SOURCE: Center for American Progress

CAP Senior Fellow Peter Swire testifies before the Senate Committee on Homeland Security and Governmental Affairs, Subcommittee on Oversight of Government Management, the Federal Workforce, and the District of Columbia. Read the testimony (CAP Action)

Chairman Akaka, Ranking Member Johnson, and distinguished members of the committee, thank you for inviting me to testify on “State of Federal Privacy and Data Security Law: Lagging Behind the Times?”

I am the C. William O’Neill professor of law at the Moritz College of Law at Ohio State University. In 1999 I was named chief counselor for privacy in the U.S. Office of Management and Budget. In that role, I was the first—and thus far the only—person to have governmentwide responsibility for privacy policy. As chief counselor for privacy, I worked extensively with the Privacy Act of 1974, helped institutionalize the practice of Privacy Impact Assessments for federal systems, and addressed many other privacy and cybersecurity issues affecting federal agencies. Since then I have continued to write and speak extensively on privacy and security issues.

For this testimony, committee staff requested that I address a range of issues concerning federal agency privacy and data practices. As the other testimony for this hearing demonstrates, there are many different privacy-related challenges facing federal agencies today.

CAP Senior Fellow Peter Swire testifies before the Senate Committee on Homeland Security and Governmental Affairs, Subcommittee on Oversight of Government Management, the Federal Workforce, and the District of Columbia. Read the testimony (CAP Action)

SOURCE: AP/ Charlie Neibergall

Rep. Steve King (R-IA) was a prominent supporter of the GOP-led House of Representatives short-sighted vote to eliminate the American Community Survey.

Last week the GOP-led House of Representatives voted to end the American Community Survey, or ACS, the Census Bureau’s annual study of U.S. socioeconomic conditions. The largely party-line vote defied the advice of conservative think tank experts, the interests of the business community, and, most critically, common sense.

Data from the 21-page questionnaire are used to help the government best determine how to distribute federal assistance dollars, including Medicaid benefits, and federal grants to states and communities—more than $800 billion in grants and benefits in fiscal year 2008 alone.

Eliminating the ACS “would cause massive disruptions in the federal government” because many formula-funded programs use ACS data in their calculations, George Washington University professor Andrew Reamer told an Atlantic magazine blog last week.

What’s more, business groups like the U.S. Chamber of Commerce and the National Association of Business Economists strongly support the American Community Survey, as do individual businesses like Target.

“Census data is really the only source of information that can give us neighborhood-level data,” said Joan Naymark, Target’s director of market analytics and planning, in a video exploring how the company uses ACS data.

So what’s eating opponents of the ACS?

“It’s important that…we do not have an intrusive federal government that would impose a fine on people if they didn’t let the information come out about whether they had a flush toilet,” said Rep. Steve King (R-IA) on the House floor Wednesday before voting to kill the survey.  

The survey is mailed to about 2 percent of households annually, and participation is mandated by law, just like the decennial Census. Rep. King and his colleagues’ fixation on supposedly intimate questions ignores the enormous benefit that timely, detailed, scientifically valid data collection provides to the federal government and to businesses.

Every question asked on the American Community Survey must have a federal purpose and on its website the Census Bureau exhaustively details how the government uses the collected data. The predecessor to the survey was the decennial Census “long form,” which was used from 1850 to 2000. Questions on housing characteristics, like the plumbing questions so vexing to Rep. King, have been asked since 1940. 

Such questions and the survey in general constitute “an important federal tool in overcoming ‘information market failure,’ the market’s inability to provide public and private decision-makers with objective, detailed data,” Reamer wrote in a 2010 Brookings Institution report.

If he didn’t trust Reamer, who has also worked with the Center for American Progress, Rep. King might have at least considered the advice of the American Enterprise Institute’s Andrew G. Biggs, who in a March testimony urged Congress to keep the long survey mandatory.

“We already suffer too much from what might be referred to as ‘policymaking by anecdote,’ where lawmakers seek to pass legislation before sufficiently examining the severity—or sometimes even the existence—of a perceived problem,” said Biggs, a resident scholar at the conservative think tank. “Reducing the quantity and quality of data available to policymakers, analysts and researchers threatens to exacerbate this problem.”

As budgets grow increasingly constrained it is more important than ever to ensure every penny is directed to where it’s most needed. Gutting the statistical system that guides hundreds of billions of dollars in federal investment and provides enormous benefit to private industry will make such information-based policymaking all but impossible.

Kristina Costa is a Research Assistant at the Center for American Progress.

SOURCE: AP/ David Goldman

The Government Customer Service Improvement Act would require agencies such as the Transportation Security Administration to solicit and publish customer feedback as part of an effort to push the federal government toward a more customer-friendly orientation.

With its 50,000 airport screeners, the Transportation Security Administration directly interacts with millions of ordinary Americans every day. For many of these 2 million daily “customers,” it’s the most direct contact they’ll have with the federal government all year. So what kind of constructive feedback does the agency get from those 2 million customers?

“Nobody is familiar with any kind of customer surveys that we’ve done,” said Paul Sotoudeh, an official at the agency, in his initial response last month to a Freedom of Information Act request asking for all reports or evaluations produced since 2008 about customer service and customer satisfaction. The search for surveys is ongoing, Sotoudeh said this month.

 Meanwhile, the State Department’s passport office, another federal operation with millions of direct citizen interactions a year, does conduct a rigorous survey of “customer satisfaction.” But it refuses to release the details of those surveys.  

“We won’t be able to provide the detailed report,” said Rebecca Dodds, a Bureau of Consular Affairs spokeswoman. Dodds, whose job is to provide the public with information, did not respond to a request for explanation of why a survey conducted for taxpayer benefit should be kept secret from the very public that pays for it.

A new bill by Rep. Henry Cuellar (D-TX) attempts to address the two problems illustrated by the above anecdotes. Washington doesn’t pay enough attention to the customer service quality of its public-facing functions, and it doesn’t hold itself accountable enough to its customers. Rep. Cuellar wants to make these and other federal government agencies clearly accountable to the American public.

A bill to improve government customer service

Rep. Cuellar’s Government Customer Service Improvement Act, which unanimously passed the House’s government reform committee last month, would require agencies such as the Transportation Security Administration to solicit and publish customer feedback, and designate an agencywide “customer service representative” whom citizens can contact. It would also require the White House to annually assess whether agencies are delivering “high quality customer service” and publish those findings.

Rep. Cuellar’s bill is the latest in a string of positive developments in recent years pushing the federal government toward a more customer-friendly orientation. It seeks to preserve in law many of the provisions already contained in a November presidential executive order, in which President Obama ordered agencies to develop and publish “customer service plans” and solicit customer feedback.

An earlier Cuellar-authored law, the Government Performance and Results Act of 2010, formally included customer service as a key component in agency “performance plans.” And yet another customer service-oriented measure, the Plain Writing Act of 2010, introduced by Rep. Bruce Braley (D-IA), requires all government communication to the public to be easily understandable and usable.

Both the performance and plain-writing bills passed Congress with bipartisan support at a time of extreme partisanship, suggesting that Rep. Cuellar’s latest government-reform measure has a legitimate shot at reaching the president’s desk, if Congress makes time for it.

Recommendations to strengthen the bill

If Congress does take it up, lawmakers should also take the opportunity to strengthen the bill by: 

• Requiring the president to designate one White House official to plan, coordinate, and execute a coherent strategy across the executive branch.  Such coordination will make it easier for agencies to learn from one another and share resources. 

• Ordering the Government Accountability Office or some other independent body to annually assess federal progress toward customer service goals. Those goals should be empirically verifiable “outcome measures,” such as reduced waiting times or improved customer satisfaction as measured by statistically reliable surveys.

• Mandating the public release in machine-readable formats of all customer feedback collected under the law to enable public oversight. Automating the release of such information will minimize the ability of media-phobic officials to shield public records from public scrutiny.

The case for heightened scrutiny

With only a third of Americans holding a favorable opinion of the federal government, lawmakers concerned about eroding trust in government might worry about inviting even more public scrutiny. Certainly, increased attention to government customer service will reveal more of the bad apples and the press will dwell on the negative findings.

That is only proper. A single airplane crash is more newsworthy than a thousand safe landings. (Of course, conservatives who like to inflame antigovernment cynicism in the service of a “small government” ideology will welcome such scrutiny; that’s probably part of the reason for the bill’s bipartisan appeal.)

But heightened attention will also likely yield surprising—and surprisingly positive—assessments of federal government customer service. “Contrary to popular belief, it seems that the more people come into contact with and receive services from federal agencies and departments, the more they like them,” according to an analysis by the American Customer Satisfaction Index, a national survey developed at the University of Michigan. Indeed, some government programs, such as the National Weather Service and loan programs administered by the Small Business Administration, are rated by their users as highly as are the best private-sector firms, according to the survey.

The Cuellar bill will call attention to these high performers and make it easier for other agencies to learn from them. That’s particularly important in this time of economic distress, because when people turn to government services more often, an unpleasant or ineffective experience can sour them to the government entirely. And that has the potential to feed a dangerous and vicious cycle: As funding gets cut, the government underperforms, leading people to become cynical about Washington’s problem solving abilities. In return, the public withdraws even more support for funding, which causes further deterioration of services the private sector can’t or won’t provide on its own.

The Government Customer Service Improvement Act can play a meaningful part in halting that cycle. Congress should pass the bill this year, and the president should make “user-friendly government” a top priority of his second term.

Gadi Dechter is Managing Director of Economic Policy at the Center for American Progress.

SOURCE: Flickr/masshighered

The Social Impact Bond agreement itself—the contract signed by the government agency and the external organization—is critically important to the success or failure of a Social Impact Bond.

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The Social Impact Bond, a promising new model for funding some social programs, is best understood as an agreement between a government agency and an outside organization in which payment from the government is entirely contingent on the organization achieving measurable, positive social outcomes. There is particular excitement in state and local governments and among philanthropic foundations and social service providers about using these agreements to finance preventive social programs that often save government money down the road but are still vulnerable to budget cuts in fiscally tight times.

Social Impact Bonds also pose significant challenges because they require government agencies to act in unfamiliar ways. Most obviously, agencies accustomed to paying service providers for performing a proscribed set of activities may find it challenging to make the switch to only paying for results in a SIB agreement. The government will also need to clearly define the beneficiary population receiving social services and must provide safeguards to make sure the external organization doesn’t just “cream skim” or work with only the easiest cases to achieve the outcome. And, of course, the government must continue to cooperate with the external organization throughout the full term of the agreement.

These challenges mean that the agreement itself—the contract signed by the government agency and the external organization—is critically important to the success or failure of a Social Impact Bond. Among other things, the contract will define the relationships and responsibilities of all the parties in this unusual arrangement, will set out the circumstances under which the external organization can expect to earn their payment, and will determine when either the government or the external organization can terminate the agreement. Writing the agreement well will help guarantee transparency and cooperation between the government and the external organization, help protect the vulnerable populations that the agreement serves, and make better outcomes possible.

In this issue brief, we present some draft language that could be included in a Social Impact Bond agreement. It is meant to help readers understand some of the complexities of SIB arrangements and the ways to address them. As an example, this SIB contract focuses on improving employment outcomes for the long-term unemployed, but SIBs can also be used in many other policy contexts.

Click on the arrows to read through the sample agreement below. You can also click on the highlighted text to see commentary on the different parts of the agreement.

Conclusion

The above language for inclusion in a Social Impact Bond agreement is meant to help address common questions about how these unusual arrangements can be structured between government and an external organization. But it is by no means the final word on how these arrangements should function. Social Impact Bonds are still developing in the United States, and as more states and cities explore the concept, new models with their own agreement terms and language will emerge. Because Social Impact Bonds require openness, trust, and ongoing communication between government agencies and an external organization, most agreements will likely contain clauses formalizing the roles, responsibilities, and expectations of both parties—including rules for the orderly termination of an agreement.

Upcoming issue briefs in this series will focus on possible applications of the Social Impact Bond concept, further explore how to measure successful outcomes, and discuss the long-term potential of these innovative new financing tools.

Jitinder Kohli is a Senior Fellow with the Doing What Works project at the Center for American Progress. Douglas J. Besharov is a professor at the University of Maryland School of Public Policy and a Senior Fellow at the Atlantic Council of the United States. Kristina Costa is a Research Assistant at the Center for American Progress.

The Center for American Progress’s work on Social Impact Bonds is supported by the Rockefeller Foundation. The authors are extremely grateful to those who provided insightful input to this piece. In particular, they would like to thank Alex DeMots, Gary Glickman, Steve Goldberg, Justina Lai, Ben Jupp, Trupti Patel, Jim Robinson, Dan Rosenbaum, Kathy Stack, Marta Urquilla, and Mary Ellen Wiggins for their help.

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SOURCE: AP/ Jae C. Hong

A group of homeless people wait in line outside a mission for food in Los Angeles. Homelessness is one of the issues Social Impact Bonds would attempt to target.

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Social Impact Bonds, or SIBs, are a promising new model for financing social programs that turn traditional government funding structures on their head. Instead of paying contractors or grantees upfront for a set of services, Social Impact Bonds allow government to focus funds on approaches that work—without paying a dime if agreed-upon outcomes aren’t achieved. There is particular interest among state and local governments, foundations, and service providers in using Social Impact Bonds to pay for preventive programs in areas such as reducing prisoner recidivism and homelessness—the kinds of services that often save government money down the road but currently face budget cuts.

But Social Impact Bonds also pose significant challenges because they require government agencies to act in unfamiliar ways. Government is used to exerting a great deal of control over social service contractors—a level of control that SIB agreements do not allow.

