84(R) - 2015
House Investments & Financial Services
House Investments & Financial Services
Relating to the administration of "pay for success" contracts for state agencies.
A fiscal note dated April 10, 2015 indicates that the number of contracts that would be created under the procurement authority created by the bill being unknown, fiscal implications of the bill therefore cannot be determined at this time.
House Bill 3014 would amend Subchapter G, Chapter 403 of the Government Code to create the Success Contract Payments Trust Fund as a trust fund outside the state treasury with the comptroller as trustee.
The fund would be used for payments of successful success contracts without the agency entering in such contract needing to require an appropriation to make the payment.
The fund would consist of money appropriated for deposit to the credit of the fund, as well as any interest or other money attributable to the trust fund. The balance of the fund could not exceed $50 million at any time. Money from the fund could only be used for payments of success contracts according to success contract terms, as well as for expenses from the administration of the fund or such contracts.
House Bill 3014 would also define general terms for such success contracts that include the requirement that most of the payment be conditional to the contractor meeting or exceeding performance measures of the outcome of the contract's objectives, a procedure exist to designate an independent evaluator, and a schedule of the timing and amounts of payments be established.
A success contract could be executed only if the comptroller and the Legislative Budget Board had certified that should the outcome of the contract be successful, it would result in performance improvements and budgetary savings for the agencies that would enter into the contract, and if the Legislature had appropriated for deposit to the credit of the fund enough money to administer the contract and make all payments that may become due.
Any money recovered from overpayments or penalties would have to be deposited to the credit of the fund. Money credited to the fund for any particular contract and that would remain unused after the contract had expired would have to be returned to the state treasury fund or the account from which the money was appropriated.
The Comptroller would have to submit a report to the Legislature at the beginning of each regular legislative session, providing information on the success of such contracts and on other proposed such contracts.
The second chamber sponsor is Senator Royce West.
Vote Recommendation Notes
A committee substitute to House Bill 3014 has been introduced by the Senate Business & Commerce committee since we reported on it. The committee substitute makes minor changes that each state agency that enters into a "apy for success" contract and the Legislative Budget Board (instead of the comptroller and the LBB, in the previous version of the bill) to certify that the proposed contract is expected to result in significant performance improvements, and for each state agency that enters in such a contract, instead of the comptroller, to provide the report required by the bill.
We continue to support this bill.
First chamber recommendation:
Success contracts, sometimes also called Social Impact Bonds, are public-private partnerships. The initial investment needed to carry out such a contract can sometimes be made by a private partner. Payment of a success contract is performance-based: eventually, the private contractor is paid in part or completely only if they meet or exceed the performance measures expected for the realization of the objectives of the contract, and ultimately helps improve a state agency's performance and create savings for the agency.
House Bill 3014 would try and encourage such partnerships by creating a special fund for payments of successful contractors of success contracts, without an agency having to go through the appropriations process to make these payments.
The report required of the comptroller at the beginning of each regular legislative session would work as a resource for the Legislature to evaluate the amount of appropriations that may be needed, not to exceed $50 million. This way, if success contracts meet their requirements and money becomes due to private contractors, the payment would be readily available and would not be delayed by the need for the agency to go through the appropriations process to be able to pay private contractors. If the private contractor fails to meet the requirements of the contract and as a consequence is not eligible for full or any payment, any money set aside for this particular contract would have to be returned to the fund from which the appropriation came from.
To the extent that House Bill 3014 would allow more flexibility for agencies to pay private contractors in success contracts when payment is owed, private contractors would be encouraged to enter in such partnerships, which have the potential to help government save taxpayer money. It could also help these private contractors be paid more promptly. As a consequence, we support House Bill 3014.