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 Response Page - Rothschild  Interview -      


These comments are responses to the questions listed below,
which were generated in regard to the
Steve Rothschild Interview of
02-11-2011.
 

 

Overview

Human Capital 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:  http://bit.ly/i7iSoC

Response Summary:  Readers have been asked to rate, on a scale of (0) most disagreement, to (5) neutral, to (10) most agreement, the following points discussed by Rothschild. Average response 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.

1. Government financing. (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.

2. Private investment. (7.8 average response) Successful social service providers will also need private investment.

3. Measure outcomes. (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 RISE! (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.

5. Performance bonds. (7.4 average response) The Minnesota Governor and Legislature should enact a pilot program for pay-for-performance via Human Capital Performance Bonds. 

 

Response Distribution:

Strongly disagree

Moderately disagree

Neutral

Moderately agree

Strongly agree

Total Responses

1. Government financing

0%

7%

0%

30%

63%

27

2. Private investment

0%

12%

8%

38%

42%

26

3. Measure outcomes

0%

4%

12%

27%

58%

26

4. Twin Cities RISE!

4%

7%

19%

37%

33%

27

5. Performance bonds

4%

15%

7%

37%

37%

27

Individual Responses:

Dave Broden  (10)  (10)  (10)  (10)  (7.5)

Ray Ayotte  (10)  (10)  (10)  (7.5)  (10)

Bruce 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.

Bob White  (10)  (10)  (10)  (10)  (10)

R.C. Angevine  (2.5)  (5)  (7.5)  (5)  (7.5)

Ken 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 private investment.

5. Performance 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.

W. D. (Bill) Hamm  (10)  (2.5)  (5)  (2.5)  (0)

1. Government 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.

2. Private 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.

3. Measure 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.

5. Performance bonds. I am far from convinced of anything but self-serving interests being served by this Ponzi scheme.

Don Anderson  (7.5)  (7.5)  (5)  (5)  (7.5)

2. Private investment. How will you stimulate all private investment to participate?

5. Performance bonds. It’s worth a try.

Dennis L. Johnson  (7.5)  (7.5)  (7.5)  (7.5)  (2.5)

3. Measure 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.

Peter Hennessey  (7.5)  (2.5)  (2.5)  (5)  (2.5)

1. Government 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 available resources.

2. Private 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.

3. Measure 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?

5. Performance 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.

Debby Frenzel  (10)  (10)  (10)  (7.5)  (2.5)

John Crosby  (10)  (10)  (10)  (10)  (10)

Chris Stedman  (10)  (5)  (5)  (10)  (10)  

Peter Heegaard  (10)  (10)  (10)  (10)  (10)

I like the idea

Shirley Heaton  (10)  (10)  (10)  (5)  (10)

Private economic 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.

Chuck Lutz   (8)  (8)  (7)  (9)  (9)  

Clarence Shallbetter  (9)  (na)  (na)  (9)  (5)  

Al Quie  (10)  (10)  (10)  (5)  (10)  

Terry 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.

Vici 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.

Rick Bishop  (10)  (10)  (10)  (10)  (10)  

Wayne Jennings  (8)  (7)  (9)  (10)  (10)

An exciting concept with great potential and measureable results.

Bruce 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.

Tom Swain  (10)  (9)  (10)  (10)  (8)  

Larry 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)

Lyall Schwarzkopf  (8)  (6)  (8)  (9)  (8)  

Tom Spitznagle  (10)  (8)  (8)  (8)  (8)  

 

    

The Civic Caucus   is a non-partisan, tax-exempt educational organization.   The Core participants include persons of varying political persuasions, reflecting years of leadership in politics and business. Click here  to see a short personal background of each.

   Verne C. Johnson, chair;  David Broden, Charles Clay, Marianne Curry, Bill Frenzel, Paul Gilje,  Jim Hetland,  Marina Lyon, Joe Mansky, John Mooty,  Jim Olson,  and Wayne Popham 


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The Civic Caucus, 01-01-2008
8301 Creekside Circle #920,   Bloomington, MN 55437.  civiccaucus@comcast.net
Verne C. Johnson, chair, 952-835-4549,       Paul A. Gilje, coordinator, 952-890-5220.

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