This means that the agreement itself—the contract signed between the government agency and the external organization that promises to achieve the outcome—is enormously important to a Social Impact Bond’s success. The contract codifies the outcome, payment schedule, and assessment. It also establishes the responsibilities of the government and the external organization, how disputes should be resolved between these two parties, and under which circumstances either party can terminate the agreement.

This column addresses common questions about the roles, responsibilities, and limitations for both government agencies and external organizations in Social Impact Bond arrangements.

Setting the outcome, payment, and assessment method

The contract should clearly establish the outcome the government agency wants achieved. One of the most challenging aspects of a Social Impact Bond is setting an outcome that will not occur absent the external organization’s intervention. But the outcome should not be so difficult to achieve that the external organization has little hope of success. The contract should state what the outcome is, how it will be measured, and the payment schedule for successful outcomes. In some cases the government agency and the external organization may want to appoint an independent assessor to determine whether the external organization has achieved the outcome and received the level of payment due.

Government’s responsibilities

If government truly wants the designated outcome achieved, it must fully cooperate and collaborate with the external organization. And the terms and conditions of what “cooperation” entails should be set out in the Social Impact Bond agreement.

At the most basic level, this means the contract should require government to provide the external organization access to the beneficiary population and any information or data about the population that can help the external organization with its work (providing it can be legally shared).

Government should also be open to making changes to its policy or practices to help the external organization succeed. For instance, in a Social Impact Bond agreement aimed at finding jobs for the long-term unemployed, the external organization may ask the government for assistance in getting state IDs issued to program participants to better enable them to apply for employment.

The contract should also place some restrictions on the government. In most SIB agreements this will include clauses prohibiting the government from exerting control over the external organization’s strategy or day-to-day operations. The contract should also prevent the government from intervening in the external organization’s selection of subcontractors and investors, though subcontractors will be held to the same standards as the external organization itself.
 
The external organization’s responsibilities

The external organization shoulders one overriding responsibility: doing everything reasonable to achieve the outcome.

But the contract will likely set out some limited constraints on the organization’s activities to guarantee the beneficiary population’s safety. For instance, most SIB agreements will include clauses prohibiting the external organization from engaging in activities that they reasonably believe could cause harm. Other clauses may prohibit the external organization from doing things that will harm the government’s reputation or result in increased costs to government or others.

The external organization should be free to modify its strategy and activities, particularly if its original plans are not accomplishing the expected outcome. That’s why the restrictions placed on the external organization in the contract should be broad rather than specific.

Disputes in the Social Impact Bond agreement

Even a cooperative government agency and external organization may disagree with one another. That’s why the contract should include language appointing an arbiter to settle disputes. The arbiter’s key function will be to find ways to deal with disputes quickly and amicably.

In extreme cases, either the external organization or the government agency may wish to terminate a Social Impact Bond agreement and an important part of a SIB contract is the language governing termination and compensation level. An external organization is heavily incentivized to stop providing services and pull out of the arrangement if it begins to think it will not achieve the outcome. The contract should set out an orderly process for termination in these cases.

Similarly, the government may legitimately want to end a SIB arrangement, for example, if it reasonably believes that the external organization is harming the beneficiary population. The government should also be able to terminate a Social Impact Bond agreement “for convenience,” that is, at will. But requiring the government to generously compensate the external organization should make this an unattractive proposition.

Our issue brief describes the mechanisms for terminating and altering the agreement and goes into detail about how a SIB agreement may be formally structured. 

Conclusion

This column is by no means the final word on how these unusual arrangements should work. Social Impact Bonds are still developing in the United States and new models will emerge with their own restrictions and permissions as more states and cities explore the concept. But most agreements will need to formalize the responsibilities and expectations of both parties because Social Impact Bonds require openness, trust, and ongoing communication between government agencies and external organizations.

Next in this series, we will explore the possible subject area applications of Social Impact Bonds.

Jitinder Kohli is a Senior Fellow with the Doing What Works project at the Center for American Progress. Douglas J. Besharov is a professor at the University of Maryland School of Public Policy and a Senior Fellow at the Atlantic Council of the United States. Kristina Costa is a Research Assistant at the Center for American Progress.

The Center for American Progress’s work on Social Impact Bonds is supported by the Rockefeller Foundation.

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Read other pieces in this series:

• Social Impact Bonds and Government Contracting: How to Choose the Best External Organization to Achieve Your Outcome by Jitinder Kohli, Douglas J. Besharov, and Kristina Costa
• Social Impact Bonds 101 by Jitinder Kohli, Douglas J. Besharov, and Kristina Costa

SOURCE: AP/ Tony Dejak

In a SIB agreement, a government agency decides on an outcome it wants achieved—say, reducing juvenile recidivism in an area by 10 percent—and contracts an external organization that promises to achieve the outcome.

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Social Impact Bonds, or SIB, are an innovative new tool that flips government financing on its head. They allow agencies to pay only for measurable, positive social outcomes after achievement rather than paying upfront for a set of activities. This tool will likely prove challenging for many in government, from program designers who are not used to defining measurable outcomes to politicians who like making decisions about which interventions will be used to tackle social problems.

But it will be contracting officers who face a real Catch-22: In a SIB agreement the external organization has significant latitude to change its work plan midstream if the interventions it has chosen are not working. Inevitably, however, SIB contracts will be awarded partly on the basis of the proposed plan’s strength. So the contracting agency faces the problem of how to choose the external organization best able to achieve the outcome when their ultimate means to the end may be very different from their original plans. (Broadly, we think that SIB partners should be allowed to deploy any strategy that does not cause harm or increase costs for government, citizens, or business.)  

Before awarding a contract, government agencies should be clear about the outcome they want achieved and the most they are willing to pay for that outcome. Sometimes, agencies will have a budget that they will want to maintain.

For instance, in the recidivism example (box), the government will pay the external organization once they reach a certain threshold of achievement—a 10 percent reduction in the re-offending rate. But the external organization may be able to do even better and reduce recidivism by 20 or 30 percent—in which case they will expect higher remuneration. So if the government agency has a budget constraint, it should indicate that during the process of selecting an external organization. Otherwise potential partners may develop plans that are too ambitious.

Ultimately, government agencies want to partner with an external organization that will successfully deliver the outcome. As we explain below, agencies should evaluate bids from external organizations using three key sets of criteria: the quality of the organization’s plans for achieving the outcome; the overall quality and demonstrated abilities of the organization itself; and the price government will pay the organization if it achieves the outcomes.

Confidence in plans

Although the government should not require the external organization to use a particular intervention to achieve a Social Impact Bond’s outcome, the external organization’s bid should still contain a work plan. The plan should:

• Describe the interventions that will be used—and why. The government will cede control over day-to-day activities to the external organization, but the external organization needs to demonstrate that they have thought seriously about how to achieve the outcome. To that end contracting officers should want at least some of the organization’s planned interventions to have rigorous evidence of effectiveness in similar circumstances. If there is any data available on what external factors make the intervention more likely to succeed, the external organization should seek to demonstrate those factors will hold true in their plan.
• Describe a back-up plan. Since the external organization is allowed to change its tactics midway through the SIB agreement, contracting officers should expect the organization to have plans in place to respond to and replace unsuccessful interventions.

Confidence in the external organization

The government shouldn’t just evaluate the external organization’s plans when awarding a Social Impact Bond agreement. Because of the trust inherent in these unusual arrangements, the government agency will want a high degree of confidence that they will be able to form a cooperative working relationship with an external organization capable of carrying through the plans. To gain confidence, the agency should consider:

• Management. The government will need to work with the external organization regularly to, among other things, provide access to data and to the population of beneficiaries. Having confidence in the external organization’s senior employees is essential as the government and the external organization will need to work closely together throughout the agreement.
• Track record. The government should also consider the organization’s track record—whether they have successfully contracted with the government before, whether they are able to manage complex projects, and whether the service providers they plan to use have strong histories of success.
• Working capital. Although the government agency should not expect to approve or vet the external organization’s investors—who will provide working capital to run the interventions—the external organization should provide strong evidence that they understand how much money is needed to fund the interventions and demonstrate they will be able to raise the necessary funds. This is important to assure the government agency that the Social Impact Bond agreement will get off the ground.

Cost considerations

While government should not pry into the external organization’s cost structure, it must consider the price it needs to pay for outcomes.

For instance, external organization A may bid for a SIB contract to reduce juvenile recidivism and ask for a $10 million payment, while external organization B asks for a $15 million payment for the same outcome. If the two bids are otherwise similar, particularly in providing evidence of effectiveness, and the government agency believes that either organization could be successful, it must choose the bid from organization A because of the lower cost.

Of course, things will often be more complicated than this. Government officials will sometimes find that the organizations they are most confident working with are also more expensive, and those that want less money have less convincing strategies for success. Procurement officials are used to making decisions that look at quality and cost considerations alongside each other and Social Impact Bonds are no different to other contracting arrangements in this regard.

Conclusion

During the contracting process for a Social Impact Bond agreement, government agencies will need to ask questions about the external organization’s strategy and ensure that the organization is strong enough to achieve the outcome.

But the biggest challenges will crop up after the ink has dried. Because, with few exceptions, that’s when the government will have to let go and allow the external organization to change its work plan, raise money from any investors it wishes, and do what it can to achieve the outcome. Few government agencies will be used to providing that level of freedom to external partners.

Our next column in this series will focus on the Social Impact Bond agreement itself and lay out the provisions that should (and should not) be included. A concurrent issue brief will offer answers to many technical questions about the SIB contract, including the circumstances under which an agreement can be terminated and what kinds of protections are needed to ensure the safety of the beneficiary population.

Jitinder Kohli is a Senior Fellow with the Doing What Works project at the Center for American Progress. Douglas J. Besharov is a Professor at the University of Maryland School of Public Policy and a Senior Fellow at the Atlantic Council of the United States. Kristina Costa is a Research Assistant at the Center for American Progress. The Center for American Progress’s work on Social Impact Bonds is supported by the Rockefeller Foundation.

Download this column (pdf)

Read the column in your web browser (Scribd)

See also:

• Social Impact Bonds 101 by Jitinder Kohli, Douglas J. Besharov, and Kristina Costa

SOURCE: AP/ Pat Wallenbach

University of Southern Maine students march down Congress Street in Portland, Maine for an organized May Day rally. Robert J. Samuelson's recent suggestion in The Washington Post that federal policy isn’t heavily influenced by the rich and powerful rests on a shaky foundation of misleading numbers and notable omissions.

Does the existence of Social Security and Medicare prove that the rich and powerful don’t exercise an exaggerated influence on federal policymaking? If we spend more today than we did 50 years ago aiding impoverished families, does that mean the richest 1 percent are politically marginalized? That’s essentially the argument made by Robert J. Samuelson in the pages of The Washington Post earlier this week.

Samuelson sets up a straw man—the idea that the federal government spends little or no money on poor people or on the middle class—and effectively tears it down. In fact, says Samuelson, at least 60 percent of federal spending goes to help the poor and the middle class. And furthermore, the amount of money we spend on poor people has increased significantly since 1962. Samuelson suggests that these facts prove that federal policy isn’t in the pockets of the rich and powerful.

But Samuelson’s argument rests on a shaky foundation of misleading numbers, as well as a dedicated refusal to acknowledge an entire category of federal spending that mainly benefits the rich. And while it’s true that the federal government has, in the past, put policies in place that aid the poor and protect the middle class, it’s also true the impact of those policies has eroded over time. What’s more, those very same programs are now under attack from Samuelson’s political compatriots. Finally, and most egregiously, by focusing only on federal spending, Samuelson utterly misses the myriad of other ways the rich and powerful can and do make the federal government work for them.

Samuelson’s numbers don’t tell the whole story

Let’s start with Samuelson’s shaky numbers. He says that when you combine spending for the poor along with Medicare and Social Security, federal support for the middle class and the poor comes out to about 60 percent of all federal noninterest spending.

First of all, if only 60 percent of federal dollars are going to the bottom 99 percent of Americans (or bottom 90 percent or even 80 percent for that matter), it suggests precisely the opposite of what Samuelson says it does. Secondly, Samuelson deliberately chose to remove interest payments on the debt from his calculation. But according to the Department of the Treasury, a large portion of our current debt exists because of the Bush tax cuts, which primarily benefited the wealthy.

Samuelson also points to the fact that federal spending on poverty programs has increased from $516 per person in 1962 to $13,000 per person last year. That does sound like a big increase. But, in fact, nearly the entire increase is due to the introduction of Medicaid. There was no Medicaid in 1962, and by 2007—before the onset of the recession—it accounted for more than half of all federal spending on low-income Americans. And of course, the growth in Medicaid spending has been primarily driven by growth in health care costs overall, not generous increases in benefits.

Aside from Medicaid, federal spending on poverty programs grew from only 0.8 percent of gross domestic product in 1962 to just 1.2 percent of GDP by 2007, according to the Office of Management and Budget. That’s not exactly the massive increase suggested by Samuelson.

At this point it’s also important to note that at least one of Samuelson’s numbers is just flat out wrong. He says that the average food stamp benefit per person in 2010 was $287 each month. Wrong. That was the average benefit per household. In fact, the average benefit per person was less than $130 per month—just $4.30 a day.

But don’t let all these numbers obscure one very simple fact that Samuelson never bothers to mention. Even during the height of the Great Recession, even as federal antipoverty programs kept nearly 20 million people from falling below the poverty line, even then, total federal spending on the poor—including the federal share of Medicaid—amounted to less than 4 percent of our entire national income. To repeat: 4 percent.

Samuelson conveniently leaves out an entire category of federal spending that helps the wealthy

There’s also an entire category of federal spending—never mentioned by Samuelson—whose cost far exceeds 4 percent of gross domestic product. In 2011 there was more than $1 trillion in spending that operated through the federal income tax code. These so-called “tax expenditures” are economically equivalent to traditional spending. They create government obligations and public benefits just as real as those of the food stamp program. But because they are created by carving out loopholes in the tax code or by designating special categories of income that get a lower tax rate, Washington has chosen to think of them as “tax cuts,” rather than spending.

