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21–109 2016

SOCIAL IMPACT BONDS: CAN THEY HELP 

GOVERNMENT ACHIEVE BETTER RESULTS FOR 

FAMILIES IN NEED? 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HUMAN RESOURCES 

OF THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

SECOND SESSION 

SEPTEMBER 9, 2014

Serial 113–HR14 

Printed for the use of the Committee on Ways and Means 

( 


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COMMITTEE ON WAYS AND MEANS 

DAVE CAMP, Michigan, Chairman 

SAM JOHNSON, Texas 

KEVIN BRADY, Texas 

PAUL RYAN, Wisconsin 

DEVIN NUNES, California 

PATRICK J. TIBERI, Ohio 

DAVID G. REICHERT, Washington 

CHARLES W. BOUSTANY, JR., Louisiana 

PETER J. ROSKAM, Illinois 

JIM GERLACH, Pennsylvania 

TOM PRICE, Georgia 

VERN BUCHANAN, Florida 

ADRIAN SMITH, Nebraska 

AARON SCHOCK, Illinois 

LYNN JENKINS, Kansas 

ERIK PAULSEN, Minnesota 

KENNY MARCHANT, Texas 

DIANE BLACK, Tennessee 

TOM REED, New York 

TODD YOUNG, Indiana 

MIKE KELLY, Pennsylvania 

TIM GRIFFIN, Arkansas 

JIM RENACCI, Ohio 

SANDER M. LEVIN, Michigan 

CHARLES B. RANGEL, New York 

JIM MCDERMOTT, Washington 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

EARL BLUMENAUER, Oregon 

RON KIND, Wisconsin 

BILL PASCRELL, JR., New Jersey 

JOSEPH CROWLEY, New York 

ALLYSON SCHWARTZ, Pennsylvania 

DANNY DAVIS, Illinois 

LINDA SA ́ NCHEZ, California 

JENNIFER M. SAFAVIAN, Staff Director and General Counsel 

JANICE MAYS, Minority Chief Counsel 

SUBCOMMITTEE ON HUMAN RESOURCES 

DAVID G. REICHERT, Washington, Chairman 

TODD YOUNG, Indiana 

MIKE KELLY, Pennsylvania 

TIM GRIFFIN, Arkansas 

JIM RENACCI, Ohio 

TOM REED, New York 

CHARLES W. BOUSTANY, JR., Louisiana 

LLOYD DOGGETT, Texas 

JOHN LEWIS, Georgia 

JOSEPH CROWLEY, New York 

DANNY DAVIS, Illinois 


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C O N T E N T S 

Page 

Advisory of September 9, 2014 announcing the hearing ...................................... 2 

WITNESSES 

Lloyd Doggett, Representative from the State of Texas ....................................... 6 

Linda Gibbs, Principal, Bloomberg Associates ...................................................... 24 

David Juppe, Senior Operating Budget Manager, Maryland Department of 

Legislative Services (DLS) ................................................................................... 32 

George Overholser, CEO and Co-Founder, Third Sector Capital Partners ........ 39 

Robert Romo, former client, Center for Employment Opportunities ................... 20 

Sam Schaeffer, CEO and Executive Director, Center for Employment Opportunities (CEO) ...................................................................................................... 7 

SUBMISSIONS FOR THE RECORD 

American Federation of State, County and Municipal Employees (AFSCME), 

statement .............................................................................................................. 60 

American Public Human Services Association (APHSA), statement .................. 62 

CSH, statement ........................................................................................................ 65 

Douglas P. Koch, MAI, AICP, statement ............................................................... 70 

Enterprise Community Partners, statement ......................................................... 77 

Green & Healthy Homes Initiative, statement ..................................................... 81 

Institute for Child Success, statement ................................................................... 88 

ReadyNation, statement .......................................................................................... 95 

Results for America, statement .............................................................................. 104 


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SOCIAL IMPACT BONDS: CAN THEY HELP 

GOVERNMENT ACHIEVE BETTER RESULTS 

FOR FAMILIES IN NEED? 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON WAYS AND MEANS, 

SUBCOMMITTEE ON HUMAN RESOURCES, 

Washington, DC. 

The subcommittee met, pursuant to call, at 2:05 p.m., in Room 

1100, Longworth House Office Building, the Honorable Dave 

Reichert [chairman of the subcommittee] presiding. 

[The advisory announcing the hearing follows:] 


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Chairman REICHERT. Thank you for being here today. We will 

call the committee to order. 

Of course, today’s hearing is on social impact bonds, and our goal 

today is to review these innovative financing ideas and determine 

whether they can help government achieve better results for families in need. 

And to discuss this approach in greater detail as well as legislation that he has introduced to promote development of social impact bonds, I want to yield the balance of my time to the gentleman 

from Indiana, Mr. Young. 

Mr. YOUNG. Well, I want to thank Chairman Reichert for holding this hearing today to discuss how social impact bonds can be 

an innovative tool to improve social and public health outcomes, 

save taxpayer resources, and unleash non-governmental investment capital to help at-risk Americans. 

I also want to thank our panelists for being here today to share 

testimony with the committee. 

I want to give special recognition to Congressman Delaney, a 

Maryland Democrat and a very conscientious colleague, for his 

leadership and partnership with me on this initiative. This is the 

sort of big-idea, bipartisan initiative that we need more of in Washington, and he has helped make that happen here. 

Now, I studied a bit of economics at the University of Chicago, 

and I want to start today with a quote from Milton Friedman, who 

once said, ‘‘One of the great mistakes is to judge policies and programs by their intentions rather than their results.’’ 

I have spent the last 2 years on this subcommittee learning 

about many of our Nation’s social services programs, and I found 

that to ring exceedingly true. For all our best intentions, each of 

us knows that too often we see government programs fail the constituencies they are intended to help and the taxpayers who fund 

them. 

Unfortunately, instead of trying to determine how to get better 

results, serious discussions about social service provisions tend to 

devolve quickly into superficial arguments over funding levels. Instead of outcomes, we spend too much time talking about inputs. 

Now, to some, it is tempting to measure compassion with dollar 

signs, but this was not and is not what our social safety net is all 

about. 

Social impact bonds can help change our focus from inputs to 

outcomes, where it belongs. They do this by requiring every approved project to answer three basic questions at the outset: 

One, what does a successful outcome look like? 

Two, whom are we trying to serve? 

And, three, what is the value of a successful outcome in terms 

of current government spending? 

When those questions are answered, we can develop programs 

with measurable policy goals and measurable savings. Measurable 

policy goals and savings are pre-conditions to using social impact 

bonds as a funding mechanism to raise private investment capital, 

administer the evidence-based social intervention. And then, if and 

only if those policy goals are met, the Federal Government can pay 

back those initial investors. 


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If the goals aren’t met, the Federal Government doesn’t owe a 

dime. In essence, SIBs bring pay-for-performance to the social and 

public health sectors, allowing the Federal Government to improve 

both the impact and cost-effectiveness of vital government services. 

In short, the Social Impact Bond Act, which I sponsored with 

Congressman Delaney as well as Mr. Griffin and Mr. Reed on this 

subcommittee and several Democrats, including Mr. Larson, who is 

joining us here today, empower states, local governments, non-profits and the private sector to scale up evidence-based social and 

public health interventions to address some of our Nation’s most 

pressing social challenges. 

The results of these projects will help empower well-intentioned 

policymakers across all levels of government to improve lives 

through evidence-based policymaking as well as aid non-profits in 

expanding their models with fidelity across different geographies 

and populations. 

In turn, this expands our menu of policy options and offers 

meaningful alternatives to simply increasing funding for existing 

government programs that we know are less than successful at 

meeting their stated policy objectives. 

With that, I will once again thank our panelists for being here 

today, thank the chairman for this opportunity. 

And I yield back. 

Chairman REICHERT. I thank you, Mr. Young. 

Mr. Doggett, would you like to give an opening statement? 

STATEMENT OF THE HONORABLE LLOYD DOGGETT, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS 

Mr. DOGGETT. Thank you very much, Mr. Chairman. 

I welcome the discussion about how we invest in our future. In 

a time when there are so many valuable initiatives that are limited 

by budget squeezes and even by sequestration, it is important to 

be as creative as possible. 

I salute Mr. Young, Mr. Larson and their co-sponsors for recognizing the need to invest more in programs that will help low- and 

middle-income Americans get an education, attain long-time employment, and be successful in other areas. 

We know that social impact bonds are a relatively new phenomenon, having, I believe, begun in the United Kingdom in about 

2010. I am familiar with the effort in New York City and Rikers 

Island, the work being done in Utah. 

The question we have today is the impact of social impact bonds 

as a new phenomenon and whether this is the best way to encourage stronger and more responsive communities. 

