Infra Insight Blog

California Senate Bill 593 (SB 593), introduced by Senator Ted Lieu (D-Torrance), shows the interest of some State legislators in implementing performance-based infrastructure (PBI) in social programs.

SB 593 would require the California Office of Planning and Research to administer a Social Impact Partnership Pilot Program (the Pilot Program) beginning in 2015.  The Pilot Program would authorize the Director of the Office of Planning and Research (Director) to identify and submit proposed social impact partnerships to the California Legislature for its consideration each year (until the Pilot Program sunsets in 2020).  SB 593 passed the Senate Appropriations Committee on January 30, 2014 and is currently awaiting further reading and hearing.

The social impact partnerships, also known as pay for success or performance-based schemes, would be for social programs traditionally administered by state agencies and non-governmental organizations, such as targeting recidivism, mental illness, homelessness, and primary care and preventative health services.

The Pilot Program includes a funding component – SB 593 would create a Social Innovation Financing Trust Fund (with funds appropriated from the State Treasury) from which to fund the pilot projects.  The bill may provide an opportunity for private sector involvement in the delivery of state services via an availability payment-type contract structure.  Periodic payments will be made to a private partner, conditioned on the achievement of targeted performances and budgetary savings.

A similar type of performance-based program has been initiated on the federal level, with the introduction of a pay for success program for social infrastructure in 2012.  In 2013, the U.S. Department of Treasury issued a Request for Information that will help design a proposed $300 million Incentive Fund to further expand performance-based contracts.  National and state policymakers, including California, are increasingly embracing performance-based programs as an alternative means to finance public social infrastructure projects using less public funds.

The concept of performance-based infrastructure was initially envisioned in California by former Governor Schwarzenegger.  The first PBI-type project in California was the Presidio Parkway Project under SBX2 4.  The contractual parameters under SB 593 appear to fit well with the availability payment contract structure used in PBI projects.

More information about SB 593 can be found on the California Legislative Information Website.