But spending is what they really are, and the well-to-do is whom they primarily benefit. Fully two-thirds of the benefits of these tax expenditures go to the richest 20 percent of Americans, according to the Tax Policy Center. In fact, the richest 1 percent get as much benefit from tax spending as the bottom 60 percent combined. In 2011 the average millionaire received nearly $450,000 a year in tax spending, which is the equivalent of about $1,225 a day (and certainly puts into perspective the average daily food stamp benefit of $4.30).

But of course, Samuelson doesn’t include tax expenditures in his account of federal spending. If he did, he’d have to acknowledge that the rich are, indeed, the beneficiaries of significant government largesse.

In fact, Samuelson hardly mentions the tax code at all. He does dredge up the specious claim about the “share of taxes paid” by the rich, but that particular talking point has been so repeatedly debunked that it hardly bears mention. Suffice it to say that the rich pay most of the taxes because they make most of the income.

Given the argument Samuelson tries to make, you can understand why he doesn’t dwell on the tax code. After all, taxes for the super rich have been cut dramatically and repeatedly over the past 30 years. According to the nonpartisan Congressional Budget Office, in 1979 the top income tax rate was 70 percent, and the richest 1 percent paid about 37 percent of their income in federal taxes. By 2007 that top rate had been cut in half, and the richest 1 percent paid less than 30 percent in federal taxes. These numbers don’t fit with Samuelson’s story of an overburdened and underrepresented wealthy class.

Federal programs for the 99 percent are less effective and under the knife

But it gets worse for Samuelson’s argument. Over that same period, the richest 1 percent of Americans enjoyed an enormous explosion in prosperity. Their average income more than tripled. Their share of total national income more than doubled. Their incomes grew more than 10 times faster than the incomes for households in the middle. As a result, American society is now more unequal than it has been at any point since before World War II.

And though Samuelson would have you believe otherwise, the federal government actually has done less and less to combat that rising inequality. In 1979 federal policies—including both transfer programs and the tax system—reduced income inequality by 23 percent, according to a recent report from the Congressional Budget Office. In 2007 that reduction was down to 17 percent.

And if conservatives in Congress have their way, they will gut the very programs that Samuelson points to as evidence of the political strength of poor and the middle class. The House Republican budget plan, authored by Rep. Paul Ryan (R-WI), cuts federal spending by more than $5 trillion over the next 10 years. Nearly two-thirds of those cuts come from low-income programs such as Medicaid and food stamps. The remaining third falls heavily on “non-defense discretionary” programs, a category of spending home to such middle-class investments as transportation funding, food and drug safety, and law enforcement.

Rep. Ryan’s budget cuts would come on top of the more than $1 trillion in reductions already enacted, a large portion of which also fall on nondefense discretionary. And as is well known, the House Republican budget also dramatically cuts Medicare starting 10 years from now.

Samuelson mentions precisely none of this. If it is true, as he argues, that the mere presence of programs for the middle class and the poor suggests that the rich aren’t gaming the system in their favor, then what must it mean when those same programs are at grave risk of being slashed to the bone?

The rich exercise plenty of influence over government

Putting aside all of these numbers, perhaps the most critical failing of Robert Samuelson’s bizarre claim that the rich and powerful aren’t actually all that powerful is that his method of accounting for their influence, looking only at federal spending, is woefully limited. There are myriad ways for big corporations, superwealthy individuals, and powerful interests to use the federal government for their benefit—many of which, perhaps even most, would never show up on a balance sheet. To cite just a few examples: government rules that preference existing companies over newcomers; deregulation that pads profits but exposes the public to greater risk; weakened labor laws that make it harder for workers to form unions; government contracts; and implicit government subsidies.

And even when the government does spend some money on something that ostensibly helps the middle class or the poor, very often a closer look reveals some powerful and wealthy interests as equal beneficiaries. Medicare Part D, which provides Medicare coverage for pharmaceuticals, is a perfect example. Yes, this program helps a lot of middle-income seniors, but its passage also expressly forbid Medicare from negotiating for lower prices, leading to a massive windfall for drug companies.

Just a straw man in the end

In the matter of Straw Man vs. Robert J. Samuelson, the victor is clearly Mr. Samuelson. That poor straw man never had a chance. But Samuelson does not fare nearly so well when pitted against reality. Of course the government spends a large portion of its budget on the poor and the middle class. They do make up the vast majority of the population, after all. But Samuelson ignores the tax code, both the spending embedded in it, and the fact that taxes for the rich have dropped precipitously at the same time that their incomes have skyrocketed.

He also fails to mention that the very programs to which he points as evidence of the political strength of the middle class are under serious assault. And he simply does not grapple at all with the nonspending ways in which the government can be and has been bent to the will of the rich and powerful.

It would be nice if Samuelson’s argument were true—if the influence of the vast middle class and the poor did indeed outstrip that of the rich—but, sadly, it’s not.

Michael Linden is the Director for Tax and Budget Policy at the Center for American Progress.

See also:

• The Federal Tax Code and Income Inequality by Michael Linden
• The Richest 1 Percent Get More, Pay Less by Michael Linden
• Rich Americans Are Not Overtaxed by Sarah Ayres and Michael Linden
• Why We Need a Buffett Rule by Seth Hanlon

SOURCE: AP/Jack Ainsworth

Tim Stone, former manager of the Manchester homeless shelter in Manchester, New Hampshire, leans against a wall in the shower stall area of the shelter. Reducing homelessness is one of the areas that governments in the United States are exploring for Social Impact Bonds.

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What is a Social Impact Bond?

Social Impact Bonds turn government funding structures on their head. Normally, government agencies fund tightly proscribed activities. In a Social Impact Bond, however, a government agency defines an outcome. The agency contracts with an external organization that promises to achieve that outcome and only pays the organization if it is successful.

Who are the key players?

Required:

• A government agency that defines the outcome
• An external organization that promises to deliver the outcome
• A beneficiary population who receive services

Optional:

• Investors who fund the needed interventions upfront
• Service providers who perform the interventions

What are the advantages of Social Impact Bonds?

1. Social Impact Bonds transfer risk away from government and taxpayers. Government isn’t on the hook for the payment if the outside organization fails to achieve the outcome. In a normal financing arrangement, if the initiative fails the money is already spent.

2. Social Impact Bonds can fund preventive services that will save government money down the road.

3. Social Impact Bonds can overcome the “silo” problem in government where agencies find it difficult to pool resources or direct money toward effective programs.

4. Social Impact Bonds can help to “scale up” effective interventions from one city or state to other areas of the country.

The first Social Impact Bond: Peterborough prison

It’s easiest to understand Social Impact Bonds with an example.

In the United Kingdom, the British government has promised to pay an external organization called Social Finance if it reduces the re-offending rate of prisoners leaving Peterborough prison. The government will pay Social Finance so long as there is a 7.5 percent measured reduction in recidivism relative to a group of similar prisoners discharged from other prisons.

Social Finance needs funds to pay for interventions in advance of any payment from the government, so it has raised money from investors. In exchange for paying the upfront costs, these investors receive an agreedupon return if the outcome is achieved.

The British government calculated how much it is willing to pay for the outcome by looking at the savings likely to accrue to government agencies over time as a result of reductions in re-offending. These include future savings in incarceration costs as well as in court and police time.

Where will Social Impact Bonds be useful?

Social Impact Bonds are still in their infancy, and there remains a great deal to learn. But some areas that governments in the United States are exploring for Social Impact Bonds include:

• Reducing recidivism
• Reducing homelessness
• Preventive health services
• Workforce development
• Early childhood education
• Helping unemployed persons re-enter the workforce

Early applications of Social Impact Bonds will most likely be in areas where a few criteria hold true. First, government agencies may reasonably believe they will save money from the outcome. Outcomes will likely be observable and measurable within three to eight years. Outcomes will be targeted in areas with known social interventions that have proven effective at achieving the outcome. Finally, Social Impact Bonds should not be used to provide core government services, so there are few negative consequences if the external organization cannot achieve the outcome and discontinues services.

But Social Impact Bonds have much wider implications for all government programs and may encourage agencies to focus more on outcomes rather than activities.

The Center for American Progress’s work on Social Impact Bonds is supported by the Rockefeller Foundation.

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See also:

• What Are Social Impact Bonds? by Jitinder Kohli, Douglas J. Besharov, and Kristina Costa
• Social Impact Bonds 101 by Jitinder Kohli, Douglas J. Besharov, and Kristina Costa

SOURCE: AP/Charles Rex Arbogast

Defense Contract Audit Agency recruiters Gregory Brooks and Jarolyn Snyder, second from right, talk with job fair participants during a 2009 job fair at Roosevelt University in Chicago.

See also: Insourcing by Pratap Chatterjee; How Sunlight Can Improve Federal Contracting by Pratap Chatterjee

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The federal government needs to strengthen auditing of the $530 billion in taxpayer money that is awarded annually to contractors in order to make sure that the public gets value for dollars spent. The agency with the greatest share of this work is the Defense Contract Audit Agency, which despite its name and location within the Pentagon is responsible for the lion’s share of auditing government contracts. The Defense Contract Audit Agency recovered $2.7 billion in 2010, but it could increase this substantially if it was fully and properly staffed and given more funding together with sufficient authority and independence.

Three years ago, as many as 30,000 audits of government contracts a year were conducted annually. That number has now plunged to 10,000 audits per year despite the fact that the dollar value of contracts issued has remained steady. The time taken to check up on proposed prices before a contract is awarded now stands at 72 days, up from 28 days only two years ago. These dramatic changes were spurred on by a series of reports by the Government Accountability Office, the investigative arm of Congress, that suggested the auditors were doing their work too quickly, and in the process failing to document their work in accordance with government auditing guidelines.

DCAA responded to these criticisms by emphasizing additional work documentation, but now questions are being raised if the agency isn’t placing too much emphasis on following questionable practices that add little to the quality of audits, to the detriment of conducting hard hitting audits. “In a time of scarce government resources and an inadequate contracting workforce, the government must evaluate where it is most vulnerable and focus resources where they can most effectively protect taxpayer dollars,” said Sen. Claire McCaskill (D-MO) at a recent congressional hearing on fixing the existing auditing system.

The Defense Contract Audit Agency is in charge of auditing all military contracting, about $367 billion or 70 percent of all government contracting in fiscal year 2010. In addition, an astonishing 76 percent of civilian audits were also performed by the agency in 2009, according to data collected by the staff of the Subcommittee on Contracting Oversight of the Senate Committee on Homeland Security and Governmental Affairs.

The Defense Contract Audit Agency is proud of its work—with good reason. In the past the agency has claimed a return on investment as high of $50 for each dollar spent, although that number has gone down over the years to $5.10 per dollar today, according to the agency’s own estimates. That is to say for every dollar that the government spends on the agency today, it generates five times as much in recovered funds and lowered costs.

The Defense Contract Audit Agency has also come under fire from whistleblowers, who complain that the agency is not doing a good enough job. And it’s not just angry workers: The agency first faced attacks in congressional hearings for an obsession with “metrics” or finishing as many audits as possible in the shortest possible time but contractors are now berating the agency for taking too long.

In response to the critical GAO report and Congressional hearings, the Defense Contract Audit Agency has attempted difficult shifts in its bureaucratic culture over the past three years. However, many believe that these changes have not been for the better, but have actually lessened oversight of government contractors. In particular, DCAA now seems to be focusing on fewer contracts, and this is clearly not good enough. Consequently this paper recommends that Congress should strengthen this federal auditing system by:

• Hiring more qualified auditors at the Defense Contract Audit Agency and other agencies with auditing responsibilities, such as the Department of Energy
• Giving auditors authority to subpoena contractor records, which they cannot do now
• Naming and shaming companies that do not have adequate financial systems
• Withholding 10 percent of contractor fees if they do not have adequate business systems in place to create a financial incentive to improve accounting systems
• Moving to risk-based audits and random checks rather than excluding certain types of contracts such as limiting proposal audits to fixed-price contracts over $10 million and cost-type contracts over $100 million, as is now the practice
• Completing pricing reviews within a set number of days so that the contracting agencies can issue contracts in a timely manner
• Providing the Defense Contract Audit Agency with its own independent general counsel so that it does not face a conflict of interest by relying on the Pentagon’s lawyers
• Evaluating whether the Defense Contract Audit Agency should report directly to Congress rather than to the Pentagon as is presently the case

In the pages that follow, this report will profile the different reasons audits by the Defense Contract Audit Agency sometimes fail, and what’s been done to correct these failures in the past. This analysis will put in perspective the important set of detailed recommendations that conclude this report.

Pratap Chatterjee was a Visiting Fellow at the Center for American Progress from 2010 to 2011.

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Download the introduction and summary (pdf)

Read the report in your web browser (Scribd)

See also:

• Insourcing by Pratap Chatterjee
• How Sunlight Can Improve Federal Contracting by Pratap Chatterjee

SOURCE: AP/Bill Waugh

Insourcing not only saves money by eliminating the need to pay for the additional layer of corporate bureaucracy that comes with the hiring of a contractor, but it can also improve services to the taxpayer if done wisely.

See also: Better Auditing for Better Contracting by Pratap Chatterjee; How Sunlight Can Improve Federal Contracting by Pratap Chatterjee

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Read the full report in your web browser (Scribd)

At a time when deficit reduction is a national priority bordering on obsession, there is a relatively painless way for the federal government to save millions of dollars while at the same time ensuring contractors do not perform inherently governmental functions—simply bring specific key jobs back into the public domain.