Since the States are laboratories of democracy, one question presented by today’s hearing is whether Federal intervention is necessary or desirable at this early stage. 

Most of us are familiar with the old saw that a conservative is 

someone who says, ‘‘You go first.’’ Well, we have a method in the 

States and the localities already to determine how effective these 

programs are and to evaluate whether they are accomplishing their 

objectives. I look forward to hearing from each of our witnesses on 

this question. 


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I know that many of our programs, including those in which this 

committee has been involved in the past, face significant questions 

as to whether they can continue even next year. 

Home visiting for at-risk mothers and their children is set to expire next March, and I do have some doubts as to whether now is 

the time to implement a funding structure that will help put taxpayer dollars with some third-party investors instead of directly 

into the future of these children. 

I welcome the good counsel of all of those present, and I think 

we must be open to new ideas. We just need to be sure that those 

new ideas are the best way to make effective use of what are fairly 

precious taxpayer dollars. 

And I thank you, Mr. Chairman. 

Chairman REICHERT. Thank you, Mr. Doggett. 

And I show there is some agreement on the panel here. I want 

to thank all of you for being here, and we do look forward to the 

information that you will provide us today. 

We are looking for new and innovative ways where we can help 

people in this country, and I think we need to keep an open mind 

as to how we do that. And your information today will help us determine if we should do anything in the Federal Government or 

not. 

So, again, appreciate your testimony you are about to give, and 

thank you for being here again today, as I said. 

Without objection, each member will have the opportunity to submit a written statement and have it included in the record. 

I want to remind our witnesses to limit their oral statements, 

please, to 5 minutes. However, without objection, all of the written 

testimony that you have submitted will be a part of the permanent 

record. 

On our panel this afternoon, we will be hearing from Sam 

Schaeffer, CEO, Center for Employment Opportunities; Robert 

Romo, former client, Center for Employment Opportunities; Linda 

Gibbs, principal, Bloomberg Associates; David Juppe, senior budget 

operating manager, Maryland Department of Legislative Services; 

and George Overholser, CEO and co-founder, Third Sector Capital 

Partners. 

Mr. Schaeffer, thanks for being here today, and proceed with 

your testimony, please. 

STATEMENT OF SAM SCHAEFFER, CEO AND EXECUTIVE 

DIRECTOR, CENTER FOR EMPLOYMENT OPPORTUNITIES 

Mr. SCHAEFFER. Thank you, Chairman Reichert, Ranking 

Member Doggett, and all the Members of the Committee for highlighting social impact bonds at today’s hearing. 

SIBs have the potential to scale some of this country’s most effective social interventions, helping communities expand programs 

that have proven results and save taxpayer dollars. 

My name is Sam Schaeffer, and I am the executive director and 

chief executive officer of the Center for Employment Opportunities, 

or CEO. 

CEO is an organization devoted to exclusively meeting the employment needs of men and women with histories of incarceration. 

Since founded in New York City in 1996, CEO’s transitional jobs 


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program has helped more than 16,000 people coming home from 

prison secure full-time employment. 

CEO has been proven, through random assignment evaluation, to 

reduce recidivism and provide up to $3.30 in taxpayer savings for 

every dollar invested in the program. Over the last 5 years, CEO 

has leveraged its expertise to expand into ten cities across California, Oklahoma, and New York State. 

In a few moments, you will hear from Robert Romo, one of the 

thousands of individuals we have worked with every year, on how 

CEO turned his life around. Robert’s story illustrates the challenges so many face when coming home from prison. 

Every year more than 60,000 people are released, but more than 

40 percent will return. This failure is costly. The United States 

spends $64.3 billion annually on incarceration. 

It also has a profound effect on public safety, as well as families 

and communities impacted by the criminal justice system. Attracting new capital for prisoner re-entry programs like CEO is critical. 

In December 2013, CEO, New York State and the intermediary, 

Social Finance, began a 4-year SIB project that will help us serve 

an additional 2,000 high-risk recently released men in New York 

City and Rochester. 44 private investors provided $13.5 million in 

capital to support this expansion of services. 

This is a performance-based contract, but instead of focusing on 

outputs like job placements, it hinges on our organization making 

an impact on recidivism and long-term employment. 

If a random assignment evaluation shows that individuals in the 

treatment groups spend at least 8 percent fewer days in jail or 

prison than the control group and shows a 5 percent increase in 

their immediate and long-term employment, USDOL and the State 

of New York will return investors their upfront capital. If we exceed these measures, returns can reach as high as 12.5 percent. 

But if the targets are not met, investors stand to lose their capital. 

CEO is excited to take part in this historic project. It represents 

a watershed moment in which both the State of New York and the 

Federal Government are supporting the full funding of our core 

model delivered to our primary service population. 

What is more, the contract aligns our partners in New York and 

Social Finance to drive effective performance management, fidelity, 

and collaboration. Congressman Young and Delaney’s Social Impact Bond Act provides robust tools to create more deals like CEO’s 

SIB. 

Drawing on our organization’s experience, I would humbly offer 

the following suggestions to help guide this nascent field, several 

of which are also contained in Young-Delaney. 

Select experienced, proven providers. At this early stage, it is important to select service providers whose programs have been proven through experimental or quasi-experimental studies. For the 

field to gain steam, we need to construct projects around interventions most likely to demonstrate impact. 

Choose performance and repayment metrics carefully. Performance thresholds must be achievable based on a provider’s track 

record. Projects should only aim to achieve results that are consistent with provider’s historical performance. 


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Attract new capital. Don’t cannibalize. One of CEO’s interests in 

participating in the SIB was accessing new forms of financial support. If CEO’s existing government or philanthropic funding were 

diverted to support this SIB, the project’s appeal would have diminished considerably. 

Government champions are critical. For a deal to close and be 

successfully operationalized, strong government leadership is essential. Government must be committed as a payor, but also as a 

performance and operations partner. 

Help providers manage risk. Government should provide tools for 

providers negotiating transaction. The risk of any large, high-profile project is significant, and they will benefit from the help assessing evaluation design, investment terms, among other areas. 

Finally, cost-benefit is key, but it is not the only thing. We 

should find a way to support projects with clear societal, if not exclusively monetary, benefits. Interventions focusing on violence reduction or literacy, for example, may show impacts, but fewer cost 

savings. These projects should receive support, if they produce results, government values. 

Not all social problems can or should be solved by SIBs, but in 

a resource-scarce environment, SIBs allow government to support 

proven interventions that show impacts on a specific social problem. 

Perhaps most importantly, SIBs and the Young-Delaney legislation have the opportunity to help change how cities, States and the 

Federal Government support the social sector by persuading them 

to fund what works. 

Thank you. 

[The prepared statement of Mr. Schaeffer follows:] 


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Chairman REICHERT. Thank you, Mr. Schaeffer. 

Mr. Romo, please. 

STATEMENT OF ROBERT ROMO, FORMER CLIENT, CENTER 

FOR EMPLOYMENT OPPORTUNITIES 

Mr. ROMO. Good afternoon, Mr. Chairman, and members of the 

House Ways and Means Committee. 

My name is Robert Romo, and I am very excited, very proud, and 

a little bit nervous to be here. Thank you so much for inviting me 

and letting me share my story. 

I was released from prison after doing 13.5 years, and 3 days out 

my parole officer gave me two options for employment programs to 

attend. The first program required me to wear a uniform that 

made me feel uncomfortable and reminded me of prison. I wanted 

to take my shot with CEO. 

As soon as I started CEO, I felt positive about gaining employment sooner than I thought. Everything felt professional from the 

first day. It felt good to come to class every morning at 7:00 a.m., 

to have a place to go that made me feel positive about myself. 

My life skill instructor consistently treated us like equals every 

day. It never felt phony, and I got my attention right away. She 

truly believed in me and pushed me to accomplish things that I 

was not sure I could. She instilled in me to do my best every day 

and to believe that my conviction did not define me. 

I was taught that presentation helps define who we are. I 

learned how to interact appropriately and professionally on the job. 

I learned self-confidence, and the CEO staff helped build my selfesteem. My job coach worked with me doing mock interviews. She 

never said my ways were wrong, but encouraged me to look at a 

different way of expressing my way, myself. 

I worked for 6 weeks on a part-time transitional job site doing 

maintenance on college campuses. I got a paycheck at the end of 

the shift, which was great. It helped me buy extra groceries to support my family. 

At the same time, I was attending the carpentry program at the 

CEO training center two nights a week. CEO kept me busy. There 

was not a lot of leisure time, which was very good, because staying 

busy meant I was not tempted by bad habits and old acquaintances. I was totally focused on my future. 

