LEGISLATIVE FISCAL ESTIMATE

ASSEMBLY COMMITTEE SUBSTITUTE FOR

ASSEMBLY, No. 3289

STATE OF NEW JERSEY

215th LEGISLATURE

 

DATED: FEBRUARY 19, 2013

 

 

SUMMARY

 

 

Synopsis:

“The New Jersey Social Innovation Act”; establishes social innovation pilot program and study commission within EDA.

Type of Impact:

Possible increase or decrease in State cost

Agencies Affected:

New Jersey Economic Development Authority (“authority”); Department of Health; Department of Human Services

 

 

Office of Legislative Services Estimate

Fiscal Impact

Year 1 

Year 2 

Year 3 

 

State Cost

Indeterminate – See comments below

 

 

 

 

 

·        The program may result in reduced State costs through health care savings, but those savings may not be realized if the health care interventions do not provide the magnitude of savings necessary to generate a return for the lender.

·        If the authority obtains a sufficient amount of public and private donations to the loan fund, the authority will be able to operate the pilot program and issue loan guarantees at no net cost to the authority.

·        While there is a possibility for cost savings, the details of how the program is implemented and the details of the loan and loan guarantee agreements that are formed under the program will be significant factors in determining whether cost savings can be realized.

 

 

BILL DESCRIPTION

 

      The Assembly Committee Substitute for Assembly Bill No. 3289 of 2012 would establish a five-year social innovation pilot program for the purpose of encouraging private investment in preventive and early intervention health care to reduce public expenditures related to those services.  Under the bill, the authority would establish a social innovation loan pilot program, which program guarantees loan agreements among lenders, eligible nonprofit organizations, and public sector entities.  The loan agreement will provide: (a) an eligible nonprofit organization with direct funding from a lender in exchange for the provision of public health services to a public sector entity; (b) the public sector entity receiving public health services will make defined payments to the lender in an amount proportional to the amount of savings generated by the provision of public health services; and (c) the lender will receive loan repayments from the public sector entity in exchange for the provision of funding to an eligible nonprofit organization.  In the event that the anticipated savings are not achieved, the authority will provide a loan guarantee for the lender.

      The guaranteed loan also requires an agreement among the parties establishing a method of measurement and verification to ensure that health care services were performed, calculates any public sector savings resulting from those services, and determines any interest rates or payments applicable to the agreements.  The guarantees issued by the authority may be up to 100 percent of the value of the loan agreements with loan amounts not to exceed $3,000,000 per year or $15,000,000 in aggregate over the five year pilot program period.  The bill requires the authority to solicit grants from philanthropic organizations or other private sources for the establishment and administration of the pilot program and capitalization of the social innovation loan fund.

      The bill establishes the “New Jersey Social Innovation Study Commission” within the authority to assist the authority in administering the pilot program and issue annual reports concerning the program.  The bill requires the authority to oversee the study commission, to determine the membership and size of the commission, and to appoint members to the commission.  The bill specifies three statutory members of the commission: the Director of the Office of Faith Based Initiatives in the Department of State, a representative from the Department of Health and a representative from the Department of Human Services.

      The bill directs the study commission to:

·        identify the nonprofit organizations that will be eligible to receive loan guarantees from the authority;

·        assist the authority in soliciting donations for the loan fund;

·        help negotiate contract terms and conditions of the loan agreements among lenders, eligible nonprofit organizations, the authority, and public sector entities;

·        determine the necessity of retaining an independent intermediary to assist the commission in the performance of its duties or to perform the measurement and verification functions needed to execute the loan guarantees; and

·        assist the authority upon request with any other issues related to the program

      The bill also establishes a non-lapsing, revolving fund called the “Social Innovation Loan Fund” which will be used to guarantee social innovation loan program loans, to fund the loan program, and to pay for expenses related to the administration of the loan guarantees.  The loan fund may be credited with monies from State appropriations, public or private donations, grant funding, loan guarantee program fees, and any monies that the authority determines to deposit in the fund.

 

 

FISCAL ANALYSIS

 

EXECUTIVE BRANCH

 

      None received.

OFFICE OF LEGISLATIVE SERVICES

 

      The Office of Legislative Services finds that it is not possible to determine the fiscal impact of this bill at this time.  The bill permits public sector entities, which are most likely to be the Department of Health or the Department of Human Services (“departments”), to enter into loan agreements in which a nonprofit organization provides health care intervention services for the departments that an individual patient would not otherwise be eligible to receive.  These services are intended to prevent the need for other, more costly, health care services for these patients at a later point in time, which effectively save the departments money.  The departments would in turn provide payments to a lender based on the amount of money that the departments saved as a result of these interventions.  The magnitude of these savings will depend upon the nature of any agreement that ultimately takes place, and we cannot know at this point what form those agreements will take, or the effectiveness of the intervention services in generating cost savings.  The departments should face no costs as a result of these loan agreements because they are only making payments from their cost savings; however it is possible that the departments may not accurately quantify the value of “unrealized” future costs or attribute savings to these interventions that are more accurately attributed elsewhere resulting in actual costs rather than savings; however, the cost cannot be definitively quantified.

      The authority will experience costs in the administration of this program in the form of hiring a new staff member to administer this program, and any overhead costs involved in issuing loan guarantees.  The authority may also experience costs in connection with the activities of the study commission.   The authority should be able to recover these costs through fees administered through the program and public and private donations, resulting in no net cost; however that is dependant upon the authority deciding to adopt a fee structure that results in no net cost.

      The authority also will require up to $15,000,000 for loan guarantees.  If all loans are repaid in full, then the authority will only incur expenses relating to the actual guarantees; however if there are no savings realized by the departments and no repayments made to the lenders, the authority may be responsible for the full $15,000,000.  Regardless of the default rate on these loans, the net cost to the authority will depend on the source of monies deposited into the loan guarantee fund.  If those monies are contributed from public and private donations, then there would be no expected State cost; however if the fund is capitalized through a general fund appropriation the full amount of that appropriation would be a State cost.

      The net cost to the State will ultimately be any State contributions to the loan fund which are expended on defaults of guaranteed loans, in addition to any cost of administering the program less fees and donations, less any net savings to the departments that are a party to the loan agreements.

 

 

Section:

Authorities, Utilities, Transportation and Communications

Analyst:

Patrick Brennan

Associate Fiscal Analyst

Approved:

David J. Rosen

Legislative Budget and Finance Officer

 

 

This legislative fiscal estimate has been produced by the Office of Legislative Services due to the failure of the Executive Branch to respond to our request for a fiscal note.

 

This fiscal estimate has been prepared pursuant to P.L.1980, c.67 (C.52:13B-6 et seq.).