In recent years a practice known as “insourcing”—where government agencies move work back in-house—has been gaining traction. Insourcing has been successfully embraced by a number of federal agencies, including the Department of Homeland Security, the Internal Revenue Service, and the U.S. Army, reversing a longstanding trend that saw more and more federal work going to private contractors. Why is federal insourcing a good thing? Here are three reasons why we believe returning certain government jobs to the public domain makes sense:

• Insourcing saves money. The information technology division of U.S. Customs and Border Protection at the Department of Homeland Security estimated that it saved $27 million in 2010 out of a budget of $400 million by taking 200 private contractors and giving those same individuals government jobs. Likewise, approximately half of the 17,000 jobs that the Department of Defense brought back in-house in 2010 were done simply because the Pentagon was able to save money. In a similar move the Internal Revenue Service abandoned experiments with outsourcing debt collection after the agency calculated that contractors brought in less revenue than federal employees.
• Contractors should not perform some jobs. Contractors are sometimes hired to do work that the government considers an inherent public duty such as making decisions on federal matters. Such jobs should be returned to the public sector. Tax collection is one task that has been ruled inherently governmental because of the potential conflicts of interest, but the task has occasionally been outsourced. Another task with a potential conflict of interest is contractor oversight of other contractors. This often occurs in unexpected and extraordinary situations such as the response in the wake of Hurricane Katrina and the reconstruction effort in Iraq, but it also occurs when there is a freeze in federal hiring. Encouraging federal agencies to hire in-house staff to conduct such key governmental tasks will improve the quality of such work.
• Agencies can lose vital in-house skills through outsourcing. When the Bush administration decided to hire contract interrogators during the Iraq war, it spurred trained personnel to quit the military in order to benefit from the higher pay and flexible lifestyles afforded contractor employees. The same was true in other government sectors such as intelligence and foreign policy. Experts are understandably concerned about the long-term impact of this trend. Mark Lowenthal, a former CIA assistant director, told Congress during a 2011 hearing that his agency was now relying on staff with less than five years experience— ”It’s the least experienced analytical staff since 1947, and this demographic trend will play out in years to come.” Ensuring the right balance of contractors and government personnel in the federal workforce must remain a key federal goal.

To be sure, the idea of expanding government and hiring more bureaucrats at a time when budgets are tight may seem wasteful, but it is more practical and simple than one might expect. Insourcing often results in the individual contractor being hired to do the same work in the very same office under a more direct chain of command. Eliminating the need to pay for the additional layer of corporate bureaucracy that comes with the hiring of a contractor not only saves money, but it can also improve services to the taxpayer if done wisely.

Pratap Chatterjee, a former Visiting Fellow at the Center for American Progress, is a journalist and the author of two books on military contracting—Iraq, Inc. (Seven Stories Press, 2004) and Halliburton’s Army (Nation Books, 2009).

Download this report (pdf)

Download the introduction and summary (pdf)

Read the full report in your web browser (Scribd)

See also:

• Better Auditing for Better Contracting by Pratap Chatterjee
• How Sunlight Can Improve Federal Contracting by Pratap Chatterjee

SOURCE: AP/Aijaz Rahi

With open access to information, genuine competition will increase because the emphasis will be on quality of production and value to taxpayers, which is ultimately key in an era of budget shortfalls.

See also: Better Auditing for Better Contracting by Pratap Chatterjee; Insourcing by Pratap Chatterjee

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Read the full report in your web browser (Scribd)

A single, streamlined database that tracks fraud, waste, and abuse in federal government contracts will help save taxpayers money and reward good companies. President Barack Obama in a June 2011 executive order charged the newly established Government Accountability Transparency Board to start designing such a database within six months.

A week after the executive order was issued, the House Oversight and Government Reform Committee overwhelmingly approved the 2011 Digital Accountability and Transparency Act, sponsored by Committee Chairman Darrell Issa (R-CA). The legislation, which is now awaiting a full House vote, goes even further than the executive order.

This bill would set up a Federal Accountability and Spending Transparency Board—or FAST Board—to manage a standard process by which agencies can report all spending data. The information would be made publicly available on a website so that government agencies and watchdog groups alike could identify fraud, waste, and abuse.

Issa’s bill, which enjoys bipartisan support at a time of intense political deadlock on Capitol Hill, shows that there is momentum in Washington for this important issue. But it is only an important first step in the right direction. What we need is a wholesale reform of a procurement system gone awry. There is reason for hope. An ambitious new pilot project by the General Services Administration is expected to be launched in the first half of 2012, the System for Award Management, which will combine eight existing federal procurement systems into a single database, a welcome step forward if it succeeds. Wise use of good technology can help the federal government eliminate unnecessary staff and programs as well as slash billions of dollars from the budget by preventing fraud, waste, and abuse.

The federal government today uses dozens of standalone databases to track more than half a million business entities that are eligible to bid on the $536 billion in federal contracting for goods and services. Take, for example, Melanie Johnson, a Department of Defense contracting officer, who issued in January 2007 a $300 million contract to AEY, Inc., of Florida to provide weapons and ammunition to the Afghan army and police. Seventeen months later, AEY President Efraim Diveroli was indicted for fraud on the very same contract, for selling more-than- 40-year-old Chinese ammunition to the government. Later investigations showed that there was plenty of available information on AEY and Diveroli that should have given Johnson pause—had she known where to look for it.

This is one of the biggest hurdles for government buyers: Bad contractors are often hired because government officials cannot locate past performance information. The lack of cost, pricing, and technical data is another reason why the government ends up paying too much for goods and services.

Charles Smith, a retired military contracting officer who was in charge of the $37 billion contract with Halliburton in Afghanistan and Iraq, says that the lack of good data on contractors was one of the most significant hurdles in his job. “I would say that 90 percent of the data that we needed was not available.”

To be sure, the Obama administration has made public reams of new data as part of the Open Government Initiative on websites such as USAspending.gov and through new tool sets like the Federal Awardee Performance and Integrity Information System, or FAPIIS.

These reforms are not sufficient. This report explains the three key types of data that contracting officials lack, explores efforts to solve this problem, and issues a set of recommendations on how to effectively consolidate data into one single database on contract spending.

We recommend that the federal government:

• Create a single, streamlined, governmentwide electronic system to replace the multiple existing databases
• Adopt a unique way to identify contractors in this database such as by creating a “Related Business Enterprise” database
• Publish past perfomance data for all contractors in this database
• Make data automatically available unless a genuine reason is established otherwise
• Create an easy-to-use online training manual for federal contracting officers
• Create an online “budget dashboard” to allow the public to follow federal contracting spending in real time
• Make sure that information is accurate and timely by requiring annual inspections of the quality of this data
• Change the rules on what products and services are deemed “commercial” in order to make sure that the government can have access to underlying cost and pricing data to negotiate fair prices
• Buy technical data from companies that have a monopoly contract in order to allow others to compete for the same service and allow market forces to work

A single database will not only ultimately help save money for the taxpayer but will also increase competition among contractors and deliver better services to citizens.

Pratap Chatterjee, a former Visiting Fellow at the Center for American Progress, is a journalist and the author of two books on military contracting—Iraq, Inc. (Seven Stories Press, 2004) and Halliburton’s Army (Nation Books, 2009).

Download this report (pdf)

Download the introduction and summary (pdf)

Read the full report in your web browser (Scribd)

See also:

• Better Auditing for Better Contracting by Pratap Chatterjee
• Insourcing by Pratap Chatterjee

SOURCE: AP/Rob Carr

Inmates at the Department of Youth Services juvenile boot camp wait to go outside for physical training in Prattville, Alabama. Social Impact Bonds have enormous potential in areas of social policy such as homelessness, juvenile delinquency, preventive health care, and workforce development.

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See also: Social Impact Bonds 101 by Jitinder Kohli, Douglas J. Besharov, and Kristina Costa

This is the first in a series of issue briefs that looks at Social Impact Bonds and their value to government agencies. Subsequent pieces will focus on getting the SIB agreement right; models for SIBs and their long-term potential; defining and measuring outcomes for SIBs; and appropriate roles for government agencies in the SIB process.

Below we answer basic questions about Social Impact Bonds—what they are, where they can be most useful, and how they differ from traditional government contracts. We also look at some of the issues government needs to consider before beginning Social Impact Bonds. These arrangements show real potential to help solve difficult social problems and give taxpayers better value for their money.

What are Social Impact Bonds?

Social Impact Bonds are a new and innovative financing vehicle for social programs that flip traditional government funding structures on their head. Instead of paying upfront for a proscribed set of services, SIBs allow government to focus funds on approaches that work—without paying a dime if agreed-upon outcomes are not achieved. SIBs work by bringing together government agencies, social service providers, and philanthropically minded financiers to achieve better results for people receiving social services and for the taxpayers funding those services.

The Social Impact Bond concept is relatively straightforward: Government agencies define an outcome they want to accomplish and agree to pay an external organization a sum of money if the external organization achieves that outcome. This unusual mechanism promotes innovation in public services by putting taxpayer dollars toward the most effective approaches. This is markedly different from normal funding arrangements for social programs, in which agencies typically commit to funding activities regardless of the outcome.

While Social Impact Bonds are still in their infancy, the concept has enormous potential in areas of social policy such as homelessness, juvenile delinquency, preventive health care, and workforce development. In particular, SIBs could become a key vehicle for funding prevention initiatives designed to save government money over the long term. Early interventions to reduce homelessness or smoking, for example, could lead to considerable reductions in Medicare and Medicaid spending—not through program cuts but through lower hospitalization rates.

A definition of Social Impact Bonds

Before we delve deeper into the concept, let’s start with a simple definition of Social Impact Bonds:

An arrangement between one or more government agencies and an external organization where the government specifies an outcome (or outcomes) and promises to pay the external organization a pre-agreed sum (or sums) if it is able to accomplish the outcome(s).

In addition, SIBs require:

• Government to place few, if any, controls on the way that the external organization accomplishes the outcome
• Government to cooperate with the external organization so that it is able to take the actions necessary to achieve the outcome—for example, by ensuring access to relevant data
• A clearly defined population and clarity on what a “successful outcome” would be

Some things to note:

• All payments are contingent on the outcome being achieved. If outcomes are not achieved, the government pays nothing. Hence, risk is transferred from the government to the external organization or its investors.
• The crux of the relationship is between government and the external organization committed to accomplishing the outcome. While there may be other players present (as discussed below), they are not essential to the concept, and they do not have a direct relationship with government.
• While Social Impact Bonds are likely to be particularly useful in areas where accomplishing outcomes results in direct savings for government, not all Social Impact Bonds have to result in government savings.

Where are Social Impact Bonds most likely to be useful?

The concept is still new and there is a great deal to learn. But the most likely early applications will be in areas where:

• Government agencies believe they will save money as a result of the outcome being accomplished and those savings are likely to accrue over a reasonably short timeframe.
• The outcomes are observable and measurable within perhaps three to eight years of the agreement, and government payments flow in that timeframe so that investors are not asked to tie up their funds for too long.
• It is possible to observe and measure whether outcomes are achieved in an objective rather than subjective manner.
• Research shows there are effective interventions to achieve the outcome and these interventions cost less than the government is willing to pay for accomplishing the outcome. This is necessary so the external organization has a degree of confidence that it can achieve the outcome in a cost-effective manner and therefore receive enough money to repay investors.
• There are few negative consequences to the beneficiaries of the service if the external organization is unable to achieve the outcome and seeks to discontinue its services. In the Peterborough example, the services provided under the Social Impact Bond are new and not typically offered to inmates in other prisons. If they were to be discontinued, therefore, the inmates would be no worse off than those from other prisons.
• The external organization is able to influence the outcome significantly (i.e., the effectiveness of its efforts is not likely to be heavily affected by circumstances outside its control).

Here are some specific areas that governments in the United States are beginning to explore for Social Impact Bonds:

• Reducing recidivism, as in the Peterborough example
• Reducing homelessness
• Preventive public health (e.g., reducing smoking rates, obesity, etc.)
• Helping people re-enter the workforce and workforce development

There is particular interest in using Social Impact Bonds in areas where successful preventive services could reduce future public expenditures. The Peterborough SIB on recidivism is built on this premise.

We will be publishing a subsequent brief that focuses specifically on program areas where SIBs might be most useful.

What are the advantages of Social Impact Bonds?

Governments around the world are getting interested in Social Impact Bonds. So what’s in it for them? We believe there are four key advantages:

• Genuinely directing resources to outcomes: While government agencies are increasingly aware of the need to focus resources on outcomes, the reality is that most government programs still fund activities upfront. If these activities fail, taxpayer dollars are still spent. But Social Impact Bonds are different: Government only directs resources toward things that work.
• Overcoming government silos, which should improve effectiveness: Government agencies find it hard to think beyond the silos of different programs. But the best way to reduce recidivism, for example, might be some combination of support to help offenders find jobs and housing, alongside overcoming their drug dependency or anger issues and developing a deeper understanding of crime’s consequences on victims and society. The optimal mix of support may vary significantly for each individual offender. Government programs usually don’t work that way, however. Instead, separate programs will likely focus on each of the different components of a successful strategy to reduce re-offending. As a result, those who need support to reduce re- offending may receive patchy help from one or more of these programs, each of which has little incentive to work with the others. But with a Social Impact Bond focused on reducing recidivism the external organization has a strong incentive to coordinate these different approaches in order to successfully achieve the outcome.
• Allows funding to shift toward effective approaches: Governments find it hard to move money from ineffective programs to those that work well. Sometimes this is because government agencies are poor at measuring whether programs work, focusing their energy on disbursing funds instead of measuring impact. But even where that data exists, the political barriers to realigning resources can be tremendous. Even programs that are ineffective have vocal supporters and these supporters are often good lobbyists, focusing their influence on senior officials in the executive branch or on appropriators in the legislative branch who determine budget priorities. But with a Social Impact Bond, the external organization has strong incentives and sufficient freedom to direct funds to approaches that work—and the process of doing so is depoliticized.
• Scaling innovations: While government agencies often talk of the importance of scaling successful innovations, in reality innovative approaches that work at the small scale often find it hard to attract the government funding needed to grow. Sometimes this is because government agencies don’t always know what works, and sometimes it’s because funding streams are overly prescriptive and only provide support to approaches that meet tightly defined criteria. But with Social Impact Bonds the external organization is encouraged to identify approaches that have worked elsewhere and look to scale them up or expand them into new regions.