None of this was easy, but my instructors motivated me, pushed 

me and believed in me 100 percent. I had to get good grades on 

multiple tests and have good attendance to have CEO pay my tuition at a local community college for the next part of the carpentry 

program. I did it. And before the training was over, my job developer set up an interview for me at a hotel, and I was hired on the 

spot, doing maintenance and carpentry. 

I kept in touch with CEO because they told me I could and 

should do something I love, not get stuck in just any job. I love construction. And they sent me on another interview. And again, I was 

hired on the spot. 

On that job, I met someone I knew while incarcerated. He told 

me about an opportunity with his window company and set up a 

meeting with his owner. I was planning to go in a suit, but my 

CEO job developer suggested I should dress like I was ready to 


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start work that day. And I did. I was hired on the spot. I have been 

there since last October and have already participated in building 

two sites. 

Honestly, I could not have achieved all of this without the support of CEO. They helped me see beyond my conviction to a future 

that was really positive. I am grateful for the second chance. 

I always had a passion to help others who are in a similar situation, and CEO is helping me fill that dream. This opportunity to 

speak today is just a first step towards fulfilling that goal. 

Thank you again for having me here today. 

[The prepared statement of Mr. Romo follows:] 


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Chairman REICHERT. Well, if I can call you Robert. 

Mr. ROMO. Yes, sir. 

Chairman REICHERT. Robert, you did an awesome job. So we 

couldn’t even tell you were nervous. 

Mr. ROMO. Thank you, sir. 

Chairman REICHERT. You did very well. And we are so happy 

to have you here. And I imagine that there were times in your life 

where you probably didn’t have much hope at all in getting a job, 

and here you are. You were hired on the spot at least three times. 

I have never been hired on the spot my first applications in my 

previous career. And so congratulations on your success there. And 

I bet a few years ago you would never have thought you would 

have been—would have had the opportunity to testify in Congress. 

Right? 

Mr. ROMO. Absolutely, sir. 

Chairman REICHERT. Yeah. Well, you—as I said, you did an excellent job. You should be very proud. And we are happy to have 

you here today. 

Mr. ROMO. Thank you so much, sir. It means a lot. 

Chairman REICHERT. You are welcome. 

Ms. Gibbs, you are recognized for 5 minutes. 

Ms. GIBBS. That is a hard act to follow. 

Chairman REICHERT. Yes, it is. 

STATEMENT OF LINDA GIBBS, PRINCIPAL, BLOOMBERG 

ASSOCIATES 

Ms. GIBBS. Good afternoon, Chairman Reichert and Ranking 

Member Doggett and members of the Ways and Means Subcommittee on Human Resources. 

I am Linda Gibbs, principal at Bloomberg Associates, which is a 

non-profit consultant group that was established by Michael 

Bloomberg to support mayors in achieving their visions for the citizens of the cities they serve. Before joining Bloomberg Associates, 

I served as the New York City Deputy Mayor for Health and 

Human Services. 

Working in City Hall with Michael Bloomberg, we focused closely 

on poverty in New York City. The Young Men’s Initiative was a 

key part of that work and—which was focused on reducing the disparities for young men of color across all social domains. The Nation’s first social impact bond was born out of that initiative as we 

searched for funding sources to help commissioners to launch innovative strategies to meet the mayor’s challenge. 

The goal of our SIB is to reduce future jail time among adolescent inmates who are held on Rikers Island. We know from historic 

data that this population has a shocking 1-year recidivism rate of 

50 percent. Half of them will be back on Rikers within 1 year. 

We were determined to change this outcome, but that left us 

with a question of what was going to prove the most promising 

model. While we had many post-discharge programs in place, we 

wanted to explore a jail-based strategy to counteract the negative 

effects of incarceration itself on later criminal behavior. 

We settled on an evidence-based cognitive behavioral therapy 

program called Moral ReconationTherapy, which emphasizes 

changing negative patterns of thinking as a way to reduce harmful, 


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self-destructive antisocial behaviors, and has evidence that demonstrates reduction in recidivism in the range of 15 to 30 percent 

where it has been evaluated across the country. 

We adopted this. We called it ABLE. And we worked with two 

proven non-profit providers to deliver the service, MDRC, a national research and evaluation shop, and Osborne Associates, who 

had a long history of work on Rikers Island. The independent Vera 

Institute of Justice will serve as our evaluator and will be monitoring the success of the program. 

Goldman Sachs fully funds the project’s intervention by advanc- ing a $9.6-million loan to MDRC. If recidivism, meaning return to 

Rikers, drops by 10 percent, the investor will be repaid the $9.6- 

million investment. 

At the 10 percent break-even point, the City will have an amount 

necessary to both repay that investment and to pay for the continuation of the program. Drops in excess of 10 percent produce increasing returns to the investor up to a total payout potential of 

$11.7 million, which—at a recidivism reduction of 20 percent. Everything beyond that would accrue savings exclusively to the City. 

The investor’s benefit is capped at that level. 

If the performance of recidivism does not drop by 10 percent, a 

portion of the investor’s investment will be protected by a guarantee fund provided by Bloomberg Philanthropies, which will protect part, but not all, of the investment. 

We have completed the first full year of service, and results on 

the reductions to recidivism will be calculated after a full year expires from the treatment cohort’s exit from prison. We need to 

watch a full year after they leave to know what the recidivism rate 

is for those that received the service. The program is funded to continue for 4 years, and the evaluation will continue for a full 7 

years. So that is our program. 

Reflecting now more broadly on the issue of social impact bonds, 

I believe the model has great potential for a number of reasons. 

You have heard many of them already. 

SIB funding frees up the creative thinking process and can really 

stimulate innovation, the potential that the resource brings to the 

table. And it not only brings private capital forward to fund social 

programs, it directs a flow of capital to areas that current private 

markets typically do not serve: high-need communities without liquid access to private markets. 

SIBs also advance promising strategies. SIBs can help evidencebased projects being tested in one place to more easily jump government boundaries for replication elsewhere, and SIB investors 

can facilitate the scaling up of what works locally. 

Less attention has been given to what I believe is a different and 

very significant benefit, that is, that SIBs elevate the tenor of outcome-based management in city halls and State houses, advancing 

skills and defining clear outcomes, measuring for results, and assessing governmental cost and benefits. 

In many ways, I believe the SIB’s greatest potential for government is that it is bringing this expertise to the table. Particularly 

for small jurisdictions without the ability to invest in large research capacities, the field of SIB practice is making straightforward tools more broadly accessible. 


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But SIBs are not a panacea. They are not appropriate, for instance, when the intervention will not produce government savings. 

There are many social programs that should and need to be done, 

but just require an outlay of government expenditure or philanthropic investment. So SIBs will not serve every purpose. 

Other programs produce savings, but they take too long for them 

to be realized to be relevant in an investor’s timeframe or they are 

too dispersed to be easily recouped, although I would note that the 

Young-Delaney bill, 4885, would solve part of that problem by making it easier to recoup those Federal savings that do accrue. 

Two other cautions I would note. Without good data management 

systems, evidence cannot be produced to satisfy the rigor of the 

model. Over time, I would expect this will improve as government 

agencies become more adept and systems are more widely available 

at reasonable costs. 

Great expertise is developing in structuring programs to be administratively simple and increasingly well structured to avoid 

practitioner bias, but this is also an emerging expertise and design 

considerations are significant. 

And this effort is in its infancy. Transaction costs can still be 

high and prohibitively high for many. Again, as skills develop and 

tools proliferate, these barriers should drop, making the practice 

more widely available. 

In sum, I am optimistic that SIBs offer great potential to move 

the field of sound social service practice forward, providing well beyond the short-term benefits of new investment dollars to providing 

sound outcome-based management expertise. 

Thank you. 

[The prepared statement of Ms. Gibbs follows:] 


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Chairman REICHERT. Thank you. 

Mr. Juppe. Is that pronounced correctly? 

Mr. JUPPE. ‘‘Juppe.’’ Yes. Thank you. 

STATEMENT OF DAVID JUPPE, SENIOR OPERATING BUDGET 

MANAGER, MARYLAND DEPARTMENT OF LEGISLATIVE 

SERVICES (DLS) 

Mr. JUPPE. Good afternoon, Chairman Reichert, Ranking Member Doggett, and Members of the Subcommittee. 

My name is Dr. David Juppe, and I am the senior operating 

budget manager with the non-partisan Department of Legislative 

Services in Maryland. I have spent the last 25 years analyzing operating and capital budgets and making recommendations on fiscal 

policy. 

I got involved with social impact bonds in 2012 when a former 

colleague, Kyle McKay, who is now with the Texas Legislative 

Budget Board, began examining a proposal by Maryland’s Department of Public Safety and Correctional Services to utilize a social 

impact bond for reentry program funding for the purpose of reducing recidivism by at least 10 percent. 

So I will talk a little bit about the findings of our paper briefly. 

