I
am a rabid free market advocate. People make money all sorts of crazy
ways, and if you can run a welfare program without government
involvement, without "human capital performance bonds" issued by and
therefore guaranteed by the state, go for it. Just make sure that
you don't cloud your business model with misapplied terms and muddled
concepts such as "investment" when you mean expenditures, "return on
investment" when you mean a reduction in expenditures, "revenue" when
you really mean taxes, etc. The state is not a profit-making
enterprise; it does not offer products and services to customers.
Therefore terms and concepts in economics that are applicable to
private businesses are not applicable to state operations. A private
business has profit or loss. The state has deficits or surpluses. A
private business earns its income from the sale of products or
services to customers in totally voluntary transactions. The state
levies taxes, which it collects under the threat of force. A private
business invests in equipment or training, with the full expectation
that they will be more innovative, more productive, more efficient,
and therefore more profitable. The state spends the taxpayer's money
on programs that (hopefully) help some people. While certain measures
of productivity and efficiency can also be applied to the job
performance of state employees, the only terms that can be applied to
state programs are increases or decreases in attributable expenses,
regardless of changes in the size of their "clientele," which is
another misapplied term used in welfare programs. Actually the
bureaucrats running a state program have every reason not to run the
program too successfully, because if they do and they work off the
backlog of the "clientele," then they (the bureaucrats) will be out of
a job. In effect their incentive is precisely backwards from the
incentives in the private sector Which of course raises an
important question: how do you apply a for-profit, fully private
business model to a welfare program for people who need continued
sustenance, with little or no expectation that they will ever be able
to train for and accept a private sector job? What portion of a
state's welfare "clientele" falls into the categories of potential or
hopeless candidates for a job-training program?
bonds. This is the flaw in the scheme. If there is profit potential in
privatizing welfare, why do you need government involvement? Because
in spite of all the controls on the program, described in the
presentation, the fact remains that private investors will still need
the assurance that the taxpayers will be the guarantors of last
resort. If this were not the case, then the bonds would not have to be
issued by the state.
Frenzel (10) (10) (10) (7.5) (2.5)
Crosby (10) (10) (10) (10) (10)
Stedman (10) (5) (5) (10) (10)
Heegaard (10) (10) (10) (10) (10)
I like the idea
Shirley Heaton (10) (10) (10) (5) (10)
resources seem to be the answer to the money problems we're
experiencing these days. This was proven in Washington, D.C. when the
Pennsylvania Ave. refurbishing and the transformation of Penn RR
Station to a Visitor's Center evidence that. But a pilot program is
mandatory to become aware of the ‘bugs’, which must be worked out
before broadcasting the concept.
Lutz (8) (8) (7) (9) (9)
Clarence Shallbetter (9) (na) (na) (9) (5)
Quie (10) (10) (10) (5) (10)
Stone (2) (2) (10) (2) (2)
Even though these
bonds are not GO bonds, it is very unlikely that the state would let
them default. In a real-world scenario the state would protect its
bond rating by covering the loss placing the taxpayers on the hook for
every defaulted dime.
Oshiro (na) (na) (na) (na) (na)
This is one model
that may fit if certain circumstances. More important are:
• a narrowing of
the gap between the rich and the poor and a genuine understanding that
"we all do better when we all do better" and
• a redesign of
our health care system so that we get more bang for the buck and the
government portion of health care expenditures doesn't demand such a
large part of budgets. This cannot be accomplished just by cutting
Medicaid and Medicare; must involve the entire system.
A careful evaluation of both federal and state tax laws including tax
expenditures would be a good place to start. I'm not willing to
accept the "we can't afford it" argument. We haven't tried.
Bishop (10) (10) (10) (10) (10)
Jennings (8) (7) (9) (10) (10)
concept with great potential and measureable results.
Lundeen (na) (na) (na) (na) (na)
I question if the
American economy presently has the capacity to insure payment of a
performance bond on a human capitol investment.
Carolyn Ring (10) (10) (10) (8) (8)
The costs of
administrating the program should be defined.
Swain (10) (9) (10) (10) (8)
Schluter (7) (7) (9) (8) (8)
We need to try
this concept but also review it carefully to see what results it
provides or problems that may have resulted.
Robert J. Brown (10) (8) (10) (10) (10)
Schwarzkopf (8) (6) (8) (9) (8)
Spitznagle (10) (8) (8) (8) (8)