Challenges for government

Social Impact Bonds are a new concept, and there is considerable interest from federal, state, and local governments, particularly because the SIBs seem particularly suited to tight fiscal times.

But governments need to consider a few issues:

• Defining outcomes is not easy: Defining a meaningful outcome and determining the correct “price” to pay if it is accomplished is hard, and will require a set of skills that government agencies may not readily possess. It’s also important for outcomes to be objectively and rigorously measurable to avoid disagreement between government and the external organization about whether the outcome has been achieved and payment is due. Often it will be necessary to appoint a third-party organization that determines whether the outcome has been achieved—and specifies the methodology it uses to determine this.
• Avoid worrying about investor return: Government agencies should set a payment schedule for the outcome based on what they think the outcome is worth to them and society as a whole. But government will have a natural tendency to tie payment to what it considers to be acceptable returns to the external organization or its investors. This is not the right way forward. For the model to work well, governments should focus on what they are willing to pay for the outcome and resist the tendency to judge what they deem to be an acceptable return for investors.
• Clarity of roles: Social Impact Bonds require government agencies to take the lead in negotiations with external organizations on the correct outcome and price. But government agencies must leave day-to-day decisions to the external organization or its partners. In particular, government agencies need to be willing to cede considerable power over how the external organization achieves the outcome. If government tells the organization how to do the job it defeats the flexibility and innovation inherent in SIBs.
• Building trust is essential: These are complex arrangements and require considerable trust between government agencies and external organizations. Governments will need to ensure that procurement processes are not so formal that they constrain the ability to build trusting relationships with external organizations, while at the same time delivering value for taxpayer dollars. Government agencies, for example, will want to meet with key people from external organizations as part of the decision-making process.
• Funding promises must be firm: Social Impact Bonds are multiyear arrangements where government promises payment in future years if the external organization achieves the outcome. But appropriations processes can make it difficult for government to make guaranteed promises about spending in a future year. Indeed, a change in administration or composition of the legislature can take place between the commitments government makes and its payments. Government agencies will need to find ways to offer external organizations firm guarantees that payments will be made if outcomes are accomplished.
• Define exit arrangements: The external organization has strong incentives to do its best to achieve the outcome, but the payment’s “all or nothing” nature means the external organization also has an incentive to walk away if its efforts are falling short and it thinks the chances of accomplishing the outcome are very low. Government will therefore need to negotiate mechanisms for an orderly termination of the arrangement if necessary. It will also need to make sure that in the event of termination those who received services are no worse off than they would have been. If government agencies do not realize termination is a real possibility there is a risk they will be tempted “bail out” external organizations by renegotiating agreements.
• Benefits can accrue to different agencies and at different levels of government: Take homelessness, for example. If there is a reduction in chronic homelessness in a community, the local housing department could see considerable savings, but so could the federal government in programs such as Medicaid or the Veterans Health Administration. Payments to external organizations, therefore, should ideally be funded by a combination of agencies. That gives rise, however, to significant logistical challenges in government that may need to be overcome.

It is important for government to recognize that Social Impact Bonds are not a panacea. They could be transformative for many social programs, but they also will be inappropriate in many areas.

Isn’t this just a performance contract?

Social Impact Bonds differ from traditional government performance contracts in two key ways. First, most performance contracts contain a significant fixed payment from government to the contractor for the activities alongside a bonus for achieving results. But in a SIB the upfront payment is zero, and any actual payment hinges on accomplishing the outcome.

A second key difference is that in most performance contracts the government places major constraints on how contractors operate. For instance, a government contract recipient may be required to use only approved materials and methods. The Social Impact Bond model doesn’t contain these prescriptive requirements, and the external organization has considerable freedom on how to achieve the outcome.

Does a SIB have to be done the way it’s being done in Peterborough?

No. There are a number of variations to the Peterborough SIB that remain consistent with the Social Impact Bond model:

• No need for external investors to be present: If the external organization is able to raise the funds necessary for the intervention from its own balance sheet rather than from investors, that is consistent with the SIB approach.
• No need for a separate set of providers: The external organization can choose to be one of the service providers, or even the sole provider.
• Targeting more than one outcome: A number of outcomes could form the basis of the agreement and the government could promise differing payments depending on which are accomplished. For instance, the agreement could target reductions in re-offending and increases in employability for the same population and have different payments associated with both.
• External organizations could be for-profit: The external organization in Peterborough is a nonprofit, as are those providing services. If these organizations had a profit motive that would still constitute a Social Impact Bond.

Variations to the Social Impact Bond exist that do not result in a SIB per se but that improve on traditional contract arrangements:

• Guaranteed payment: The government could make a relatively modest level of guaranteed payment to the external organization even if outcomes are not achieved.
• Obligation to continue services: The external organization could be required to continue to provide services through the term of the arrangement or for a set period of time even when it believes it has a low chance of achieving the necessary outcomes.
• Greater government control: The government could place more controls on how the external organization achieves the outcome (e.g. by insisting that it only deploy techniques that government has vetted).

The agreement is not a Social Impact Bond if any of these three variations are made, and it becomes more like a performance contract. In some cases, that will be a more appropriate arrangement, as in cases where government feels it needs more control over how outcomes are accomplished.

Conclusion

Our country has real opportunities to better solve social problems through partnerships between the government, nonprofits, and the private sector. Social Impact Bonds are among the newest and most innovative ways to create those partnerships. Although SIBs are in their infancy, there is tremendous excitement in some state and local governments, in the federal government, and among foundations and nonprofits about the potential impact of this new model for funding social programs.

Those interested in solving egregious social issues are right to be excited about these unusual public-private funding mechanisms. Social Impact Bonds could significantly improve the quality of public services, save taxpayer money, and offer new approaches to providing social services without requiring government to assume all of the financial risk. But most importantly, SIBs could help give taxpayers significantly better returns for their investments.

The next issue brief in this series will explain what terms are required for a Social Impact Bond contract to work correctly—and what kinds of provisions should be kept out of SIB agreements.

Jitinder Kohli is a Senior Fellow with the Doing What Works project at the Center for American Progress.

Douglas J. Besharov is a professor at the University of Maryland School of Public Policy and a senior fellow at the Atlantic Council.

Kristina Costa is a Research Assistant at the Center for American Progress.

The Center for American Progress’s work on Social Impact Bonds is supported by the Rockefeller Foundation.

The authors are extremely grateful to those who reviewed earlier drafts of this piece and provided insightful comments. In particular, they would like to thank Kristin Giantris, Gary Glickman, Steve Goldberg , Sarah Henderson, Kippy Joseph, Ben Jupp, Ben Kershaw, Justina Lai, Kristin Misner, Tracy Palandjian, William Pinakiewicz, Jim Robinson, Sonal Shah, Jennifer Talansky and Marta Urquilla.

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Read the full brief in your web browser (Scribd)

See also:

• Social Impact Bonds 101 by Jitinder Kohli, Douglas J. Besharov, and Kristina Costa

SOURCE: AP/Jae C. Hong

Homeless people wait in line to pick up hygiene kits in Santa Ana, California. Some specific program areas that governments in the United States are beginning to explore for Social Impact Bonds include reducing recidivism, reducing homelessness, preventive health services, workforce development, and helping unemployed persons re-enter the workforce.

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See also: What Are Social Impact Bonds? by Jitinder Kohli, Douglas J. Besharov, and Kristina Costa

Imagine a company in Washington, D.C., with 100 employees, 47 of whom are 65 years of age or older. Ample scientific research indicates that adults who do not even moderately exercise have an increased risk of many health problems, including diabetes, cardiovascular disease, and some cancers. Using the Physical Inactivity Cost Calculator developed at East Carolina University’s College of Health & Human Performance, we know that if 5 percent of the inactive employees at that company exercised just a bit, it could save the company $62,300 in annual health-related costs.

The 100-employee company in Washington is similar to the U.S. Senate. And even in as intractable an organization as Congress, it would surely cost less than the projected $62,300 in savings to persuade four currently sedentary senators to start walking from their offices to votes instead of taking the Senate Subway.

Unfortunately, despite evidence about the effectiveness of preventive services in areas such as health care, education, and homelessness, budget officials and appropriators infrequently direct resources toward them.

But an innovative new financing mechanism called the Social Impact Bond may help change that. Social Impact Bonds, or SIBs, take traditional government funding structures and turn them on their head. Instead of paying costs upfront for a set of services, SIBs allow government to focus funds on approaches that work—without paying a dime if agreed-upon outcomes are not achieved.

Preventive services, as in health care, are an area where government and nonprofits are most excited about the possibilities of Social Impact Bonds. Government can too often be penny-wise but pound-foolish, cutting funds for programs that may actually save money down the road. But SIBs could fund preventive interventions without making government decision makers nervous about paying for something that may not prove effective.

A definition of Social Impact Bonds

A simple definition of Social Impact Bonds, established in our issue brief on the subject, is as follows:

An arrangement between one or more government agencies and an external organization where the government specifies an outcome (or outcomes) and promises to pay the external organization a pre-agreed sum (or sums) if it is able to accomplish the outcome(s).

What makes Social Impact Bonds unique?

To be sure, the Social Impact Bond arrangement is more complicated than this simple definition suggests and requires government agencies to behave in unfamiliar ways. For instance, for a SIB to work, agencies must place few, if any, controls on how the external organization seeks to accomplish the outcome. Unlike performance contracts, in which activities are funded upfront and government agencies often release a bonus payment for achieving defined outcomes, all payments in the SIB model are entirely contingent on the outcomes being achieved. If the external organization doesn’t achieve the outcome, the government doesn’t pay.

Where will Social Impact Bonds most likely be useful?

Social Impact Bonds are still in their infancy, and there remains a great deal to learn. But early applications of SIBs will most likely be in areas where:

• Government agencies believe they will save money as a result of the outcome being achieved
• Outcomes are observable and measurable within three to eight years
• Social interventions are shown to be effective in achieving the outcome
• Few negative consequences exist if the external organization determines it cannot achieve the outcome and discontinues services

Some specific program areas that governments in the United States are beginning to explore for Social Impact Bonds include reducing recidivism, reducing homelessness, preventive health services, workforce development, and helping unemployed persons re-enter the workforce.

Advantages of Social Impact Bonds

Social Impact Bonds provide a genuine way for government to direct funds toward interventions that work since activities that don’t achieve outcomes under a SIB will not receive taxpayer dollars.

Social Impact Bonds can also help overcome one of the most persistent shortcomings of government programs: the tendency to divide money and information into different “silos,” preventing programs and agencies from working together effectively.

The best way to lower Medicare costs for the average beneficiary, for instance, may be through some combination of early cancer screenings, nutritional consultations to prevent diabetes, and, yes, incentives to be more physically active. The optimal combination of preventive measures is likely to be different for every person. But in government there are frequently different programs and funding streams separately focusing on each measure. With a Social Impact Bond for preventive health care, however, there is a strong incentive for the external organization to coordinate different approaches to achieve the desired outcome and receive their payment.

Sometimes government agencies may find it difficult to shift funds away from ineffective programs because of poor data or political pressures. But with a Social Impact Bond, there are strong incentives and sufficient freedom for the external organization to direct funds to approaches that work—and the process of doing so is “depoliticized.”

Social Impact Bonds could be an effective way of taking innovative interventions that have worked in one area or location and “scaling up” the approach elsewhere. With SIBs, external organizations are encouraged to identify interventions that have already worked in order to assure themselves that they will achieve the outcome and receive their payment.

Challenges for government

While Social Impact Bonds may seem relatively straightforward, there are several issues for government to consider:

• It is both difficult and essential to define a meaningful, measurable outcome.
• Payments must be based on what achieving the outcome is worth to government in potential savings and to society in potential benefits, not on how much achieving the outcome will cost the external organization.
• Agencies must cede decisions about how to achieve the outcome to the external organization.
• Agencies must find ways to offer the external organization firm guarantees that they will be paid if they achieve the outcome.
• Because there are strong incentives for the external organization to stop providing services if they do not think they will achieve the outcome, agencies should carefully negotiate mechanisms for an orderly termination of the SIB arrangement.
• Payments should ideally be funded by a combination of agencies that benefit from the outcome being achieved because benefits will accrue across multiple agencies and possibly across different levels of government.

Social Impact Bonds are an exciting and innovative new way to fund social programs. But they aren’t a panacea, and there will be program areas where it will be impossible to overcome the above challenges. Government agencies will need to think very carefully about where SIBs will work best in their program areas.

Conclusion

Despite the challenges, Social Impact Bonds present a real opportunity to better solve egregious social issues through partnerships between the government, nonprofits, and the private sector. SIBs can improve the quality of public services, save taxpayer money, and offer new approaches to providing social services without requiring government to assume all of the financial risk. But most importantly, SIBs will help ensure taxpayers receive significantly better returns for their investments.

This is the first in a series of articles about Social Impact Bonds and is published to complement to our issue brief on the subject, which goes into much greater detail about the SIB mechanism, its benefits, and its challenges. Our next installment in this series will focus on the contracting stage of the SIB agreement.

Jitinder Kohli is a Senior Fellow with the Doing What Works project at the Center for American Progress. Douglas J. Besharov is a professor at the University of Maryland School of Public Policy and a senior fellow at the Atlantic Council. Kristina Costa is a Research Assistant at the Center for American Progress. The Center for American Progress’s work on Social Impact Bonds is supported by the Rockefeller Foundation.

