Documents hint at Liberal plans to add social financing to more federal spending

Governments are only obliged to cover investors’ costs and profits if the programs work (Pixabay photo)

OTTAWA — The Liberals are considering adding new funding streams to existing programs in a bid to make more federal spending friendly to social finance ideas that link the charitable and private sectors to help pay for and deliver services.

What makes the approach attractive to governments is that it shifts the financial risk from taxpayers to investors who give financial backing to social service providers to test new and successful ways of delivering programs.

Governments are only obliged to cover investors’ costs and profits if the programs work.

Documents obtained by The Canadian Press under the Access to Information Act show the government envisions adding social funding streams to a variety of programs in the future, including the Impact Canada Fund set up in the 2017 budget that already finances new ideas for clean technology and municipal infrastructure.

Social Development Minister Jean-Yves Duclos said the concepts underpinning social finance and social innovation — helping vulnerable populations, crafting community-specific plans, creating partnerships and addressing multiple issues at once — can be found in various forms in the ongoing talks with provinces and territories on early learning and child care, deliberations on a national poverty reduction strategy and the national housing strategy.

“It’s all part of a broad, social innovation system that … looks both similar and different depending on the angle through which you look at the system itself,” he said in an interview this week after addressing a social housing conference in the national capital.

Duclos is overseeing work on a federal strategy to be completed this year about how to unlock what the Liberals believe are billions in private cash that could finance programs and services and test new ways to deliver them.

Some of the housing providers at the conference saw an opportunity to get in on the social finance game, believing that it could open a door to a whole new world of funding. But there remains skepticism that social financing, and particularly social impact bonds, can be a panacea for cash-strapped governments trying to solve social ills.

Social impact bonds see service providers partner with private or philanthropic backers who cover the up-front costs and the government pays a return on the investment only if certain outcomes are met. In one such arrangement involving the Chicago education system, returns are set at eight per cent.

A Canadian documentary to be released next month, called “The Invisible Heart,” takes a deep look at social impact bonds and raises multiple questions for governments, including the idea of the government paying profits to investors.

As part of the film, billionaire J.B. Prtizker, who is helping funding the Chicago bond, said that his riskiest capital will create an eight per cent return.

“I’ve heard the … idea that why are we letting investors make money off of our children? Well, that’s silly. The reality is the more than 2,000 children that will be served by the Chicago social impact bond would not otherwise be served,” he says in the film, shot before his current bid for the Illinois governorship.

Filmmaker Nadine Pequeneza said she believed that social impact bonds could help with prevention of social issues, but there appears to be a sustainability issue with the financing tool, given the lawyers, accountants and evaluators who add to the cost.

“Even if you are able to bring in all of those additional funding for social services, private funding, ultimately the government is repaying that investment plus the additional transaction costs,” said Pequeneza, who spent three years on the project and spoke with domestic and international experts, investors and social service providers.

“I don’t really understand how it’s possible to use this (social impact bond) model to scale up these programs.”

Screenings begin next month and at each location there will be panels with experts and politicians who normally only talk about social impact bonds at conferences with investors.

“The discussion needs to be expanded beyond these impact investment conferences. I’ve been to a fair number of those now and it’s very limited in terms of who is in the room,” Pequeneza said.