As mentioned, there are a number of potential benefits for social 

impact bonds, but since it is a fairly new financing mechanism, you 

should also be aware of some of the concerns and issues that counteract some of the proposed benefits. 

I am not terribly surprised that social impact bonds would be 

considered at this point. Since the great recession of 2008, governments at all levels have been cutting back spending, and certainly 

it could be expected that providers would be seeking a long-term 

source of revenue. So you have—various mechanisms like social impact bonds, public-private partnerships and the like are gaining in 

popularity. 

Some of the risks that we would raise for your attention, at least 

consideration—first off is, you know, there is the higher cost to government for social impact bonds. 

Governments can and do procure contracts and services from private non-profit vendors through competitive procurements and single-source procurements every year and pretty much pay simply a 

direct cost, whereas, under a social impact bond, you have not only 

the direct costs, you have the potential for return on investment 

costs, costs for independent evaluations, as well as additional costs, 

such as management fees for intermediaries that link the financing 

with the providers and with governments. 

Related to this is the question of whether or not governments can 

really avoid having funding upfront provided in their budgets annually in terms of appropriations. One issue related to this is the 

fact that, when you look at State and local government budgets, 

typically they are—they build a request based off of their base and 

they often get a request ceiling or a target for the next year. 

So it would be very difficult—or more difficult certainly in this 

constrained fiscal environment for a level of government to provide 

10, 20, $30 million above its base funding to pay a multi-year social 

impact bond payment. 


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Certainly you would also expect that investors would like to see 

some sort of security. I mean, certainly, when purchasers of government-issued debt, either GO bonds or revenue bonds, see some sort 

of security in the forms of debt service reserve accounts, the bonds 

are insured or you may see debt service coverage ratios, but right 

now the only security you have is the expectation that, potentially, 

governments will appropriate the funds. 

A second issue that I would raise has to do with overstated cost 

savings and the likelihood of success. I have seen a number of proposals over the years, boot camps, community courts, drug courts 

and the like, social impact bonds. 

In many instances, there is a—it seems like there is a proclivity 

to taking the total cost of a facility, dividing it by the total number 

of cases, and deriving a cost per case and claiming that is a savings. 

So, for example, you may have a prison where it costs roughly $30,000 per offender. That includes all fixed and variable costs. So 

the savings from 100 inmates would not be $3 million, as you 

might expect with the simple math. Typically, unless you shut 

down an entire wing or entire facility, you really only save the variable cost of food, supplies and medical costs. And in 2012, when we 

did our study, the variable cost was about $4,600 for offender in 

the Maryland prison system. 

So just—in short, just to say about our summary of our findings, 

we looked at a program that would involve 250 offenders and we 

estimated costs of $4.1 million over 5 years against savings of 

about $250,000. So that pilot project would end up costing the 

State about $3.9 million. 

Also, with social impact bonds, we have a concern that shortterm incentives could skew results to try to ensure success so that 

the investors get their return. And this could include selecting the 

most treatable offenders—or cases, a short-term focus on getting 

results as opposed to maybe longer-term programs, and, again, I 

think a flight to safety, so the potential for focusing on programs 

that you know are successful so there is a greater likelihood of investors getting their money back. 

One other issue I would simply raise is just the risk versus the 

rate of return. We are seeing in social impact bonds a number of 

different negotiated on case-by-case rates of return. 13 percent in 

Peterborough. I think I saw 22 percent on one of other social impact bonds. 

And, you know, in the bond market, risk of non-payment is 

measured by bond rating agencies, and you also have, you know, 

a number of other factors, such as the length of the maturity and 

so forth. 

With social impact bonds, you know, for a short-term program, 

it seems like the rate of return can be fairly inordinate and—especially if there is a flight to safety and there is not as much risk 

or, in instances where—in New York City, where a portion of social 

impact bond was guarantied by the Bloomberg Foundation, then 

risk is very slight indeed. 

In closing, I have included in my written testimony some considerations for the legislation that you have before you. And I will just 

close by saying that social impact bonds do carry some risks, and 


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in addition to the benefits, I think that, you know, you need to 

weigh carefully both the good and the bad here. 

Thank you. 

[The prepared statement of Mr. Juppe follows:] 


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Chairman REICHERT. Thank you for your testimony. 

Mr. Overholser. 

STATEMENT OF GEORGE OVERHOLSER, CEO AND COFOUNDER, THIRD SECTOR CAPITAL PARTNERS 

Mr. OVERHOLSER. Thank you, Chairman Reichert, Ranking 

Member Doggett, and Members of the Subcommittee. I am very 

pleased to be here. 

Just by way of introduction, I had a business career. I was on 

the founding management team of Capital One and then had a 

venture capital business that I built called North Hill Ventures, 

but for the past 10 years, I have spent more or less full-time on 

the social sector. 

The one thing that connects all the work I have done is riding 

on the megatrend that I think is behind the social impact bond discussion and pay-for-success discussion that we are having today, 

which is the inexorable and very powerful drop in the cost of computation and in the cost of capturing data. 

And what we are really seeing here is that, for the first time in 

history, just as it was true for the credit card industry 15 years 

ago, the cost of measuring outcomes has gotten to the point where 

we can actually do performance-based contracting based on outcomes, something which I think we would have done 20, 30 years 

ago if it were economically feasible. This cost is only going to continue to go down further, especially as we learn the art of performance-based contracting in this subsector. 

2 or 3 years ago I co-founded a non-profit called Third Sector 

Capital Partners. We currently have 25 people, and we spend 100 

percent of our time working with partners around the country, putting together pay-for-success contracting that has SIBs as a source 

of loans for the financing associated with those contracts. 

Currently we have about 15 projects underway. And our first project was a $27-million transaction that we helped to set up in 

Massachusetts, which was based on variable costs. 

I think many of the points that Mr. Juppe brought up are highly 

valid. And we see it as our job to bring scrutiny to these arrangements so that they are of the highest fidelity. 

In Massachusetts, it was another recidivism project. In this case, 

it was helping an intervention that was—it is called Roca, which 

is a tremendous intervention that could not find its way to scalable 

funding. 

And the pay-for-success approach found a way to get scaling of 

this program so that 900 gang-involved youth could avoid the terrible obstacle, terrible statistic, of a 60 percent expected prison recidivism rate with an average of more than 2 years in prison. 

Each of our 15 projects has an enthusiastic government sponsor 

behind it. And these people, I have learned, around the country are 

extraordinarily busy. So why would they take on something so difficult as to basically undergo procurement reform, which is what I 

believe pay-for-success is about? 

And as I speak to them, here are the answers that I hear. First 

and foremost, these are public servants and they realize the current strategies just simply aren’t working for the families in need 

in this country. 


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At the same time, they know that there are untapped innovations that are waiting in the wings, and what they are looking for 

is a mechanism that makes it possible, easier, to surface the best 

interventions for the families in need and get them implemented 

at greater scale with greater fidelity and with strong focus on outcomes. 

They also realize that they don’t have the working capital to get 

this done. And so they like the idea of lenders coming in. And I 

should mention that, in our 15 projects around the country, more 

than half of the money is coming from philanthropists. It is not 

coming from banks. It is coming from philanthropists who are looking for no return or for an exceedingly modest return. 

But what they are able to do is to absorb the risk of failure on 

these experimental pilots, and that allows public servants, people 

in government, to go after innovations that they otherwise might 

not be able to go after and often would never go after. 

The other thing that happens is that, bringing in private partners, we tap into human capital. If you work in government, which 

you do, and I am learning, as someone who is now traveling around 

the country, there is no one available on that staff to do the hard 

work of learning how to grapple with data, how to conduct deep 

due diligence, which is inherent to an outcomes approach. And so 

the private partners bring human beings who bring this type of expertise that otherwise would not be present, and I think this is 

very important. 

Then the last, probably most important, is having a mechanism 

in place that recognizes not that something is great now, but it recognizes when a program is no longer working. I would say government is very good at funding stuff that used to work, but it is not 

very good at recognizing when stuff isn’t working anymore. 

At Capital One, we did 3,000 tests a year, and what we discovered is that our best innovations rarely lasted. And this was such 

a profound part of our business that we put posters all over the 

company of melting ice cream cones. And the poster said, ‘‘It melts 

like ice cream.’’ And what we were saying was, ‘‘Whatever you do, 

don’t stop innovating.’’ 

What happens, I believe, with the way we do social policy is we 

have a fund-what-once-worked system. And the joke I like to make 

is, if we did music the same way we do social policy funding, we 

would all be listening to Meatloaf on an 8-track recording machine. 

And that is because 30 years ago Meatloaf was great music. 