Download this column (pdf)

Read the full column in your web browser (Scribd)

See also:

• What Are Social Impact Bonds? by Jitinder Kohli, Douglas J. Besharov, and Kristina Costa

SOURCE: AP/ Rick Bowmer

It is possible to enact reforms that resolve the postal service’s financial crisis while minimizing negative effects in communities across our country.

This brief was amended March 28, 2012 to reflect changes to the Postal Reform Act.

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The only way to reach Supai, Arizona (pop: 208), is to hike or helicopter eight miles to the bottom of the Grand Canyon. The U.S. Postal Service delivers mail and supplies there three days a week—by mule.

Our country’s steepest canyon may be no match for the American mail carrier, but our postal system does face a gaping threat from a huge hole of another kind: After several years of modest surpluses, the postal service lost $25.4 billion between 2007 and 2011, plunging $13 billion into debt.

Digging out of that financial chasm will require congressional action, and lawmakers are considering several reform plans. As they do, members of Congress should make every effort to preserve this critical and beloved American institution. Shoring up the postal service’s finances for the Internet Age is essential, but so are these core principles:

• Minimize harm. Reform efforts should minimize harm to economically and socially vulnerable communities that depend on the mail, to other government functions that rely on the postal service, and to the 574,000 Americans who count on the postal service for good, middle-class jobs.
• Address the real problems. Congress should ensure any legislation to resolve the postal service’s financial crisis actually addresses the major drivers of that crisis, among them the congressional mandate that the service prefund 75 years’ worth of retiree health benefits over just 10 years.
• Refrain from additional burdensome mandates. Congress should give the postal service more flexibility in its operations, not less, and refrain from applying additional burdensome controls on postal operations.

This issue brief examines the crisis facing the U.S. Postal Service in light of these core principles. As will be demonstrated, it is possible to enact reforms that resolve the postal service’s financial crisis while minimizing negative effects in communities across our country.

Background: How did we get here?

The postal service is an independent federal agency that is supposed to fund its operations through the sale of postage. The approximately $100 million the postal service gets from Congress each year (to pay for free mailing services for the blind and for overseas voters) is just one-tenth of 1 percent of its $75 billion operating budget.

If the postal service were a private-sector company, it would rank 29th in the Fortune 500. But it’s not only big; it’s also popular at a time of mounting cynicism about government. A 2010 Pew Research Center survey found that 83 percent of Americans gave the postal service a “favorable” rating. In the same survey favorability ratings for the two major political parties, Congress, and the government in general all reached record lows.

But the postal service is under undeniable financial pressure. Mail volume has been in decline for several years. After reaching an all-time high of 213.1 billion mail pieces handled by the postal service in 2006, volumes first leveled off and then plunged precipitously during the recession. Since 2008 mail volume has fallen 17.7 percent.

Still, the U.S. Postal Service delivers 40 percent of the world’s cards and letters. And some postal service observers believe the Great Recession—not email and the Internet—is the biggest driving force behind the recent decline in mail volume. That’s not to say that the postal service shouldn’t work to develop innovative ways to earn revenue and remain competitive as the economy recovers. But policymakers should not ignore the role played by the most severe economic downturn since the Great Depression when considering the postal service’s own financial crisis lest they find “solutions” that do more harm than good.

Three reform proposals

Three legislative ideas introduced in Congress last year represent three different approaches to solving the postal service’s financial problems. These proposals are outlined below.

The Issa proposal

The Postal Reform Act, sponsored by Rep. Darrell Issa (R-CA), contains provisions to allow the postal service to switch from six- to five-day residential delivery and to make adjustments to rural delivery practices. But the bill focuses most of its attention on closing budget gaps through changes to the postal workforce. The bill would create two new oversight organizations for the postal service:

• The Commission on Postal Reorganization, which would review plans for facility closures (a role already undertaken by the independent Postal Regulatory Commission)
• A new solvency authority, which would have the ability to approve new collective bargaining agreements, among other powers, should the postal service enter a “control period.” A previous version of the legislation gave the solvency authority power to “reject, modify, or terminate one or more terms of conditions of an existing collective bargaining agreement”

According to the Center for American Progress Action Fund’s David Madland, this is nothing more than hidden union busting and ignores the successful workforce reduction agreements that postal service management and the postal workers’ unions reached during the recession. Moreover, the minority view of the bill expresses concern that “the bill mandates the establishment of costly bureaucratic Commissions and governing Boards that may be no more successful than the Postal Service’s existing reform efforts.”

The Sanders proposal

The Postal Service Protection Act, sponsored by Sen. Bernard Sanders (I-VT), looks to close the postal service’s financial gap in part by refunding overpayments made to the Postal Service Retiree Health Benefits Fund, the Postal Service Fund, and the Employees’ Compensation Fund under the Federal Employees’ Compensation Act. The postal service is estimated to have overpaid pension funds by as much as $13 billion.

The bill would also encourage the postal service to find additional revenue sources by establishing criteria under which post offices can provide nonpostal services such as document notarization and check cashing, and by legalizing the mailing of wine and beer by licensed wineries and breweries across state lines. These are among the many services that the post office is legally prohibited from offering.

The Lieberman proposal

The 21st Century Postal Service Act, sponsored by Sen. Joseph Lieberman (I-CT), takes a different tack, seeking to reduce the overall workforce of the postal service while adjusting retiree-benefit formulas to close that financing gap. The Lieberman bill authorizes the postal service to offer buyouts to employees with the goal of reducing the workforce by as many as 100,000 workers over three years. The bill also recalibrates the amortization formula for mandated prefunding of retiree health benefits but does not rescind the requirement as Sen. Sanders has advocated.

The differences between these three bills highlights why keeping the postal service financially viable during our nascent economic recovery while maintaining the high quality of mail services Americans expect is a difficult practical and political proposition. But Congress should take care to ensure that new postal service legislation helps solve, rather than create, problems for the postal service.

Principles for postal reform

Reforms must not endanger vulnerable Americans

Cost-saving ideas floated frequently for the postal service—including by the postal service itself—include reducing delivery from six days per week to five, and closing some of the service’s 31,871 locations. But these reforms alone would not solve the postal service’s financial problems, and in fact would greatly inconvenience customers who rely on the postal service for vital mail and packages. A number of studies have been conducted considering possible savings from a reduction in delivery days. Conclusions vary widely.

A U.S. Postal Service study in 2008 estimated the five-day week could save $3.5 billion annually, with no reduction in revenues. But another study that year by the Postal Regulatory Commission, the postal service’s regulatory overseer, estimated savings of $1.93 billion annually, with a loss of $580 million in decreased sales. And in 2010 the commission reviewed the 2008 U.S. Postal Service study and found that the postal service had overestimated savings and underestimated revenue losses. The revised net savings totaled $1.7 billion annually. These are significant sums to be sure, but are not nearly large enough to close the postal service’s budget gap.

The postal service has also proposed closing post offices in 3,700 communities across the country—many of them rural—in order to cut costs. These closures would likely disproportionately affect the elderly, who may receive Social Security benefit checks and retirement benefits through the mail, along with vital prescription drugs. Of the post offices being considered for closure, 80 percent are in rural areas where the poverty rate is higher than the national average, and one-third are in areas with limited or no access to wired broadband Internet.

Not only would closing these offices endanger vulnerable Americans and communities, but the savings are also minimal in the context of the postal service’s operating budget. Closing all 3,830 post offices on the proposed closures list would save about $295 million per year. That’s about four-tenths of 1 percent of the postal service’s $70 billion in annual expenses. In a Reuters article, former Postmaster General William Henderson said these savings amount to “not even a drop in the bucket. The bucket won’t ripple.”

And the planned closure of about half of the postal service’s 487 mail processing facilities means the first decline in delivery standards in 40 years. Under current standards, the postal service must deliver first-class mail within the continental United States within three days. After the processing facility closures, however, delivery time will increase by two to three days. The elimination of Saturday delivery and the closing of post offices in vulnerable communities would exacerbate problems for those Americans who are most reliant on mail services.

Reforms should not endanger or degrade other government functions

The postal service does more than make sure that Grandpa gets his cholesterol medication out on the farm. The decennial Census, for instance, uses postal service databases to help build its list of residences. And of course the government sends a good deal of mail. Between 1997 and 2007 the House of Representatives alone sent 1.24 billion pieces of mass mail.

Moreover, the proposed closure of both retail and sorting facilities has voting officials around the country concerned about the November election. California and Arizona voting officials are concerned about the anticipated delays in mail speed that will result from processing facility closures, while the state registrar in the swing state of Ohio is worried about security if mail-in ballots are sent to a processing facility across state lines to be sorted. And in Oregon, the first state to require its residents to vote by mail, the closure of rural post offices will make it more difficult for those residents to submit their ballots at all.

And in the event of “man-made or natural disasters or national emergencies,” the postal service remains a reliable mode of communication in reaching affected areas, as the U.S. Postal Service Office of the Inspector General points out in its semiannual report to Congress. The report also claims that the postal service is uniquely situated to provide secure services—after all, mail tampering is a federal offense but email tampering is not. “The Internet was not constructed to ensure privacy, validate participant identity, or facilitate financial transactions,” the inspector general writes. “A trusted government entity might best provide services that ensure privacy is protected around medical records, data collection, and confidential transactions.”

Reforms must not unnecessarily endanger middle-class jobs

The postal service currently employs 574,000 career postal workers. Of those half a million employees, 21 percent are African American, making the postal service one of the largest single employers of minority workers. And the postal service is also the single-largest employer of veterans, who make up 22 percent of the postal workforce. Some 49,000 veterans employed by the postal service—about one-third of the veterans employed there—are disabled.

In 2010 the postal service reduced total work-hours by 75 million—a number equal to 42,800 full-time employees. And since the recession began in 2007, the postal service has eliminated 110,000 jobs while maintaining service quality. Labor costs may be the postal service’s biggest operating expense but that’s to be expected in a very labor-intensive line of work. The postal service makes daily deliveries to seven to eight times as many addresses as private parcel delivery companies.

The total number of jobs at risk of being cut from proposed retail and processing facilities is unclear but could reach 220,000. Congress should be finding ways for the post office to be more competitive, not encouraging even more of the public-sector layoffs that have been exerting a drag on our economic recovery.

Reforms must address the retiree health benefit mandate

First-class mail volume has declined since fiscal year 2006. The postal service responded to this decline by doing one of the few things they are authorized to do without congressional approval: increasing postage rates. When the recession hit, the postal service was able to keep mail revenues steady through these rate increases and by working with its unions to cut more than 110,000 jobs. It’s important to note, however, that the postal service cannot raise postage rates higher than the Consumer Price Index without approval from the Postal Regulatory Commission—and that the commission declined one such request in the fall of 2010, when the postal service attempted to raise postage rates by 5.6 percent to help balance its books.

The postal service’s efforts to respond to the recession, however, were complicated by the Postal Accountability and Enhancement Act of 2006. Among other provisions, this legislation requires the postal service to prefund 75 years’ worth of its future retirees’ health benefits in just 10 years. No other company or federal agency in the United States is required to prefund future retiree benefits in full or in such a short time. This legislative mandate costs the postal service a stunning $5.6 billion every year. But the 10-year payment schedule was set primarily to make the legislation budget-neutral “rather than corresponding to actuarial requirements or financial conditions at the Postal Service,” according to a 2009 committee report from the House Oversight and Government Reform Committee.

Without this legislative requirement to prefund retiree health benefits, the U.S. Postal Service would not have experienced operating losses until fiscal year 2009, instead of beginning to run losses in fiscal year 2007. Even after that point operating losses would have been relatively small and traceable to recession-related declines in mail volume.

The mandate to prefund retiree health benefits is also the driver of the postal service’s large debt burden. The postal service’s $15 billion credit line from the U.S. Treasury Department was established in 1970 and was intended to allow the postal service to make capital investments in keeping its facilities and fleet of vehicles up to date. In 2005, before the Postal Accountability and Enhancement Act, the postal service had no outstanding debt. Today, however, it has racked up $13.2 billion in debt, largely because of trying to meet its statutory obligations for health benefits for future retirees, according to the National Association of Letter Carriers, a trade union.

Reforms should give the postal service more flexibility, not less

The postal service by law is prohibited on its own from:

• Reducing the number of residential delivery days
• Raising postage rates any higher than the Consumer Price Index
• Selling anything other than “postage stamps, stamped paper, cards, envelopes, philatelic services, and ancillary items”
• Providing nonpostal services such as document notarization or check cashing

Lifting some combination of these legal restrictions—and refraining from adding additional burdensome mandates—would allow the postal service to work with its employees and with the Postal Regulatory Commission to address its financial problems while remaining competitive.

Conclusion

Most Americans aren’t as dependent on the postal service as are the residents of Supai, Arizona, at the bottom of the Grand Canyon. But the postal service is the most demonstrable example of government working the way it ought to, every day, for every citizen. For far less than a dollar, you can mail a birthday card, a wedding invitation, or a letter to your mother from any part of the country to any other.

You can send it from a post office, from a curbside mailbox on a busy street, or from your own front door. It will arrive in less than a week and it will arrive at the addressee’s home or office. It’s an organizational miracle that has been made predictable—even prosaic—by the postal service’s consistent professionalism.

Saving the postal service isn’t about minimizing competition for private-sector parcel deliverers, or about saving a few thousand dollars a year by closing a low-grossing post office, or even about reforming benefits for the postal service’s labor force. Saving the postal service is about the public good.

In a series of congressional hearings on six-day delivery in 1977 and 1978, former Rep. Timothy Wirth (D-CO) stated that the service was a “social value” and that cutting service would worsen the opinions of those who were “losing some of their faith in what government can do for them.”

