2014 -- S 2196

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LC003771

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     STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2014

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A N   A C T

RELATING TO STATE AFFAIRS AND GOVERNMENT -- THE RHODE ISLAND SOCIAL

IMPACT BOND ACT

     Introduced By: Senators Miller, Pichardo, DiPalma, Sosnowski, and Metts

     Date Introduced: January 30, 2014

     Referred To: Senate Finance

     It is enacted by the General Assembly as follows:

     SECTION 1. Title 42 of the General Laws entitled "STATE AFFAIRS AND

GOVERNMENT" is hereby amended by adding thereto the following chapter:

CHAPTER 155

THE RHODE ISLAND SOCIAL IMPACT BOND ACT

     42-155-1. Short title. -- This act shall be known and may be cited as the "Rhode Island

Social Impact Bond Act."

     42-155-2. Legislative findings. -- The general assembly hereby finds and declares as

follows:

     (1) Social impact bonds raise funds from non-government investors to pay for the

provision of a service, and if the service improves financial and social outcomes, thereby

alleviating financial support from the state, investors receive investment returns from the state.

According to this model, investors contract with a government agency to purchase social impact

bonds, the proceeds from which are dispersed to a nonprofit organization service provider. The

nonprofit organization is then required to deliver services to the target population. If the results of

the services provided by the nonprofit organization meets pre-determined, defined financial and

social outcomes, the government agency repays the bonds with financial returns to the private

investors.

     (2) The Rhode Island department of administration is the appropriate state entity to

oversee a five (5) year social impact bond pilot program and study commission, which will use

proceeds from the sale of social impact bonds. The department shall study and make

recommendations to the general assembly by January 30, 2015, and annually thereafter until

January 30, 2020, as to a proposed structure for issuing such bonds, for administering the

program, and for any and all matters related thereto that the department deems necessary to

administer the program.

     (3) The department of administration shall research the best practices on social impact

bonds to determine the best and most appropriate mechanism for issuing and utilizing such bonds

in Rhode Island. In conducting such research and creating a proposal for social impact bonds, the

department shall seek to create a system where private investors fund the services of a nonprofit

organization in the state. The general parameters of the program should be as follows:

     (i) If the nonprofit organization saves the department a certain pre-determined amount of

money, in addition to other outcomes, such as positive social results, the department would return

the investment;

     (ii) If the outcomes are not met, the department would not return the investment; and

     (iii) That it would be in the investors' and nonprofit's best interest to see that the

outcomes would be met to ensure future funding.

     (4) The study commission shall track and evaluate the progress of the five (5) year pilot

program and present its findings in yearly reports to the governor and general assembly. The first

yearly report shall be made on or before January 1, 2015, then on or before January 1 each year

thereafter until January 1, 2020. The final report will make a recommendation as to whether a

social impact bond program should be implemented statewide.

     42-155-3. Definitions. -- For the purpose of this chapter, the following terms, phrases,

words and their derivations have the meaning given in this chapter. When not inconsistent with

the context, words used in the plural number include the singular number and words used in the

singular number include the plural number:

     (1) "Department" means the Rhode Island department of administration.

     (2) "Nonprofit organization" means a nonprofit organization that is exempt from federal

taxation pursuant to § 501(c)(3) of the Federal Internal Revenue Code, 26 U.S.C. § 501 (c)(3).

     (3) "Philanthropic organization" means a nonprofit nongovernmental entity that utilizes

donated assets and income to provide social services.

     (4) "Social impact bond" or "bond" means a contract between the public and private

sectors in which a commitment is made to pay for improved financial and social outcomes that

result in public sector savings.

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     (5) "Study commission" means the study commission established to aid the department in

the administration of the social impact bond pilot program established by this act.

     42-155-4. Pilot program established. -- There is established a five (5) year social impact

bond pilot program to be administered by the Rhode Island department of administration. The

department shall administer and determine the effectiveness of a social impact bond program

affecting nonprofit organizations for the purpose of encouraging private investment in social

services and to reduce federal, state, and municipal expenditures related to those services, as well

as to assess the feasibility of expanding this program. The department shall seek to solicit grants

from philanthropic organizations or other private sources for the establishment and administration

of the pilot program. Social impact bonds may be issued through the program, but such bonds

must comply with the limitations set forth in this chapter.