Not to diss Meatloaf, but 30 years ago, Meatloaf was all the rage 

and the 8-track machine was cutting-edge technology, and you 

could imagine someone would say, ‘‘This is great. There ought to 

be a law. Everyone should have access to this. Let’s write it up like 

a recipe card into law and say, ‘Anyone who offers this standard 

of music and this standard of technology will be reimbursed, but 

if you don’t—if you don’t follow the recipe, you won’t be reimbursed.’ ’’ 

And that, to me, is a formula for freezing the system, and that 

is why we are stuck with programs that no longer work. 

Thank you. 

[The prepared statement of Mr. Overholser follows:] 


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Chairman REICHERT. Very good. Thank you, Mr. Overholser. 

Those last few words really resonated with me. I don’t know if 

you know my background, Robert, but I was a police officer for 33 

years before I came here. So I just look like I have been here 40 

years. But I want to visit with you afterwards. I am very proud of 

you. 

And I really agree with the comments that you made, again, at 

the end. Funding those programs that used to work I think has 

been a mistake that we have made across the board in a lot of social services and aid and help to families. 

So this is why this hearing is so important, to get the good news 

out about some of the new programs and new efforts that are being 

made across the country. 

And, Mr. Overholser, in—your testimony and your work at Third 

Sector Capital suggests that this social impact bond financing 

model has been catching on rapidly at the State and local level. 

Is this the case? And why do we need Federal legislation to implement it on a nationwide basis? 

Mr. OVERHOLSER. Thank you for the question, Chairman 

Reichert. 

Indeed, I do think there is a great deal of interest around the 

country. As I mentioned, we have about 15 projects underway, and 

each one of them does have a government sponsor. I would hasten 

to add, though, that many of these projects face considerable obstacles that could be addressed through Federal legislation that I will 

explain in a moment. 

The Massachusetts project, I would also mention, had as a major 

impetus a DOL match that was a Federal match. And, interestingly, that DOL program that challenged States and counties to 

come up with rigorous pay-for-success constructs caused many, 

many more applications to be developed, many, many more initiatives and investigations to take place around the country than actually were awarded in the end. In the end, only two of them were 

awarded. One of them was our project in Massachusetts. 

I would also say that the deadline that was imposed as part of 

that DOL Federal grant created great impetus. I am not sure we 

would have gotten the project done if we did not have the benefit 

of that match because it is—there is an impetus that comes if you 

have a match available from the Federal level. 

It allows a local politician to look at folks in the eye who may 

say, ‘‘No. Wait a minute. Why are you spending time on this?’’ And 

it allows them to say, you know, ‘‘We are able to tap into some 

funding that we could not otherwise tap into.’’ And even if that 

funding might be quite small, it changes the discourse. 

I would also say that Federal—that this Federal involvement 

sets much needed standards. Mr. Juppe brought up many pitfalls. 

If we, for example, in Massachusetts did not look at the variable 

cost behavior of prisons, that would have been a bad thing. And so 

I love the idea of having a Federal match that says, ‘‘Hey, this 

match is contingent on quality standards as spelled out in the law.’’ 

There is also money there for feasibility studies. It is a modest 

amount of money. But when you look at local government, that 

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And then, finally, as Linda Gibbs pointed out, many of these social programs around the country, of course, have Federal savings 

that are generated. So work at the local level can generate savings 

at the Federal level. 

But if you aren’t able to tap into those savings and have that 

feedback loop of the savings, then the cost-benefits don’t work, as 

a matter of economics. 

And so the presence of a—and this is sometimes called the 

wrong-pocket problem—but the presence of a feedback loop that 

goes up to the Federal spending streams will make it so that more 

of these initiatives find the cost-benefit that they need in order to 

be successful propositions. 

Chairman REICHERT. You have answered question 2 and 3 as 

a follow-up question to your first question. So thank you for your 

answer. 

And, Mr. Schaeffer, you talk about the rigorous evaluation of the 

CEO model and the results of your model. I am going to shorten 

this up just a little bit because of time. 

Given that CEO has been shown to be effective, why should government fund it through a social impact bond and not just contract 

with you directly, or why not just turn it into a government-run 

program? Is this just a more expensive way of contracting out, as 

Mr. Juppe contends? 

Mr. SCHAEFFER. Thank you for the question, Chairman 

Reichert. 

You know, I would say, on the one hand, CEO is extremely proud 

of the evidence base we have developed over the last several 

years—right?—proving that you can reduce people going back to 

prison is hard work. 

But, on the other hand, I am not sure government at any level— 

city, county, Federal—has quite caught up in really adopting that 

ethos of funding what works. 

And so this project offers us a tremendous opportunity to build 

additional evidence, but also build a proof point around really getting government to take hold of this different ethos of funding what 

works. 

And, for us, that is really exciting. And my hope would be, at the 

end of this project, we would reach really what we could term a 

performance-based contracting 2.0-type approach where the State 

of New York, now seeing that we did a really great job, we reduced 

people going back to jail or prison, would want to contract with us 

directly. But I would also—it would be, you know, quite understandable at this point that we are not just at that level yet. 

I would also say, though, in the SIBs, there is—a tremendous 

thing that a few of the other witnesses hit on is just the deepness 

of collaboration that this brings a part between government and a 

contracting partner. 

So frequently we enter into a contract, at the end of a year, end 

of 2 years, we produce results and—or we don’t produce results, 

and we report back to government. 

Given the reputational risks that I think all parties here are taking on, it has been a tremendous experience for us to really work 

hand in glove with the State of New York to solve operational problems when they arise, to go through everything from how somebody 


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even comes to our program, to how they get placed in a job, really, 

with a partnership in government, not just as a contractor-contractee relationship. 

Chairman REICHERT. All right. Just jotting down some notes 

there while you were talking. Thank you so much for your answer. 

Mr. Doggett, you are recognized for your questioning. 

Mr. DOGGETT. Thank you, Mr. Chairman. 

As I indicated in my opening statement, I believe we need to look 

for innovative ways like this. I wish we had more Bloomberg Foundations across the country to participate in the significant way that 

your foundation has and the mayor has in New York City. 

I am a little concerned, though, about the practicalities and reflect on the experience that my State and some others have had 

where we were told, if we would just privatize State services and 

turn it over to some multi-national consultant, we would save a 

tremendous amount of money, and what has, in fact, happened is 

that we have had one lawsuit after another as taxpayer resources 

have been wasted with some of those privatization efforts. 

Here the idea of bringing in bond lawyers, consultants, lawyers 

into the process at a time when we have so many immediate needs 

concerns me some. In this very committee, we face a situation 

where we will see major cuts, barring some new budget agreement, 

in education and social services next year in Federal funding 

through the sequestration agreement. 

The Nurse Family Partnership, funded through the Visiting 

Nurses, we could extend for about another year at the same price 

as is reserved in this bill, and, at the moment, we have no funding 

source for it whatsoever. I think it is a cost-effective program that 

we need to extend. 

In fact, I think every program that we invest in needs to be evidence-based. We should be applying these standards on all government expenditures except for those that we set aside for what are 

truly innovative programs that we want—where we want to try out 

a new concept. 

Mr. Juppe, my understanding is that your colleague, Kyle 

McKay, at the Texas Legislative Budget Board, who testified on social impact bonds in front of the Senate Budget Committee earlier 

this year, reached similar conclusions to yours, that, in many cases, 

the cost of using the social impact bond outweighed any benefits 

the State got in modest impact on its cost. Is that right? 

Mr. JUPPE. Yes. That is correct. 

Mr. DOGGETT. And can you tell us some of the costs associated 

with establishing and implementing social impact bonds that need 

to be considered along with the benefits of those bonds? 

Mr. JUPPE. Well, yes. In addition to the direct service costs, you 

have the return on investment at whatever rate that is negotiated. 

You also have a cost for an independent third-party evaluation to 

ensure the outcomes were met. 

And then, finally, you can also have additional costs for the 

intermediary in terms of a management fee or a contract for arranging for the financing, the contractor and the government to get 

together in that social impact bond. 

Mr. DOGGETT. It has been suggested that the benefit of social 

impact bonds—that they will help us grow the pie overall in terms 


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of State or Federal funding for these programs, and certainly we 

need to do that. But you pointed out that the States may need to 

put aside funding to reimburse private investors for these projects. 

In terms of State budgets, will social impact bonds actually free 

up additional funds to invest in social initiatives? 

Mr. JUPPE. I think it is actually more likely that government 

at the State level would have to put aside the funds for the service, 

plus the additional costs associated with the social impact bond, 

and then have those funds appropriated each year and then, at the 

end of each year, encumber those funds for when the actual social 

impact bond program was completed. So I think there would be additional costs each year. 

Mr. DOGGETT. Ms. Gibbs has appropriately noted that these 

aren’t a panacea even where they do work. 