At a time when distrust in government is at an all-time high, it’s more important than ever to give the government agency most trusted by the public to perform well on their behalf the flexibility it needs to meet the economic demands of the 21st century.

Kristina Costa is a Research Assistant at the Center for American Progress.

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SOURCE: AP/J. Scott Applewhite

President Barack Obama delivers remarks on government reform in January 2012. The Business USA portal is part of his government restructuring plan.

You can also read this article at Science Progress, CAP’s online science and technology policy journal, here.

The White House last week took a big step in answering businesses’ call for a more effective and efficient interface with federal government programs by launching the new Business USA portal. This single online resource enables businesses large and small to easily discover and research the wide array of federal programs and services provided by dozens of federal agencies to help them innovate and increase their competitiveness.

This is the latest step by the Obama administration toward breaking down bureaucratic silos, increasing interagency collaboration, and making the federal government leaner, more efficient, and more customer-friendly. But much still must to be done to build the modernized government that American workers, businesses, and industries need to stay cutting-edge and to compete for the jobs of the 21st century.

To better understand the significance of Business USA and where it can be improved swiftly—a key goal of the administration as the new portal goes through its “beta” testing phase of development—it’s important to break down three distinct but related problems currently keeping federal innovation-oriented business programs from performing at their peak potential. Specifically, what impedes better private-public business solutions to help our economy grow are:

• The problem of discovery—knowing what the federal government provides
• The barrier to customer service—too much red tape
• The lack of strategic coordination among programs with complementary goals and similar constituencies

Let’s look at each of these problems in turn before highlighting a slate of reforms the Center for American Progress presented earlier this year to the administration and Congress. 

The problem of discovery 

The federal government operates hundreds of programs and services designed to help businesses create jobs and grow the economy. These programs are currently managed, maintained, and operated by dozens of federal agencies and many of them overlap. But many businesses simply are not aware or are not easily able to navigate the plethora of programs that exist to help them obtain financing, export assistance, manufacturing assistance, research and development funding, technology licensing, technical assistance, or other forms of counseling. This is mostly because these programs are managed without clear coordination by many different federal agencies, each of which market them differently—or in some cases not at all.

The problem of customer service

Once a business has identified one or more federal programs in which it is interested and eligible, actually completing the application process can be difficult, time consuming, expensive, and confusing. Furthermore, separate requirements and applications for programs managed by separate agencies make it difficult for businesses eligible for many similar programs to access the ones best suited to their needs.

Just one case in point: The National Institute of Standards and Technology manages the Technology Innovation Program, a competitive grant program to help small- to medium-sized firms innovate in strategic technological areas. At the same time the Small Business Administration and 11 different agencies maintain the Small Business Innovation Research and Small Business Technology Transfer Programs. These programs are designed to help small- to medium-sized firms obtain funding to pursue risky technological innovations but require separate applications.

What’s more, program requirements—which range from size to ethnic, gender, or socioeconomic status of organizational leaders to geographic location to industry sector—are mismatched with assistance delivery mechanisms, which range from project grants to microloans to financing assistance to technical assistance and others. Better aligning eligibility requirements with assistance tools can make federal programs more flexible and better able to ensure that every eligible businesses in need gets the right kind of assistance it needs to innovate and grow.

The lack of strategic coordination

This keeps federal business programs from working together with complementary innovation programs aimed at university technology transfer, community development, workforce training, and trade assistance at the regional economic level. CAP’s Science Progress project in 2009 detailed the importance of these "regional innovation clusters," and more recently my colleague Jennifer Erickson and I discussed why businesses do not exist, thrive, or innovate in a vacuum—their success is interconnected with the success of the communities, regions, and industries within which they operate.

Whether for high-tech, high-growth startups or small-town mom-and-pop businesses with more modest ambitions, the best businesses plans are responsive to local economic conditions. Innovative businesses must take into account the availability of local assets and liabilities such as infrastructure planning, district or regional economic development initiatives, local workforce talent, formal or informal university partnerships, and proximity of both supply chain partners and customers. In short, the vitality of the many regional economies upon which our nation is built and the success of businesses in these economies are fundamentally intertwined, yet the current fragmented system of federal businesses assistance programs is not well-coordinated with other existing federal efforts to invest in these important determinants of success. That means that federal programs supporting a small business as well as a university technology transfer effort, a community college workforce-training program, and a regional economic development plan in the same region, might not coordinate whatsoever.

Enter the Business USA portal

The Business USA beta portal tackles the first of these three challenges—the problem of discovery—head-on. It creates one place where businesses can go to discover the plethora of existing federal assistance programs available to them. As my colleague Kristina Costa wrote in January:

You might think that the Small Business Administration would be the go-to place for all things small business—but that assumption leaves out loan programs administered by the Departments of Agriculture and Energy, among others. “It’s hard to know which [loan] is best for you if they aren’t all in one place,” says Christine Koronides, who oversees small-business policy for the White House National Economic Council.

The recent “State of the Federal Web” report conducted, among other things, an inventory of federal websites. Fifty-six federal agencies publish 1,489 top-level .gov domains—and a dizzying 11,013 lower-level websites. This isn’t a knot that Google can untangle on its own—important information can be buried in poorly formatted .pdf or .doc files that search engines may not be able to parse.

The increased awareness from consolidating many of these resources in one website stands to increase utilization rates of many of these programs and maximize the economic bang for the taxpayers’ buck. But while the Business USA beta portal addresses the discovery problem, it leaves unanswered the questions of customer support and strategic coordination.

Another step toward tackling the customer service challenge can be taken by implementing the Business USA hotline that President Barack Obama highlighted when unveiling the new portal and by doing a comprehensive review of existing program application requirements with the goal of streamlining and integrating as many of them as possible using existing executive authority.

Next steps

To truly bring federal businesses and innovation programs into the 21st century, Congress needs to empower federal agencies to share information, increase the flexibility with which assistance tools can be applied to eligible firms, and coordinate strategically toward shared goals such as job creation, export expansion, regional economic invigoration, and technological innovation. Our proposal for a common application for federal innovation and competitiveness programs would move us further in the right direction by encouraging entrepreneurs, investors, universities, workforce interests, exporters, and other players to collaborate to access federal assistance jointly around shared goals.

Demand for these kinds of coordinated interagency programs focused on innovation clusters has grown among regional public, private, and nonprofit economic players and planners. Just look at the high number of applicants relative to available funding for the Energy Regional Innovation Clusters program, i6 challenge, and Jobs and Innovation Accelerator programs. Each of these programs coordinated the resources across six or more federal agencies to deliver funding to self-assembled regional innovation consortia with proposals that leveraged businesses, workforce, technology, and trade for innovation, job creation, and growth.

But this kind of interagency coordination and on-the-ground collaboration around shared goals needs to become the norm rather than the exception across the thousands of existing federal assistance programs. Rather than managing the rich array of existing resources independently as separate programs, a new structure such as the common application we propose could manage them as complementary tools to be deployed strategically to encourage bottom-up collaboration around shared goals of innovation and national competitiveness.

As my co-author Jonathan Sallet and I discussed in more detail in our recent paper, “Rewiring the Federal Government for Competitiveness,” shifting existing programs to empower businesses, entrepreneurs, inventors, researchers, and workforce development organizations to work together could go a long way toward spurring innovation that creates new economic value, business activity, and jobs in regions across the country.

President Obama announced his intention to take these next steps when he called for “one department with one website, one phone number, and one mission—helping American businesses succeed.” The ball is now in Congress’s court to allow the president to build on what he started with Business USA and to bring antiquated government bureaucracy up to speed with the dynamic needs of the 21st century global innovation economy.

Sean Pool is Managing Editor of Science Progress, a Center for American Progress project.

SOURCE: AP/ Ted S. Warren

The Legislative Building at the Washington State Capitol in Olympia. The Washington State Institute for Public Policy, which was created by the state legislature in 1983, provides a proven model for data-driven legislative decision-making.

This is the third of a three-part series that looks at how public agencies can invest resources in programs that work.

Consider a program in which low-income women who are first-time mothers receive regular visits at home from nurses. The nurses work individually with the women, giving them information about nutrition and child development, and serve as trusted resources for women who may otherwise have a difficult time obtaining such advice.

Now consider that this program is also fantastically effective. Rigorous, independent, repeated studies demonstrate that participation in the nurse home-visiting program leads to a 20 to 50 percent reduction in rates of child abuse and neglect—and up to $13,000 in savings from reduced use of Medicare, Temporary Assistance for Needy Families, and the Supplemental Nutrition Assistance Program.

What is described here is a real program, supported by the U.S. Department of Health and Human Services, modeled on what is known as the Nurse-Family Partnership. It is one of a small number of programs supported by the federal government in which there is strong evidence that enrollment in the program leads to better outcomes for participants—and big-picture cost savings for government.

How do we know this? Well, it’s easy to imagine a world in which funding decisions would be made by looking for evidence of what works, but sometimes that’s just not the way Washington works. But in this case it is easy to imagine because that world already exists—in Washington State, rather than in Washington, D.C. There, the Washington State Institute for Public Policy, which was created by the state legislature in 1983, provides a proven model for data-driven legislative decision-making. It’s nothing short of “what works” in action.

The institute’s mission is to conduct “practical, nonpartisan research” as directed by the state legislature “on issues of importance to Washington State.” The institute’s handiwork is evident in its analysis of the Nurse-Family Partnership, but a great deal of the institute’s research revolves instead around reducing crime and recidivism—with remarkable results. “Relative to national rates, juvenile crime has dropped in Washington, adult criminal recidivism has declined, total crime is down, and taxpayer criminal-justice costs are lower than alternative strategies would have required,” reads the Institute’s July 2011 “Return on Investment” update. That update included a cost-effectiveness ranking of a number of juvenile justice programs—revealing, as Wednesday’s column discussed, that the popular Scared Straight program has a negative return on investment.

On a December 2011 episode of “Inside Olympia,” state Sen. James Hargrove drew an even starker picture. After running through a number of evidence-based initiatives undertaken to reduce crime and recidivism, Hargrove said, “All of this now has rolled up to where we have a violent crime rate in this state that is below the national average and we are doing it with less than half as many people in prison per thousand than most states.”

What’s more, Hargrove continues, those efforts are saving Washington taxpayers a little more than $1 billion dollars every two years. Washington state’s experience with evidence-based crime-reduction programs clearly illustrates that a desirable social outcome can be achieved while simultaneously cutting overall costs to the government. The institute’s role in all of this is absolutely critical, and follows four basic steps:

• Identifying “what works” by analyzing high-quality studies of a range of programs, much like the “what works” platforms discussed in yesterday’s column
• Calculating costs and benefits for the state and producing a Consumer Reports-style ranking of options
• Taking uncertainty into account by “testing how bottom lines vary when estimates and assumptions change”—in other words, conducting a risk analysis
• When possible, providing a “portfolio” analysis of how a range of interventions and programs can influence the big picture

A breakdown of this kind of effective analysis is evident in the juvenile-justice programs examined by the Washington State Institute for Public Policy, which ranks public-policy options by clearly showing costs and benefits. These are detailed in the accompanying illustration.

There are multiple benefits to the institute’s approach. Beyond merely identifying “what works,” conducting rigorous cost-benefit analysis provides information vital to policymakers trying to choose the best program for their budget. Calculations of risk and uncertainty provide a range of possible cost-benefit outcomes and provide some measure of insulation from critics. Such a big-picture “portfolio” analysis of how a range of programs interact to improve overall outcomes helps cut across funding streams and program areas that have been historically funneled into isolated “silos.”

In a difficult fiscal environment, congressional appropriators in the nation’s capital should be directing funds toward programs that are proven to deliver positive results, such as the Nurse-Family Partnership, and working to identify more such programs. As the experience of the Washington state legislature and the Washington State Institute for Public Policy shows, you can have evidence-based legislative decision making—as long as you are truly committed to “doing what works.”

Kristina Costa is a Special Assistant with the Doing What Works project.

SOURCE: AP/Pablo Martinez Monsivais

Education Secretary Arne Duncan speaks in the Eisenhower Executive Office Building in Washington. There are several "what works" platforms already in effect in the education world, including the Department of Education's What Works Clearinghouse.

This is the second of a three-part series that looks at how public agencies can invest resources in programs that work.

President Barack Obama this coming Monday will submit his fiscal year 2013 budget request to Congress. These are budget-conscious times, as the political events of 2011 showed. That’s why the White House should work hard to ensure that as much money as possible is directed toward programs that are proven to work rather than just to the places where money was spent in years past. If every public dollar is to stretch further than before, then legislators can make serious efforts to steer funds toward proven programs and interventions—in other words, toward “what works.”

In the educational arena these may be programs that try to improve literacy rates among struggling students in low-income or minority school districts, for instance, or aim to improve outcomes for children learning English as a second language. Even where federal programs support state or local governments, federal agencies should ideally seek to ensure that funds are directed toward approaches that work.

A second, obvious challenge presents itself immediately, though: How will legislators and on-the-ground decision-makers know which programs are proven effective and which aren’t? One solution to finding and funding “what works” already exists in the world of education. A number of online platforms strive to provide lawmakers, school officials, and foundations making philanthropic donations with comprehensive information about the effectiveness of a wide range of education programs.

These “what works” platforms are in their infancy but they represent a promising step toward evidence-based public decision-making in education. Presented below are several that the Obama administration and Congress should examine as they negotiate federal spending on education in the FY 2013 federal budget beginning in October this year.

Three “what works” platforms for education

The Center for American Progress late in 2011 hosted representatives from a number of “what works” platforms alongside several primary and secondary education researchers and Department of Education employees to gauge the efficacy of these platforms. Let’s first look at each of them and then examine their promise and limitations.

