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A quick look at federal projects to use social financing for skills training

OTTAWA – The federal government is looking more and more at getting into the world of social financing, a community funding model where investors put money into social programs and the government pays only if certain benchmarks are met, such as an increase in literacy scores. Over the last five years, the government has run pilot projects in three areas to see what works and what doesn’t work. Here is a brief breakdown of each area, including the results.

Mandatory Leveraging

What it is: The pilot project tested whether groups could get an extra 15 per cent or more in funding from the private sector, on top of what the government provided them. That would make government dollars go further and potentially provide extra cash to organizations and investors.

What the pilot project found: The groups that were able to pull in a lot of money were those that had previously been successfully at doing so. And most of the money came from other governments, or government-funded organizations with little from the private sector. For participants, their outcomes were better, suggesting that private companies were more likely to hire someone at the end of the program when they covered part of their salaries. Overall, officials noted that mandatory leveraging delivered value for money at times, but there were no cost savings to the government.

Pay for performance

What it is: The government would pay organizations bonuses if they met specific skills outcomes, on top of the funding provided to run the programs themselves.

What they found: Outcomes didn’t significantly improve (in one case, they actually declined). As well, some organizations involved expressed concerns that the pay-for-performance model forced “cream-skimming” of candidates, meaning only those who were the most likely to succeed would end up in the program, missing out on those young people who were the furthest away from being workforce-ready.

Social Impact Bond

What it is: The bond is a partnership of sorts between governments, private investors, service delivery organizations and, in some cases, an intermediary who acts as a broker. Investors put money into an organization that delivers a social program, which signs an agreement with the government for money if they meet specific performance benchmarks. Investors get a return based on program results, moving the financial risk away from governments and cutting costs. Governments accrue savings from decreases in social support payments from having a more skilled workforce.

What they found: Although the project is still ongoing, so far the government has found that it can take time to get employers on board, especially when if there are financial risks for them. There are also regulatory barriers, such as tax policies, that can hamper foundations and non-profits. This project has also found that the government needs to modernize its usual funding model for skills training programs.