Does turning over a decision to private investors about where 

those dollars will be invested in order to secure a return bias the 

process of determining what needs will be met and what needs will 

not be met? 

Ms. GIBBS. I don’t—I don’t see this as a privatization. The thing 

that is really important to remember is that the relationship of the 

government and the service is by a negotiated contract between 

government and a service provider. 90 percent of the social services 

in New York City are provided in that manner now with non-profit 

organizations. 

So, fundamentally, government is making a decision of what it 

wants to purchase and under what conditions and the investor is— 

for social impact bonds is making a determination whether or not 

that is a risk—a relationship that the investor is willing to take. 

But, ultimately, the evidence around what the program’s outcomes are, first of all, have to align to the governmental purpose 

and then, second, for the purpose of whether or not it is a SIB-able 

event, would have to show the government savings. And the contract itself is up to the government partner to enter into. 

So it is not privatization in a private investor who is implementing a program for profit. It is a fundamental non-profit relationship with—the service provider remains in place. 

And in the case of the—New York City, we are a GAAP financing 

jurisdiction. We have to have a balanced budget every year with 

revenues in, paying for costs incurred. And under those rules, the 

lawyers determined that the contract payments would not have to 

be accrued—or recognized in our budget until they actually became 

due. So there was no obligation to put money up front. 

And, in fact, that is one of the beauties of the SIBs, is that the 

taxpayers do not have to put the money up front. The investors 

bring in the upfront money and, ultimately, the taxpayers only 

have to pay if it actually works. 

Mr. DOGGETT. Thank you very much. 

Thanks to all our witnesses. 

Mr. CHAIRMAN. 

Chairman REICHERT. Thank you. 

Mr. Young, you are recognized. 

Mr. YOUNG. Thank you, Mr. Chairman. 

I appreciate Mr. Juppe’s critical feedback and thoughts on the 

SIB model, Ms. Gibbs’ responses to some of those thoughts, and 


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would entertain any other thoughts Mr. Overholser or Mr. Schaeffer might have about Mr. Juppe’s concerns. 

Mr. OVERHOLSER. Yes. Thank you. 

I would agree very much with what Ms. Gibbs said about privatization. The 15 projects that we are working on—every one of them 

begins with a pay-for-success contract between government and a 

non-profit provider. 

And, in most cases, these are non-profit providers who already 

contract regularly with government and government is sitting at 

the table and has the decision rights about who the provider is and 

what the program design looks like. So this is certainly not an outsourcing to private decision-makers of how taxpayer dollars are 

being spent. 

There is a very useful distinction between pay-for-success contracting, which is what we just were describing, and then the SIB. 

The SIB is just a loan. What it says is that, instead of the provider 

taking on the risk of maybe never being paid, a group of philanthropists and perhaps some banks as well will provide them a special type of a loan. 

And the loan is not to government. The loan is actually to the 

project itself. The loan will never be repaid if the project fails to 

produce outcomes because there won’t be money to repay the loan. 

And, so, therefore, these lenders are not like normal bond lenders. 

They are taking on tremendously more risk. 

It is not just the risk of the government failing to honor its obligation, which is called counter-party risk, but there is a much larger risk, which is, in a world where less—considerably less than 50 

percent of those social strategies that are put to the test under randomized control trial—considerably less than 50 percent—some 

people would say 90 percent of those programs bring about no discernible level of impact, meaning you cannot tell the difference between those who are in the program versus those who are not in 

the program very, very often. This is an extremely high risk of nonperformance that the government no longer needs to take and that 

providers no longer need to take. 

So when we talk about the economics, imagine you spend 10 percent more to put one of these projects together because they are 

new and it is quite difficult now—I think they are going to become 

lower than that in the future—but imagine you spent 10 percent 

more and, instead of 50 percent of them not working, 20 percent 

of them didn’t work. Well, in that case, government would end up 

spending 20 percent less money because, when it didn’t work, government wouldn’t need to spend. 

Mr. YOUNG. If I could very quickly interject. 

Has it been your experience, Mr. Overholser, as—working with 

the various counter-parties when putting together these series of 

contracts that constitute a SIB, that government has learned to 

calculate savings on a net basis, that is, net of management and 

transaction fees, number one? And have they also understood the 

difference between variable costs and fixed costs and, thus, factored 

that into future savings? 

Mr. OVERHOLSER. The answer is yes. 

Mr. YOUNG. Okay. 


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Mr. OVERHOLSER. In every case, it is very important to have 

the economists come in and work through what are the true cost 

economics. 

Mr. YOUNG. Thank you. 

Mr. Schaeffer. 

Mr. SCHAEFFER. Yeah. I would—I would echo that, sir. You 

know, we have a current active SIB in New York State in which 

the State was very focused on ensuring the variable cost rate was 

considered, and as we consider a SIB in San Diego as well, they 

are laser-focused on that issue. 

Mr. YOUNG. You know, I would further add the issue of giving 

security to investors in an incipient, inchoate market is certainly 

very important, and I am glad that Mr. Juppe brought that up. 

Based on my field research in the United Kingdom and their 

work on SIBs, their development of SIBs, they emphasize the importance of allocating money—a pot of money that would offer that 

additional security—though not essentially necessary, additional 

security that a contract would not be broken in the future by a future Congress or government. So that has been incorporated into 

Young-Delaney. 

Is there anything additional, Mr. Overholser, that you would 

add, based on your experiences, to prevent investors from, you 

might say, gaming the system, that is, trying to reach proven— 

reach outcomes, that they get their outcome payments, but not, in 

fact, improving the lives of services? What has been done in the 

past to prevent this? 

Mr. OVERHOLSER. I would begin by saying that the current 

system is also—you could call it gamed in the sense that the name 

of the game is to follow the rules that were written in a recipe that 

probably is very obsolete and that the new game is to try to get 

the needle to move on a set of metrics that we hope are well chosen. 

Very importantly, we must continuously measure outcomes. Very 

importantly, we must use randomization as opposed to other methods because other methods will invite what some people would call 

creaming. 

And, very importantly, it is helpful to have a market basket of 

metrics rather than a single metric. As my old friend, the cofounder of Capital One, used to call it, ‘‘Beware of monovariabilitis.’’ We don’t want to just have one—one variable. 

Mr. YOUNG. Thank you. I yield back. 

Chairman REICHERT. Mr. Renacci, you are recognized for 5 

minutes. 

Mr. RENACCI. Thank you, Mr. Chairman. 

I want to thank the witnesses for testifying today. 

Mr. Overholser, just this year Cuyahoga County proposed a way 

to help homeless children stay with their own families and avoid 

the foster care system through the use of social impact bonds. The 

county spends about 35 million annually on foster care. 

I understand the administration has been working with your 

company. Are you able to share any details on the progress of that 

program? 

Mr. OVERHOLSER. You are speaking of Cuyahoga County? 

Mr. RENACCI. Yes. Cuyahoga County. 


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Mr. OVERHOLSER. Yes. We are very excited about that project. 

We are making great progress there. And we have, we think, something that is going to be a winner, but we are not—we have not 

yet come in for a landing. So I am not able to share all the details. 

The basic idea there is that homeless mothers tend to have children who are highly involved in the foster care system. And if you 

think about it—we thought this was a homelessness project until 

we discovered that investments on the homelessness side actually 

can affect what is happening over on the foster care side. 

So this is a mechanism that makes it possible to do work in one 

area of government that brings about savings in another area of 

government and to build a feedback loop. That is that wrong-pocket 

problem. 

The government is very, very poor—does a very poor job, I believe, at being able to take advantage of these interagency relationships, and that is what we are most excited about in Cuyahoga. 

Mr. RENACCI. Thank you. 

And this is a question for anybody on the panel because I am trying to get a feeling. I mean, what we have here is an intermediary. 

There is a bond that is the source of funds to do this program and 

then, if the program is successful, the bonds are paid back with a 

premium of whatever, 10, 11, 12 percent. 

How about the thought—and I just—what is the downside of just 

contracting for success? What is the downside of eliminating the 

bond procedure and just contracting for success, eliminating all the 

fees and coming up with an outright contract that says, ‘‘If you do 

this, you get paid. And if you don’t do this’’—or, ‘‘If you do this, you 

get paid with a fee. And if you don’t do this, you don’t get paid,’’ 

just without—so I would love to hear from any one of you as to 

what your thoughts are. 

Ms. GIBBS. Okay. I am sorry, Sam. 

I would say, from—from a government manager’s perspective, I, 

in fact, see social impact bonds as part of a broader family of performance-based contracting. And the world of performance-based 

contracting, where people are paid in some fashion, their payment 

is contingent on outcomes, can be everything from 100 percent at 

risk, only paid if you hit a milestone, or can be a bonus on your 

payment. 

