2017 Lane Reports

Cook County Gives Social Enterprises an Edge!

The Lane Report, November 2017
Wednesday, November 1, 2017 10:00 am
by Marc J. Lane

Cook County, Illinois, the second most populous county in the United States, continues to lead by example. On October 11, the Cook County Board passed the first procurement ordinance in the nation to encourage financially self-sustaining social enterprises.

The Cook County Social Enterprise Ordinance, which I was privileged to draft, favors organizations that are supplementing the charitable donations and grants they receive with revenue earned by the businesses they own and run, instrumentalities of mission in their own right; and for-profit social-purpose businesses that define success in terms of both financial and social returns. Under the terms of the Ordinance, a County contract is to be awarded to a social enterprise when its bid is no more than five percent higher than the bid of the lowest bidder that’s not a social enterprise.

To qualify, the bidder must have its principal place of business and a majority of its regular, full-time work force located in the “County Marketplace” – including Cook, DuPage, Kane, Lake, McHenry and Will Counties.

The bidder must also establish that it’s both driven by mission and earning business revenue. Illinois low-profit limited liability companies automatically qualify since they are bound by charitable or educational priorities that can’t be waived or negotiated away. And so do Illinois benefit corporations,  mandated by law and charter to pursue a public benefit.

But the Ordinance is agnostic as to form. So any nonprofit or for-profit entity – or even any business unit that maintains its own book and records – can qualify for the procurement preference as long as it relies on earned-revenue strategies and directly addresses social needs through its goods or services, through its employment of “disadvantaged people,” or both.

“Disadvantaged” is defined expansively to include people who are mentally, physically or economically disadvantaged – those who are living below the poverty line, the developmentally disabled, the mentally ill, substance abusers, recovering substance abusers, the elderly in need of hospice care, gang members, those on welfare, and people with arrest or conviction records.

The Ordinance was enacted by the Cook County Board on the recommendation of the Cook County Commission on Social Innovation, which is chaired by Cook County Commissioner Jesus “Chuy” Garcia and which I’m honored to serve as Vice Chair. The Commission is a permanent agency of County government whose role is to incubate actionable social policy recommendations for consideration by the Cook County Board.

The Commission sees the Cook County Social Enterprise Ordinance as transformative. Not only will it promote the growth and development of social enterprises as they directly address the social needs of the County’s residents. It is also likely to lead to the adoption of socially impactful procurement policies by other government units within Illinois and beyond. And it should inspire businesses which already require their vendors to conduct themselves in an ethical, socially responsible and environmentally friendly manner to give special consideration to mission-driven vendors. Together, we can replace supply chains with "value chains" – for the benefit of all of us, including the most vulnerable among us.


Marc Lane is an attorney, financial adviser and the author of Profitable Socially Responsible Investing? An Institutional Investor’s Guide, published by Euromoney Institutional Investor PLC, and Representing Corporate Officers, Directors, Managers, and Trustees, published by Aspen Publishers. We invite you to reach out to Marc in confidence and learn how Marc J. Lane Investment Management, Inc. can add value to your investment portfolio. He can be reached at [email protected] or 312-372-5000.

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.dpu

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