     42-155-5. Study commission established. -- (a) The department shall oversee a study

commission, entitled the "Rhode Island social impact bond study commission," established for

the duration of the pilot program, whose membership and size shall be determined by the

department. The department may consider a variety of professionals for membership in the study

commission, including health care, bond financing, and social impact bond experts. The study

commission shall organize as soon as practicable after the appointment of its members, and shall

select a chairperson from among its membership. At least one member of the study commission

shall be a member of the department of human services. Any vacancy in the membership of the

study commission shall be filled in the same manner in which the original appointment was made.

     (b) The study commission may request the assistance and services of employees of any

other state department, board, bureau, commission, task force, or agency as it may require and as

may be available. Members of the study commission shall serve without compensation, but shall

be entitled to employ stenographic and clerical assistance and incur traveling and other

miscellaneous expenses as it may deem necessary in order to perform its duties, within the limits

of the funds made available to it for its purposes.

     (c) The study commission shall meet at the call of its chairperson at the times and in the

places it may deem appropriate and necessary to fulfill its duties, and may conduct public

hearings at such place or places as it shall designate. The study commission shall conduct its

meetings in accordance with the open meetings act, chapter 46 of this title.

     (d) It shall be the duty of the study commission to aid the department in the

administration of the social impact bond pilot program and to issue annual reports detailing the

progress of the program. Specifically, the study commission, in cooperation with the department,

shall determine the nonprofit organization or organizations that will receive investment funds

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from bonds issued to private investors. The study commission shall make this determination

taking several factors into consideration which include, but are not limited to, the size and

identity of the target population that benefits from the nonprofit organization service provider, the

projected financial value of the improvements as a result of the social impact bond investments,

including projected public sector savings, the projected return to investors, the ease of the

measurability of the outcomes, and an analysis of impacts beyond financial savings and returns,

such as social outcomes. The study commission and department shall work together on additional

aspects of the pilot program including, but not limited to, soliciting donations from philanthropic

organizations and other private sources, determining bond contract terms and conditions,

including the pre-defined public sector savings threshold, and developing metrics to project and

measure both financial and social outcomes.

     (e) The study commission shall expire on the thirtieth (30th) day after the date of the

issuance of its final report.

     42-155-6. Limited liability of state. -- (a) The debt obligation of the state shall be

limited to the amount of public sector savings realized from the social impact bond program. If

additional funds are required to secure the bonds, the department shall identify additional funding

sources, such as those that can be provided by philanthropic organizations.

     (b) The provisions of any other law, rule, regulation or order to the contrary

notwithstanding, the bonds, refunding bonds or other obligations of the department issued for the

purposes set forth in this chapter shall be special and limited obligations of the department,

payable from and secured by such funds and moneys as determined by the department and shall

not be in any way a debt of liability of the state or of any political subdivision thereof, except as

otherwise provided in this section, and shall not create or constitute any indebtedness, liability or

obligation of the state or of any political subdivision thereof, either legal, moral or otherwise, and

nothing contained in the provisions of this chapter shall be construed to authorize the department

to incur any indebtedness on behalf of or in any way to obligate the state or any political

subdivision thereof, and all bonds and refunding bonds issued by the department in connection

therewith shall contain on the face thereof a statement to that effect.

     42-155-7. Financial limitations. -- Regardless of the mechanism established by the

department of administration, the amount of bonds issued by the department pursuant to this

chapter shall not exceed five million dollars ($5,000,000) per fiscal year or twenty-five million

dollars ($25,000,000) in the aggregate over the five (5) years of the pilot program, as determined

by the department. Provided, no bonds shall be issued by the department after July 1, 2019,

without further authorization by the general assembly.

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     SECTION 2. This act shall take effect upon passage.

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N   A C T

RELATING TO STATE AFFAIRS AND GOVERNMENT -- THE RHODE ISLAND SOCIAL

IMPACT BOND ACT

***

     This act would establish the Rhode Island Social Impact Bond pilot program and study

commission within the department of administration. The act would also authorize the department

of administration to develop a mechanism for the use and issuance of such bonds, and would

allow the issuance of up to twenty-five million dollars ($25,000,000) in social impact bonds over

a five (5) year period.

     This act would take effect upon passage.

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