So the difference in those scenarios where it is a 100 percent 

milestone, it tends to be very input-oriented. You get a payment if 

you complete an interview with a client. You get a payment if a client enrolls in a training class. You get a payment if a client completes a training class. 

The nature of social impact bonds is that they are very much 

more focused on those longer-term social outcomes, the real good 

that you are trying to get after. So I would distinguish it that way. 

Because nonprofit providers simply can’t take the gamble around 

those longer-term outcomes. They don’t have the cash flow to wait 

for those. They need the—they need the revenues now. 

Mr. RENACCI. But—not to interrupt, but aren’t they taking a 

gamble on the bonds? I mean, that is where—— 

Ms. GIBBS. Not the nonprofit providers. The only one who is 

taking the gamble financially is the investor. 


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Mr. RENACCI. Well, it is the same. That is what I am getting 

at. It is intermediary. It is somebody outside of the government 

that is taking the risk. 

Ms. GIBBS. The service—the government and the service provider are not. The investor is. 

And the other big difference, of course, is that the social impact 

bonds bring in new—new cash now versus, if it is a performancebased contract, you have to appropriate the dollar value of that 

contract in the year that you contract it and with a pretty—pretty 

much knowledge that 80 or 90 percent minimally will be paid and 

potentially 105 to 110 percent will be paid, depending on the incentive structure that you have built into your contract. 

Mr. RENACCI. Anybody else want to take a run at it? 

Mr. SCHAEFFER. Ms. Gibbs gave most of my answer, but I 

would echo sort of from the vantage point of our project, you know, 

we are looking at jail and prison bed days, which is a metric that 

we have no other contract that measures, but it is ultimately the 

real social good—or one of the two real social good that CEO is 

achieving. 

So as opposed to, say, looking at something like job placements, 

which was really important—it is what helped Mr. Romo turn his 

life around—we are taking a longitudinal look at what CEO’s impact is 3, 4, 5 years into the future. And SIBs are a great mechanism for looking at those longer-term impactful measures rather 

than the shorter-term government contract. 

And I would add, too, as a provider, we would be very happy to 

take government contracts that paid us for the full cost of our services. It has nothing—— 

Mr. RENACCI. If you were successful. 

Mr. SCHAEFFER. If we are successful. 

Mr. RENACCI. And if you aren’t successful, you didn’t get paid. 

Mr. SCHAEFFER. We get paid up front in this deal. It would be 

too much a risk for us to take to not enter into something that— 

where it had such variability. 

Mr. RENACCI. Yield back. 

Chairman REICHERT. Mr. Davis. 

Mr. DAVIS. Thank you, Mr. Chairman. 

And I am pleased that we are holding this hearing. At the beginning of social impact bonds, I am of a firm belief that the government shoulders the—I am interested in social impact bonds to see 

if they can leverage public dollars with private investment to expand high-quality prevention programs to improve key social problems. 

The topics of the initial social investment bonds are of particular 

interest to me. The State of Illinois has advanced a pay-for-success 

program to increase support for youth involved in both the child 

welfare and juvenile justice systems to improve their outcomes. 

Further, part of the President’s pay-for-success budget proposal 

was up to $10 million via the Department of Justice’s Second 

Chance Act, a program that I worked bipartisanly to enact into law 

to implement the permanent supportive housing laws. 

However, I also want to ensure that social investment bonds do 

not take away funding from existing programs and services that 

provide critical support to our citizens. I also want to make sure 


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that the return on investment is reasonable and not a windfall to 

the investment community. 

Mr. Juppe, social impact bonds have been touted as a way to 

fund innovative programs, but you have suggested that the opposite might be true. In other words, pressure from private investors 

who want limited risk might steer funding to more proven methods. 

If this is true, do you think it is more appropriate to provide direct funding for these proven programs? 

Mr. JUPPE. Yes. Absolutely. I would agree that it would be more 

cost effective to provide direct contracts. There is plenty of examples where governments can, you know, undertake requests for proposals, requests for information with vendors to develop innovative 

strategies. 

Maryland is currently undergoing negotiations with private vendors for the construction and operation of a Purple Line extension 

between New Carrollton and Bethesda and, as such, is structuring 

those contracts in negotiations with various interested parties to 

determine the most cost-innovative strategies for constructing that 

line and operating it. So certainly you don’t have all the additional 

expense of a social impact bond, which, as we have heard, is really 

relating to the financing of the services. 

Mr. DAVIS. Are you concerned that the returns provided to investors from social impact bonds may not be commensurate with 

the risks they are bearing? 

If mostly proven programs are funded, does this significantly reduce the risk of a project failing to meet performance measures? 

Additionally, do you worry that the complexity of the contracts 

that involve the SIBs might make the balance between risk and reward unclear as well as uncertain? 

Mr. JUPPE. Yes. Absolutely. I would agree with that. Certainly 

as—there is no standard nationally or within States for how you 

calibrate the risk and the return on investment. 

And, as we have seen, for example, in Peterborough, it has been 

cited as a very complex arrangement and it is unclear entirely how 

the outcomes will relate to the—you know, the payments to the investors. 

For example, in the first year, the recidivism rate has been reduced by 8.4 percent. I believe the first-year cohort required a reduction in recidivism of 10 percent to provide a payment. 

So there is no payment for this first cohort, but it sounds like 

in 2016 there could be a payment if the first- and second-year cohort realizes a reduction of 71⁄2 percent. 

So it certainly skews the outcomes, definitely, and—as well as 

the—there is the concern between how you calibrate the risk and 

the return. 

Mr. DAVIS. Thank you very much. 

And, Mr. Romo, let me congratulate you on finding a job and for 

all of your efforts to create a new life for yourself. 

What was the biggest barrier you felt that you needed to overcome in order to secure a job? 

Mr. ROMO. Thank you for the question. 

I really believe that the tools that CEO provided me with and the 

mentality that I allowed myself to believe, that, you know, I wasn’t 


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going to be successful anymore due to the time that I did behind 

prison—I feel that it was—it was—it was helpful and very important because we come out with a low self-esteem and no—no guidance. Don’t know how to really find certain—certain responses to 

be successful and make the transition back into society positive. 

Mr. DAVIS. Thank you very much. 

Mr. Overholser, you suggested that social impact bonds could re- duce the waste of $720 billion per year. That budget figure includes 

tax relief for working families through the earned income tax credit 

and child tax credit, Pell Grants for college students, healthcare for 

veterans, school lunch programs, and long-term care for seniors 

through Medicaid. 

Do you consider any of those programs wasteful? 

Mr. OVERHOLSER. I consider them—I consider them programs 

that could have higher and better use of the same amount of funding. And so my interest is in creating a mechanism that reallocates 

money towards their highest and best use. 

And so many of these programs, yes, could—could have different 

strategies used that, when put to—to the test, can be shown to be 

a more efficacious use of that funding. 

Mr. DAVIS. Thank you, Mr. Chairman. 

Chairman REICHERT. Mr. Griffin. 

Mr. GRIFFIN. Thank you, Mr. Chairman. 

And I am proud to be an original cosponsor of Mr. Young’s bill, 

and I just want to applaud all the work that Mr. Young, in particular, has done on this issue. 

I want to ask you, Mr. Overholser, a little bit—if you would comment a little bit about the value that investors add to a particular 

enterprise. We heard some talk about directly funding. 

It seems to me that the value here of the overall program lies 

in the value that the investors add to the intervention or the enterprise because, when the government just cuts a check to a nonprofit, there is a different sort of pressure, if any, put on that nonprofit to perform than if you get an energetic investor who uses 

their own money and shows up at the door every day to check on 

the progress. 

So it seems to me that the investors want to get their money 

back and redeploy it elsewhere and they bring energy and oversight in a detailed way, what the government almost never provides. 

If you could comment on that, if you would. And it seems to me 

that is a huge—that is a big—there is a big difference there between the government just cutting a check to somebody, and that— 

therein lies the value—the reason we are having the whole hearing, it seems to me. Can you comment on that. 

Mr. OVERHOLSER. I would agree with most of what you are 

saying. And I guess my view is I would prefer an end game where 

it is direct contracting. 

I would prefer to have a world where government procurement 

is changed in that the actual human beings working in government 

acquire the skills that currently we are needing to bring in from 

the outside. 

And I would—I would love to get to the point where providers 

themselves are on a solid enough financial footing that they don’t 


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need to seek private financing because of their concerns about 

maybe this thing won’t work. 

So I see a world, frankly, that doesn’t have social impact bonds. 

It just has pay-for-success contracting. That is where I would like 

us to get. I believe that, in order to get there, there is a period of 

time where it is very helpful to tap into what the private side can 

bring. 

That is not present currently in government. And absolutely we 

are finding that bringing in experts in how to use data better, 

bringing in experts in how to assess risk better into these—into 

these project teams is very valuable. 

