Articles

Attention to Climate Change is About Justice and Economics

Thursday, January 22, 2015
by Marc J. Lane



Climate change, mostly the result of carbon pollution, threatens the health of the nation's—and Chicago's—residents. Ground-level ozone, particle pollution, pollen concentrations, infectious diseases, asthma and other respiratory illnesses, heavy rainfall and flooding, and extreme-heat events all are on the rise.

The city's children, elderly, chronically ill and poor are uniquely vulnerable to the growing impact of climate change.

Poor neighborhoods, where buildings may be constructed from materials that retain heat, are warmer than wealthier neighborhoods. Their residents can't always afford to own and operate air conditioners, and their breadwinners often work outdoors in extreme temperatures. No wonder the city's poor are more likely to suffer from cardiac problems, heat stroke and other heat-related ailments.

Not only is climate change a serious public health issue. It also puts business budgets and the public coffers at risk.

Last April, Farmers Insurance Group sued the city and nearly 100 surrounding communities, alleging that they didn't do all they should to prevent widespread flooding a year earlier, resulting in hundreds of insurance claims Farmers was forced to pay. Those claims never would have been made, Farmers argued, had the defendants emptied reservoirs and put sandbags and inflatable flood barriers to work in advance of the flood, reasonable steps in preparation for the severe flooding that climate change was bound to bring with it.

OTHER CLAIMS COMING?

No sooner was the last summons served than Farmers abruptly withdrew its long-shot complaint, no surprise since a municipality has “sovereign immunity” from such litigation and the “duty doctrine” holds governments accountable only to the public at large. But other claims likely will be asserted, and the costs of climate change will need to be distributed more broadly if insurers are to remain committed to the Chicago market and insurance costs are to stay affordable.

The city also needs to more vigorously counter the adverse effects of climate change.

In 2008, then-Mayor Richard M. Daley committed to “make Chicago the most environmentally friendly city in the nation.” His Chicago Climate Action Plan ambitiously pledged to reduce energy use in buildings, turn to green energy sources and promote cleaner transportation options. A 2010 progress report noted that more than 450 mitigation and adaptation initiatives were in the works including green buildings, stormwater management projects, tree planting and green-roof installations that absorb rainwater.

Since Daley left office in 2011, climate change has not been a priority for Chicago. Prudent financial stewardship and social justice demand that its position on the city's policy agenda be restored.

Peterborough's problem was daunting: Sixty percent of prisoners serving short-term sentences historically had gone on to re-offend within a year after their release. But policymakers were confident that a solution was within their reach. They attracted private investment to pay experienced social service agencies to provide intensive, multidisciplinary support to short-term prisoners, preparing them to re-enter society and succeed outside the penal system. - See more at: http://www.chicagobusiness.com/article/20131007/OPINION/131009850/a-new-kind-of-futures-contract-for-illinois#sthash.ThgxeiFt.dpuf

The world's first social impact bond, or SIB, was introduced in 2010 to fund innovative social programs that realistically might reduce recidivism by ex-offenders in Peterborough, England, and, with it, the public costs of housing and feeding repeat offenders. Prudently building on the strengths of that initiative, Illinois Gov. Pat Quinn is rolling out SIBs to help solve some of the state's most vexing social problems.

A SIB isn't a traditional bond where investors are guaranteed a fixed return but a contract among a government agency that agrees to pay for improved social outcomes, a private financing intermediary and private investors. SIBs shift the risk of experimenting with promising but untested intervention strategies from government to private capital markets, with public funds expended only after targeted social benefits have been achieved.

Peterborough's problem was daunting: Sixty percent of prisoners serving short-term sentences historically had gone on to re-offend within a year after their release. But policymakers were confident that a solution was within their reach. They attracted private investment to pay experienced social service agencies to provide intensive, multidisciplinary support to short-term prisoners, preparing them to re-enter society and succeed outside the penal system.

The government decided which goals would be supported, but exactly how those goals would be achieved was left to the private sector. It was the investors, through a bond-issuing organization, who ultimately endorsed the allocation of investment proceeds — how much would be invested in job training, drug rehabilitation and other interventions.

If the Peterborough plan eventually shrinks recidivism rates by 7.5 percent or more, the government will repay the investors' capital and share the taxpayers' savings with them, delivering up to a 13 percent return. If the target isn't hit, the investment will have failed and the government will owe the investors nothing.

Illinois' SIB effort was spearheaded by the state's Task Force on Social Innovation, Entrepreneurship and Enterprise — the governor's think tank on social issues, which I am privileged to chair — with support from Harvard University's John F. Kennedy School of Government, the Rockefeller Foundation and the Aurora-based Dunham Fund. A request for information issued by the Office of Management and Budget on May 13 yielded responses from service providers eager not only to reduce recidivism here but also to create jobs, revitalize communities, improve public health outcomes, curb youth violence, cut high school dropout rates and alleviate poverty.

Now the governor has issued a request for proposals intended to spur better outcomes for Illinois' most at-risk youth — by increasing placement stability and reducing re-arrests for youth in the state's Department of Children and Family Services, and by improving educational achievement and living-wage employment opportunities justice-involved youth most likely to re-offend upon returning to their communities.

Kudos to Mr. Quinn for bringing SIBs to Illinois. May they soon start delivering on their promise.

- See more at: http://www.chicagobusiness.com/article/20131007/OPINION/131009850/a-new-kind-of-futures-contract-for-illinois#sthash.ThgxeiFt.dpuf
The world's first social impact bond, or SIB, was introduced in 2010 to fund innovative social programs that realistically might reduce recidivism by ex-offenders in Peterborough, England, and, with it, the public costs of housing and feeding repeat offenders. Prudently building on the strengths of that initiative, Illinois Gov. Pat Quinn is rolling out SIBs to help solve some of the state's most vexing social problems. - See more at: http://www.chicagobusiness.com/article/20131007/OPINION/131009850/a-new-kind-of-futures-contract-for-illinois#sthash.ThgxeiFt.dpuf

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Marc J. Lane is a Chicago-based business and tax attorney and financial adviser.

Reprinted from Marc Lane's January 22, 2015 editorial which appeared in Crain's Chicago Business. Crain Communication Inc.'s permission is gratefully acknowledged. Copyright © 2015 by Crain’s Communications Inc.


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