Cook County, where Chicago is situated, just handed social enterprises an official leg up. The second largest county in the U.S. recently enacted an ordinance giving impact ventures a preference in government procurement of goods and services. The rule, which took effect in October, was just published. “This will help the sustainability of mission-driven social enterprises,” says Marc J. Lane, a Chicago attorney and social enterprise advocate, who drafted the ordinance. “They now will receive a preference as a matter of public policy.”
Last year, Los Angeles County revamped its entire procurement ordinance and, in the process, chose to favor social enterprises. But the definition of such organizations was broader, including green business, as well as nonprofits with and without earned revenues, according to Lane.
The Cook County ordinance, on the other hand, applies a much stricter definition—i.e., enterprises with earned revenue from a business that is addressing a social problem. Lane worked with the county’s chief procurement officer to pinpoint how mission-driven ventures can qualify for the preference.
The ordinance stipulates that, if bids from eligible enterprises are 5% higher than the lowest offer, that venture gets the contract. So a $100 bid would be treated as if it were $95.
The ordinance considers two entities automatically to be eligible: L3Cs, or low-profit limited liability companies, and Benefit Corporations, which are businesses that legally can make decisions based on non-financial, societal and environmental issues. There are 50 active Benefit Corporations and 130 L3Cs in Illinois, according to Lane.
In addition, other for-profit or nonprofits may be eligible if they make most of their income from earned revenue, directly address social needs by selling products or services to disadvantaged people and/or employ such folks and can provide appropriate documentation of these activities. Enterprises also must have their main place of business and most of their full-time employees in the county marketplace.
The rule also applies to enterprises that aren’t eligible for a preference under a different ordinance. So if you’re, say, a minority-owned social venture, you choose which preference you want to apply for. “You pick your poison,” says Lane. “Otherwise we wind up with an unrealistic economic situation for the county.”
The ordinance is an initiative of the Cook County Commission on Social Innovation, a year-and-a-half-year-old entity that incubates social policy recommendations for the county.
For Lane, the biggest impact of the ordinance will be on the supply chain. That’s because agencies sourcing goods and services from mission-driven ventures will get the stuff they need, while contributing to the financial sustainability of such businesses. “It’s doing double duty,” says Lane.
Ultimately, the goal is to provide a model for other municipalities around the country. Plus, the ordinance could encourage socially-minded businesses to focus not only on suppliers that don’t, say, rely on sweat shops—that is, emphasizing a negative screening—but also pick companies intentionally doing good. “They will choose organizations that are contributing to the communities in which they operate,” says Lane.
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
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