Governments Incorporate Social Finance & Enterprise Into Budget Agendas

It is a momentous moment for (government) actuaries and accountants. Today marks the close of the 2011/2012 fiscal year. It is a year in which Canada has seen great momentum in social finance. A series of policy announcements this past week from federal and provincial governments foretell of further progress, and highlight future developments to watch over the coming year.

Canada reacted to the unveiling of the 2012/2013 federal budget and most of the provincial budgets this week.  As expected, significant reductions were announced in government spending as part of an effort to restore fiscal balance. But it’s not all budget cuts. For those of us tracking developments in social finance, both the federal and the Ontario budgets hold promise that policy leaders are searching for innovative and collaborative approaches to tackle our most pressing problems that will drive our tax dollars towards greater impact. Concurrently, a speech to the Nova Scotia general assembly affirmed the maritime province’s commitment to foster social enterprise through as part of their plan to increase economic stability, following a promising development in British Columbia to introduce community contribution companies.

The federal budget, released Thursday afternoon, spoke to the government’s intention to pursue the development of social finance instruments to better enable the community sector to tackle the root causes of social problems. The document makes specific reference to pay-for-performance agreements and social impact bonds (SIBs) – examples of “preventative investment” tools that focus on tracking and reporting on tangible social outcomes rather than activities. These new finance vehicles can be applied to particular social issue areas where there is the potential to monetize social outcomes by capturing the value between the cost of prevention now and the price of remediation in the future.

Below is the relevant excerpt from the federal budget:

          Supporting Effective Government-Community Partnerships

Economic Action Plan 2012 announces that the Government will continue to explore social finance instruments as a way to further encourage the development of government- community partnerships.

The Minister of Human Resources and Skills Development is modernizing the administration of grants and contributions to reduce red tape and make it easier to access funding. The Minister is also testing ways to maximize the impact of federal spending to support community-level partnerships, including pay-for-performance agreements and encouraging leveraging of private sector resources.

Building on these partnerships and the work of the Canadian Task Force on Social Finance, the Government will continue to support the momentum building around social finance initiatives and will explore social finance instruments. For example, social impact bonds hold promise as a tool to further encourage the development of government-community partnerships. Details will be announced by the Minister of Human Resources and Skills Development over the coming months.

Outcomes-based financing, SIBs in particular, have captured the attention of the impact investment community globally, with pilot projects underway in the UK and Australia. It’s encouraging to see that Canada’s policy leaders recognize the potential for the model to supplement government resources and mobilize mainstream finance to address certain social challenges.

In Ontario, Infrastructure Ontario has taken the lead on moving forward the social finance agenda. The provincial budget spoke to the need to pursue partnerships to encourage new approaches to social service delivery that will yield improved social outcomes at a lower cost.  The budget papers outlined Infrastructure Ontario’s intention to develop pilot projects to test models of ’alternative financing and outcomes-based procurement’ over the next 12 to 18 months.

Canada is still in the very early stages of exploring outcomes-based financing models, and any pilot would require a significant amount of work on both financial and social impact metrics. From this standpoint, the model presents a significant opportunity for the field to advance work in the area of social impact measurement.

Moving further East (and away from discussion of outcomes-based financing): At the opening of the General Assembly in Nova Scotia on Thursday, the Lieutenant Governor’s Speech from the Throne outlined steps the province was taking to foster social enterprise as a means to ensure that society “thinks more broadly about good jobs, sustainable livelihoods, and economic stability, especially for rural communities and for minority groups throughout the province.”

The province is working to improve access to capital for social enterprises, build support for more non-profits to engage in social enterprise, and remove barriers to social enterprise from provincial legislation and policies such as business registration and provincial procurement of goods and services.

The western end of the country has not been idle either; a few weeks ago, the government of British Columbia introduced the Finance Statutes Amendment Act to allow for social enterprises in the form of a new type of hybrid company – the community contribution company. The community contribution company “combines socially beneficial purposes with a restricted ability to distribute profits to shareholders “ The same Act also includes measures to strengthen procedures to protect members of cooperatives.

It’s encouraging to see that policy makers at all levels of government are moving forward with initiatives to develop the social finance marketplace, and working to encourage greater collaboration across sectors in addressing social and environmental challenges.  There will be a lot of work to do amongst all stakeholders, including the government, community, and private sector to shape this new agenda.

The entire year ahead will be exciting, and not just for number crunchers.

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