Businesses Can Make a “Social Impact Bond” with Unions

Businesses Can Make a “Social Impact Bond” with Unions

Unions were supporting a bill. This meant taxpayers were about to give unions more money.

That’s what I thought when I saw this notice for a press conference at the California State Capitol on the morning of March 19, 2013:

Pro Tem Darrell Steinberg and others announce legislation to “foster increased business and industry investment in linked learning and career pathway programs in California public schools.” 10 a.m., Rm. 1190. Contact: Mark Hedlund 916 651 4006. Also listed: Allan Zaremberg, CA Chamber of Commerce; Jack Stewart, CA Manufacturers & Technology Assn.; Supt. Jonathan Raymond, Sacramento City Unified School District; Dennis Cima, Silicon Valley Leadership Group; Andrew Giacomini, Bay Area Council Board of Directors; Cesar Diaz, State Building and Construction Trades Council of CA; Stephanie Roberson, CA Nurses Assn.; Van Ton-Quinlivan, CA Community Colleges.

In addition to union officials, the leader of the State Senate had gathered a few Democrats in the legislature, the heads of the state’s top organizations representing large corporations, and a few public education officials. (Here is the video of the press conference:

What was this proposal that brought together some of the titans of California political power?

The video link to the press conference was titled “High School Dropout Reduction & Workforce Development Bond Act.” Was the State of California actually going to borrow yet MORE money by selling bonds to investors?

The press conference began and Senate Pro Tem Darrell Steinberg began talking about his Senate Bill 594, California Career Pathways Investment. I couldn’t figure out what he was trying to explain, but he insinuated that philanthropic assistance to schools was inadequate to prepare young people in California for the modern workforce. The policy details seemed elusive.

Senate Bill 596 would establish a “Career Pathways Investment Credit” (a tax break) for businesses that “invested” in career technical education under guidelines of a “California Career Pathways Investment Committee.” Every K-12 school district and college district in California would have to create a “Career Pathways Investment Trust Fund.” Those educational districts would enter into something called “Social Impact Bonds” that corporations would buy to fund career pathways programs.

A “Social Impact Bond” would be “a contract between a school district or a community college district and private investors who provide capital in exchange for a share of governmental payments that become available if performance targets are met. Financial returns to investors may vary pursuant to the measured level of performance. The bond issuer may use operating funds from the sale of the bonds to contract with service providers to deliver the services necessary to meet the performance targets.”

A source of public income for this scheme would be the increase of property tax revenues resulting from “the dissolution of redevelopment agencies.” The state would not reimburse these districts for any costs, but the districts would be authorized to “pursue any available remedies to seek reimbursement for these costs.”

Apparently government was going to give corporations a tax break for getting involved in public education, and public educational districts would be forced to establish yet another pot of money to pay for whatever emerged from that involvement. It was unclear who would pay the interest to the corporations and foundations that would “invest” in these bonds.

But what role would unions play? Senator Steinberg referred to growing a “high-wage economy” for “building the middle class” with “high-wage jobs” and “high-wage workers” – the usual Democrat euphemisms for unions.

Among the platitudes about the importance of education, children, jobs, and the future were remarks from a representative of the California Nurses Association and a representative of the State Building and Construction Trades Council of California.

The nurses’ union official complained that nurses graduating from nursing school were ready to work but couldn’t find jobs in California, so they were moving to other states. Senate Bill 594 was proposed at a good time, because the implementation of Obamacare in California would mean many more jobs for nurses. She saw the California Career Pathways Investment bond act as a huge jobs stimulus package that would restore frayed partnerships between unions, hospitals, and schools.

This argument seemed inconsistent with Senator Steinberg’s claims earlier in the press conference that the bill was needed because young people in California were unprepared to take jobs in a modern economy. According to this labor union official,  young people were prepared to be nurses in California’s health care industry but could not find jobs and thus had to move to other states. (Texas?)

The construction union representative talked about apprenticeship training for trades workers. He claimed that the average age of an apprentice and the average age of a journeyman construction worker were increasing. He noted that unions were in schools promoting construction as a career because new job opportunities in the industry would come with major infrastructure projects. (California High-Speed Rail, on which unions have a Project Labor Agreement?)

Clearly these union leaders aren’t on board with Senate Bill 594 without some sort of guarantee that unions will be getting a piece of this money.

Senator Steinberg ended the press conference by asking for questions from the press. Reporters jumped at the opportunity to ask how this scheme would be funded. Steinberg suggested cutting enterprise zones, using  employment tax credits, and Proposition 98 funds dedicated to education. “By God we’ll find it!” he said.

News Coverage:

Steinberg Pushes Privately Funded Career Training Program – Sacramento Bee – March 21, 2013

Reinvigorating ‘Career Tech’ a Worthy Goal – by columnist George Skelton – Los Angeles Times – March 20, 2013

Steinberg’s legislation is a bit convoluted — at least the financing part — and needs much work…Steinberg is suggesting several financing methods, including tax credits and foundation grants. But the main money source involves bonds. The state would sell “workforce development bonds” — say, for $1 million a crack — to businesses in areas “with the greatest potential for high-wage job growth.” The bond revenue would pay for the career-tech programs. The bond-buyers would earn a rate of return based on a program’s results, as judged by some committee. “I’m not sure I completely understand it,” Zaremberg  told me. “Why don’t we just fund this out of existing resources? Is this not a priority? … like Zaremberg, he  doesn’t quite grasp the bond idea.

Kevin Dayton is the President & CEO of Labor Issues Solutions, LLC, and is the author of frequent postings about generally unreported California state and local policy issues at Follow him on Twitter at @DaytonPubPolicy.

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