I would also say that the time span of these projects is longer 

than the—than most political cycles. And so something quite 

unique about the public-private partnership setup is that, if you 

have private partners who are working on a 7-year timeframe, they 

are going to bring a continuity of focus to a project that is absolutely required if you have work that needs 7 years to conduct. 

And so the—the cadence of government decision-making, the political cycles are shorter than the absolute truth of what is required 

to bring about the long-term changes we are looking for in our communities. 

Mr. GRIFFIN. I agree with some of what you said, though I am 

not sure we ever get to this ideal. I mean, you were talking about 

all the things that you—— 

Mr. OVERHOLSER. We may never get there. So it is more the 

ideal—— 

Mr. GRIFFIN. Yeah. My kids want to live in a world of unicorns 

and glitter, but that is just not happening. 

And we have had decades of either underperformance or failure 

or—I mean, it seems to me this is—this is reaching outside of the 

system to bring in proven innovators—even though a particular 

idea may not be innovation, we are bringing in people who have 

been successful and who have a stake in the success of this enterprise. 

Mr. Schaeffer or Ms. Gibbs, or if anybody else wants to comment, 

it would be great in my limited time 

Mr. SCHAEFFER. Yeah. Absolutely, sir. 

CEO would like to believe—and I think we do do a great job on 

all our contracts. And you are right. To the most extent, it is government cutting us a check and, on a quarterly basis or yearly 

basis, I will report back the outcomes. 

There is something to what you are saying, I believe, in the highprofile nature of this project, in which we are putting our neck out 

there a little bit, the government is taking a risk, the investors are 

taking a risk, and that shared interest, I do believe, is driving performance from the leadership of our organization to the case management level. 

In Mr. Overholser’s world, I would absolutely agree. That is a 

place that we want to aspire to, and how quickly we can get there, 

I think, is on all of us to try to figure out. 

Mr. GRIFFIN. Skin in the game is what you are talking about. 

Mr. SCHAEFFER. That is the right metaphor. 

Mr. GRIFFIN. I am out of time. In an ideal world, we wouldn’t 

run out of time. 


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Chairman REICHERT. Thank you, Mr. Griffin. 

Mr. Crowley, you are recognized for 5 minutes. 

Mr. CROWLEY. Thank you, Mr. Chairman. Thank you for holding this hearing today. 

I appreciate the comments from both sides here this afternoon. 

And it is great to see some friends from New York here as well. 

I am proud that New York, both the city level and on the state 

level, have been so involved in the undertaking of—in some of 

these projects. 

There is a lot we are still learning about the effect of social impact bonds and these types of projects, but I appreciate the fact, as 

I said before, that New York City, New York State, our leaders are 

trying new approaches to solving complex problems. 

New York State started with a project to reduce recidivism and 

increase employment among high-risk formerly incarcerated individuals. 

And, Mr. Schaeffer and Mr. Romo, thank you for sharing your 

experiences with these projects. 

In New York City, we have also had an undertaking in an effort 

to reduce recidivism, particularly teen recidivism at Rikers Island, 

which is in my district. I have seen firsthand the challenges with 

respect to recidivism at Rikers and the need to find solutions that 

focus on prevention and long-term strategy. 

So I am very glad that we have former Deputy Major for Health 

and Human Services, Linda Gibbs with us here as well discussing 

New York City’s efforts in these areas. 

So thank you all for being here. 

These are problems for which there is no easy answer, and I welcome efforts to try and address these challenging social issues. 

Often we get in the business of reacting to problems rather than 

trying to prevent them in the first place. 

In many cases, it is hard enough ensuring funding for the services that are needed just to respond, such as in the case of assisting 

individuals leaving incarceration. We appreciate funds for just the 

immediate need, but don’t take the time to stop to consider new 

and different ways of looking at the overall big picture. 

So I am heartened to see that our witnesses today, whether 

using social impact bonds or not, are trying to encourage new 

thinking and new approaches to societal problems. And there are 

a lot more ideas out there and more not-for-profits, State agencies, 

think tanks, and other groups trying to put ideas into action, which 

I applaud. 

I am glad that this hearing is giving us a chance to think about 

how best to support these efforts and encourage further innovation. 

Innovation doesn’t mean diverting efforts away from what governments and not-for-profits are already trying to do and the funding 

that they need to do it, but I am sure there are lessons we could 

learn from what is being tried and use that information to improve 

our social programs. And if these initiatives are focusing attention 

on problems that need more solutions, that is helpful as well. 

I know, in addition to the work being done now in helping formerly incarcerated individuals find employment, New York State is 

moving forward with projects to address other challenges that 

could have greater effect down the road. 


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They are trying to address early childhood health and wellness, 

diabetes prevention, school-based health centers, and providing alternatives to placement and attention for high-at-risk youth. 

And none of these problems are going to be solved overnight, and 

there probably isn’t going to be one right answer for every State 

or city or for every particular—for every problem that is out there. 

The good news is that we have a lot of people both in this room 

and outside of it who are interested in working on a solution. 

Mr. Schaeffer, in your written testimony, you phrase the effort 

behind social impact bonds as catalyzing all levels of government 

to address some of these challenging issues, and I think that goes 

to the heart of what we are considering here today. 

I look forward to continuing to work with all of you and with all 

of my colleagues on the committee on both sides of the aisle here 

in Congress to keep exploring ways to promote innovative policy 

ideas and to keep supporting the organizations that are doing this 

work all throughout our social policy programs beyond the incarcerated as well. But thank you for your work. 

And I yield back, Mr. Chairman. 

Chairman REICHERT. Well, that ends—concludes our questioning and our hearing. 

I want to thank you all for being here today and sharing your 

testimony with us. And, as you have heard, there is a lot of interest 

here. And, therefore, we held the hearing today to help us learn a 

little bit more. 

And there is a number of things that—I kind of like to sum up 

things from my previous experience. You know, prevention is, of 

course, one of the things that, in my past life as a law enforcement 

officer for 33 years, is key, I think, to the success of our society. 

And I know that you are all looking for answers to prevent, well, 

young people, for example, from being homeless and find them loving homes. And we are working on that together here on this committee—subcommittee and as a full committee, you know, and 

keeping them off the streets and out of drugs, off of alcohol and out 

of the drug scene, gangs, et cetera. 

That is all preventing people from ending up in, you know, a 

place where Robert was and—but, you know, Robert, those experiences build a man. And you have become quite a man. And so we 

are very proud to have you. It takes courage to be here today to 

tell your story. We are happy you had the courage to come and do 

that because it will help people. 

And I know that is where you are today, not only, you know, 

striving to be a good American with a job and support a family, but 

you also want to help those who need help, help them from where 

you came. Right? 

So I think we do need to take a look at these things. I—in my 

previous career, I had the responsibility of being a part of a team 

who investigated a series of murders in the Seattle area called the 

Green River serial murders. 

Back in those days in the 1980s, those young women on the 

streets were called prostitutes. Today we know that that is not a 

correct word. They were criminalized. They were victimized at 

home. They ran away. And they were victimized again on the 

street and then they were victimized again by the system. 


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We have grown as a society and we recognize that these young 

ladies and sometimes young boys, young girls, are not criminals. 

They are victims. 

And so our system needs to change in that regard as we look at 

those young girls and young boys on the street who are being victimized as victims and provide those services to them and—just in 

the same way that we provide services that we talked about today. 

So when we talk about innovative, it is almost sometimes just a 

realization and a growth and a maturity of our community in recognizing that some criminals are not criminals. They are victims, 

and they need our assistance, they need our help, and they become 

productive citizens. 

Sometimes the Federal Government—I always like to joke when 

I go back to my district. I know I am going long, but I am on my 

soapbox. 

I go back to my friends at home and I say, ‘‘I am from the Federal Government and I am here to help,’’ and they laugh. 

We are from the Federal Government, and this committee—this 

subcommittee is committed to helping in any way that we can. And 

your testimony today is going to help us decide how we can do that. 

So I am required to say, if Members have additional questions 

for the witnesses, they will submit them to you in writing, and we 

would appreciate receiving your responses for the record within 2 

weeks. 

Committee stands adjourned. 

[Whereupon, at 3:28 p.m., the subcommittee was adjourned.] 

[Submissions for the record follow:] 


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American Federation of State, County and Municipal Employees 

(AFSCME), Statement 


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American Public Human Services Association (APHSA), Statement 


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CSH, Statement 


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Douglas P. Koch, MAI, AICP, Statement 


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Enterprise Community Partners, Statement 


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Green & Healthy Homes Initiative, Statement 


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Institute for Child Success, Statement 


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ReadyNation, Statement 


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Results for America, Statement 


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Æ 


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