What Works Clearinghouse

The What Works Clearinghouse was established in 2002 to be a central, trusted source for “what works” in education. The Department of Education-run clearinghouse exists to “study the studies.” To date, the clearinghouse has reviewed 250 interventions in 15 different topic areas. The site provides a searchable database of studies, a review of the extent of evidence for a given study, and points out gaps in the evidence to “provide educators with the information they need to make evidence-based decisions.”

Top Tier Evidence Initiative

The Top Tier Evidence Initiative, launched in 2008 by the Coalition for Evidence-Based Policy (a nonpartisan organization dedicated to “increasing government effectiveness through the use of rigorous evidence about what works”), follows a legislative standard to identify proven social interventions via well-designed, randomized, controlled trials that have been reproduced in community settings. They evaluate a wide range of social programs, including educational interventions.

Best Evidence Encyclopedia

The Best Evidence Encyclopedia, operated by the Johns Hopkins University School of Education’s Center for Data-Driven Reform in Education, developed a Consumer Reports-esque rating system for evaluating the strength of evidence supporting various education interventions. The BEE’s gold standard of evidence involves randomized studies at least 12 weeks in duration using large groups of students and valid, large measures of success.

Philanthropic “what works” platforms

There are also a number of “what works” platforms that aim to guide philanthropic dollars toward proven social interventions. These include the Center for High Impact Philanthropy, Social Impact Exchange, and the Business-Higher Education Forum. These platforms provide data-driven evaluations of social programs as a service to foundations and individual donors who want to fund proven programs.

Outstanding issues in existing platforms

The “what works” platforms described above are an important first step for steering more money toward proven educational interventions. As in any fledgling field, however, there is still some work to be done. There aren’t yet very many programs proven “effective” under the most rigorous standards of evidence.

For instance, 90 percent of programs reviewed by the Department of Education’s What Works Clearinghouse do not meet their standards of evidence. Similarly, the Top Tier Evidence Initiative has been able to identify only eight “top tier” interventions and four “near top-tier” ones. In part that is because many programs have never been evaluated to determine effectiveness.

There are also two key metrics that the platforms don’t all take into account. The first is implementability, or the likelihood that a program that works in one school or district will work in another school or district. The other is the critical issue of cost-effectiveness, or the colloquial “bang for the buck.”

A recent report by Lisbeth Schorr and Frank Farrow of the Center for the Study of Social Policy underscores the problem of implementability. They find that context matters, with even proven programs working well in one school district but needing to be tweaked to deliver the same results under different conditions in another.

The platforms should seriously consider including data on cost-effectiveness in their evaluations. Principals, superintendents, and school boards need to have this information in order to decide whether they should choose an intervention that has a 90 percent effectiveness rate but costs $1,000 per child, or a program with a 75 percent effectiveness rate that costs just $250 per child.

The bottom line: “What works” platforms are important and useful even without being perfect, but the federal government should be doing more to incentivize their use and to accelerate the creation and testing of evidence-based interventions in education and elsewhere. This will have the added benefit of boosting demand for evidence-based interventions—without a range of options to choose from, school-level decision-makers sometimes resist new data-driven models. In a difficult fiscal environment, every penny that can be directed toward a proven, evidence-based model should be used to achieve better results.

Kristina Costa is a Special Assistant with the Doing What Works project.

SOURCE: AP/ Ted S. Warren

Research shows that Scared Straight programs, which bring at-risk teens to prisons in an effort to deter them from potential criminal behavior, have no positive effect and can actually lead to a greater likelihood of offending actions.

This is the first of a three-part series that looks at how public agencies can invest resources in programs that work.

“When you get in here, you gonna wash my clothes,” shouts the inmate. “And I’m gonna take your food.” A look of fear creeps across Amberly’s face. Another inmate shouts at a nearby girl, Keandra, “This is not fun, putting y’all in uniforms and shackles. I’m a grown woman and I still break down now.” Tears start running down Keandra’s cheeks.

Amberley, 17, and Keandra, 14, are visiting Western Tidewater Regional Jail in Suffolk, Virginia, and they both look very scared. That’s supposed to be a good thing because they are both participants in a Scared Straight program. By exposing teenagers at risk of criminality to prison up close, these programs seek to deter them from offending. Inexpensive to run at about $60 a person, Scared Straight programs would seem to be a small price to pay given the enormous costs associated with crime.

The American public knows about Amberly and Keandra because Scared Straight programs also make great television. A&E TV featured the girls in an episode of “Beyond Scared Straight” that aired on December 29. More than 2 million people watched the episode, making it one of the most popular cable television shows that night.

There is only one problem: Scared Straight programs don’t actually work. Far from reducing crime, research shows that participants in Scared Straight programs are about 7 percent more likely to commit crimes afterward than those who don’t participate. This finding is not even new—repeated studies carried out since the 1960s show that Scared Straight programs have no positive effect. In fact, a 2002 paper published by the Campbell Collaboration summarizing the results of nine studies concluded these programs lead to greater offending behavior.

On average, every dollar spent on a Scared Straight program costs government agencies more than $100 as a result of increased future crime costs such as incarceration, policing, and court time. So if a government agency invests $10,000 in a Scared Straight program it is just a sophisticated way for it to throw $1 million down the drain. But the costs don’t stop there because the victims of crimes committed by Scared Straight program participants also suffer. Studies estimate that costs to victims of crime are even greater than those to government.

Even if government agencies had spare cash, it would be irresponsible for them to invest in a program that does more harm than good. But with budgets tight it is more important than ever that agencies focus resources on programs that actually work.

It’s hard to know for sure why the programs increase crime, but Anthony Schembri, who served as secretary for the Florida Department for Juvenile Justice and as Corrections Commissioner in New York City, explains that one reason might be that delinquent youth realize that prison is a place where they might fit in. Another reason could be while they appear scared during the visit, they feel pressure from peers to show that they were not scared and therefore engage in criminal activities to “prove” it.

Whatever the reasons, I don’t like it that A&E screens a television show that glamorizes government programs that increase crime. But if it attracts lots of viewers, I know why they choose to do so. After all, the channel is trying to maximize its profits, and more viewers mean more advertising revenue. It’s not the channel’s job to reduce crime—that’s the job of government agencies.

But what’s galling is seeing state and local governments around the country wasting taxpayers’ money on programs that do not work. It’s very rare that a public servant will actually want to waste taxpayer dollars, so why do they invest in Scared Straight programs?

One part of the answer is that many simply don’t know that the research shows the programs don’t work. The programs sound like they should work, and they are relatively cheap to administer so surely it’s worth trying them out. Few public officials would stop to think that the programs might actually do more harm than good.

Another part of the answer is that government agencies might face political pressure to run these programs. In some cases legislators might direct appropriations to these kind of programs even when the agency is unclear of the merits of doing so.

Thankfully, there are ways to do what works. Researchers find numerous effective programs focused on teenagers at risk of re-offending. The WayOut program, for example, administered in Snohomish County, Washington, works with teenagers and parents. They attend a two-day educational seminar focused on helping young people build a future without crime. The program costs around $200 to administer (four times as expensive as Scared Straight) but it reduces a participant’s chances of engaging in crime by more than 2 percent, saving taxpayers more than $10 per dollar of investment.

Another effective program is Aggression Replacement Training. This program works with young people to help them overcome anger-management problems. It is an intensive program, with teenagers spending 30 hours over 10 weeks learning how to overcome their aggression. And at around $900 per participant, it is 15 times more expensive than the average Scared Straight program, but it is also much more effective. Research shows that participants are around 7 percent less likely to engage in crime as a result of the program, saving taxpayers more than $7 per dollar of investment.

Public officials that want to reduce crime would be much more successful if they invested taxpayer dollars in approaches such as these. And if they are currently supporting a Scared Straight program, they should close down the program and replace it with something that works. Agencies should also consider innovative financing mechanisms such as pay-for-success bonds that ensure taxpayer dollars are only focused on approaches that actually work.

Jitinder Kohli is a Senior Fellow on the Doing What Works program at the Center for American Progress.

SOURCE: AP/Charles Krupa

Gov. Deval Patrick has just launched a request for proposals for pay-for-success projects in his state that will focus on on chronic homelessness and supporting youth exiting the juvenile-justice system.

This year will mark the first time so-called “pay-for-success” bonds gain a foothold in the United States, courtesy of President Barack Obama, Massachusetts Gov. Deval Patrick, and New York City Mayor Michael Bloomberg. It’s been a short time coming, which is good news for supporters of this new way of financing social services that matches money with specific social-policy goals.

It was only in last year’s federal budget that President Obama announced that his administration endorsed the idea of pay-for-success bonds. The administration at the time said it believed the concept had significant promise—and asked Congress for up to $100 million to help states and cities implement the idea. Then last week the administration announced that the Departments of Labor and Justice would both support pay-for-success pilots through the Workforce Innovation Fund and Second Chance Act grants.

Massachusetts Gov. Patrick is now following in the president’s footsteps, having just launched a request for proposals for pay-for-success projects in his state. And Mayor Bloomberg is also developing a pay-for-success project for young people discharged from prison.

Pay-for-success bonds, also called social impact bonds, are an innovative financing arrangement for social services that the Center for American Progress first wrote about in 2010. In essence, the government defines a social outcome that it wants to see accomplished, such as a reduction in the recidivism rate for a group of discharged prisoners, and promises to pay a sum of money to an external organization when the outcome is achieved. If the idea takes off, it will ensure that more government funding is directed toward approaches that are effective at achieving real outcomes.

The Obama administration is now making available funding for states and cities that wish to try out the concept. The Department of Labor will release up to $20 million and the Department of Justice will also release funds through its Second Chance program. Even though the total amount of federal funding is unlikely to be near the $100 million originally proposed, the sums are still significant and will help states and cities that are considering embarking on pay-for-success approaches.

Meanwhile, in Massachusetts Gov. Patrick said it would like to focus the first pay-for-success bond projects on chronic homelessness and supporting youth exiting the juvenile-justice system. In both of these areas, success can lead to significant savings for government. How? By reducing homelessness, saving on Medicare, and cutting state-funded housing costs.

Gov. Patrick’s administration also sent legislative language to appropriators in Boston to allow pay-for-success approaches to take root. Most importantly, this language ensures that when the state makes a commitment to an external provider it will release funds when an outcome is achieved. This commitment is backed by the full faith and credit of the state. It also ensures that government agencies put money aside as they go along rather than plan to appropriate the funds in the year when the money is released.

Britain has pioneered the concept abroad, but Massachusetts will almost certainly be the first state to adopt the model in this country. New York City is also making considerable progress and is likely to be the first city to embark on a pay-for-success bond focused on reducing the recidivism rate of young people discharged from prison.

But other states and cities are also interested and the release of federal funds should help to catalyze progress in this area.

In a world of tight budgets, it is more important than ever to make sure that taxpayer dollars are directed toward accomplishing outcomes rather than just funding activities. That is exactly what pay-for-success bonds ensure.

Jitinder Kohli is Senior Fellow at the Center for American Progress on the Doing What Works project. Douglas J. Besharov is a professor at the University of Maryland School of Public Policy and a fellow at the Atlantic Council. He was the first director of the U.S. National Center on Child Abuse and Neglect, and is the author of Recognizing Child Abuse: A Guide for the Concerned, published by the Free Press. The Center for American Progress’s work on Pay for Success is supported by the Rockefeller Foundation.

SOURCE: AP/Haraz N. Ghanbari

President Barack Obama waves after delivering remarks on government reform on January 13, 2012, in the East Room of the White House in Washington.

One year ago President Barack Obama charged his Chief Performance Officer Jeff Zients and Senior Adviser Lisa Brown to lead a government reorganization effort that would transform a government “stuck in the age of black-and-white television” to one that ensures U.S. global competitiveness “in the age of the iPad.”

President Obama today takes a crucial step toward that transformation with a thoughtful and far-reaching plan to reshape the federal government to more effectively focus on ensuring U.S. long-term economic competitiveness. Just like any successful business, the federal government itself needs to streamline and organize for global competition—that is what this plan will do.

It starts by calling for the merger of six departments and agencies focused on business and trade. The combination of these entities will make the government’s business-focused policies leaner, smarter, and more effective. It will enable a long-term strategy that ensures American businesses find more investors and customers, that more jobs are created here, and that workers enjoy a rising standard of living.

As we demonstrated in our December 2010 report, “A Focus on Competitiveness: Restructuring Policymaking for Results,” the U.S. policymaking process badly needs to be better organized in order to produce a coherent and coordinated long-term strategy for our economic competitiveness. Then we need to manage to that strategy.

We are happy to see many of our recommendations echoed in the administration’s plan. And we urge Congress to become a strong partner in this effort, starting by granting the president his traditional authority to streamline, consolidate, and reform the executive branch.

As a former White House chief of staff, I know how hard it is to challenge the status quo in Washington. Congressional inertia and entrenched special interests—whose specialty is often gaming dysfunctional systems—combine to make commonsense reorganizations of federal agencies a monumental challenge.

It thus shows real courage for the president to take on this challenge, but the need could not be greater. We are at a moment of national reckoning: We either marshal our collective resources to support the private sector and ensure American competitiveness, or we risk eroding our position of preeminence in the global marketplace.

The stakes for getting this right are high. Other countries are gaining on us in measures of scientific literacy, research and development, and infrastructure investment. To remain No. 1, we need to respond.

The good news is that the United States is emerging from the Great Recession of 2007-2009 still poised to be the world’s most innovative, productive, and prosperous country. The attention to competitiveness in the Obama administration is boosting the prospects that our children will enjoy—and surpass—our current standard of living.

But it will take relentless and continued focus on jobs and competitiveness to ensure that we regain our ground in an increasingly competitive world, and that our prosperity is broadly shared around the globe.

John D. Podesta is Chair and Counselor at the Center for American Progress.