General Treasurer Gina Raimondo (D)
On Monday, General Treasurer Gina Raimondo kicked off her campaign to be the Democratic nominee for governor by announcing a broad platform. Among them, rebuilding public school buildings, an assault weapons ban along with tougher gun control, college loan forgiveness, raising the minimum wage and indexing it with cost-of-living-adjustments, providing universal pre-K, allowing undocumented workers access to drivers’ licenses, utilizing social impact bonds to fight poverty and social problems, and holding Wall St. accountable.
Had it been announced by any other candidate it would’ve been hailed as the most progressive platform laid out by a RI gubernatorial candidate in a generation.
Even the campaign of Mayor Angel Taveras, who is running for governor in the same primary, didn’t fault it. When asked by The Providence Journal if they disagreed with a single point, Taveras’ campaign manager replied, “no.”
But progressives didn’t hail it as a high-watermark in years of their organizing and work. As architect of the 2011 pension cuts that wreaked havoc on public sector employees in the midst of Rhode Island’s stalled “recovery” from the recession, the general treasurer still has light-years to go to win back the unanimous left-wing support she enjoyed when she waltzed to victory in 2010. Since ushering pension cuts through the General Assembly, the treasurer has remained remarkably out of sight with the exception of a few financial literacy courses and support for payday lending reform. The effective use of the bully pulpit that she displayed in 2011 was noticeably lacking in 2012 and 2013. Her most high-profile media appearances have been to defend pension cuts or argue for the repayment of the moral obligation bonds secured for the 38 Studios fiasco (another of the many dark clouds that hang over Rhode Island politics).
The 2011 pension cuts have been characterized by national critics such as Ted Siedle and Matt Taibbi as a Wall St. cash-grab, and so local progressives seized upon the under-the-radar concept of social impact bonds (SIBs) to tie the treasurer more closely to Wall St. Longtime fiscal policy observer Tom Sgouros asked in his evaluation of the concept whether Raimondo intended “to promote the public good, or sell it?”
Social impact bonds are easy to tar and feather. First, they contain the word “bond” and Rhode Islanders have seen a string of negative implications of what happens when bondholders come looking for money. The reality is that the treasurer used language out of step with the U.S. federal government. The Feds have used the more accurate “pay-for-success contract” to describe the concept. If the bond doesn’t produce success, there’s no payment from the government; which is why this is attractive to governments. The risk falls on the private investor, rather than the public purse. And unlike the 38 studios bonds, if a SIB fails to register satisfactory results, investors don’t get their money back. They lose it.
Second, their pedigree includes Goldman Sachs. Yes, the investment bank was a major backer of an initiative by New York City Mayor Michael Bloomberg to use the bonds to reduce recidivism among 16-18 year olds leaving Rikers Island. But the concept was initially begun at HMP Peterborough in the U.K. There the backing was from a collection of philanthropies rather than an investment bank. Other U.S. attempts have used a blend of charity and private funding. The left-leaning Roosevelt Institute suggested that SIBs “have the potential to be an important tool in the poverty-fighting arsenal.” Harvard’s Kennedy School of Government even has a guide for state and local governments on how to manage SIBs.
Third, the concept has been so low-key in Rhode Island that even our paper of record, The Providence Journal, suggested that Raimondo “had introduced a new concept to Rhode Island’s political lexicon.” In reality, the idea had been consigned to business reporting until Raimondo mentioned it Monday. Rhode Island’s very own Social Enterprise Ecosystem Economic Development (SEEED) has been exploring SIBs already (and bringing them to the attention of both Raimondo and Governor Lincoln Chafee). Master’s students at Brown’s Taubman Center also researched the concept focusing on recidividism.
So it’s neither a bond (at least not as we’ve become accustomed to them in Rhode Island), nor created by Goldman Sachs, nor a concept unique to the treasurer and her venture capital background. We may be entering a new Raimondomania. Whatever comes out of the treasurer’s mouth is instantly controversial. You can count on the media to cover it, and you can count on progressives to denounce it if they’re not familiar with it; usually with the words “Wall Street” to boot.
Yes, the treasurer is deserving of tough criticism. She’s repeatedly made it clear that our contract with the workers who built our state is less important than our contracts with bondholders who were already insured against losses. She made a previously backwater office a major part of the political landscape, achieved a stunning legislative success, and then squandered the next two years by not vociferously pushing the progressive agenda she was elected on. All of the treasurer’s platform ideas could’ve been pushed for and passed in the General Assembly throughout her current term. She rarely lent her weight to these causes. And there’s no EngageRI to provide muscle to rebuild public school buildings or offer college-loan forgiveness.
But the progressive response to Raimondo’s progressive platform is typical of the left-wing infighting that all too often prevents success. Instead of achieving the 99% of things they agree upon, the left will slaughter one another over the remaining 1%, stymieing progress and allowing conservatives to win policy changes they needn’t have.
Social impact bonds are a prime example of this. Yes, the optimal outcome would be for the state to invest in the solutions and save itself the maximum amount of money possible, to be reinvested elsewhere. However, our state legislators have proven unwilling to do the heavy lifting themselves, preferring instead to look towards business for solutions. Social impact bonds aren’t ideal, but they’re better than doing nothing. If they fail to work, they cost the state nothing. Most importantly, they achieve the progressive goal of helping people immediately rather than in some fantastical future when progressives control both chambers of the General Assembly and the governor’s office and are able to pass their agenda without resistance. Perhaps social impact bonds will be the kick that makes our legislators realize they could just save all this money instead of passing a share of the savings on to private investors.
There is a very real possibility that Raimondo will win the primary and then go on to being the first elected Democratic governor since Bruce Sundlun. Should that come to pass, progressives will have a duty to fight Raimondo if and when her agenda damages the economic health of our state and hurts our people. But when a Governor Raimondo’s agenda aligns neatly with the progressive agenda, then it’s time to applaud and support it. If progressives can’t recognize that even the most controversial part of Raimondo’s platform moves Rhode Island closer to alleviating societal ills then how can they lay claim to being the champions of the downtrodden and dispossessed?
The thesis of this – progressives should celebrate when people run on progressive platforms rather than nitpick them – is only true if, in fact, people have a track record of following through on progressive promises. If a skilled politician who knows her right flank is shored up and resistant to challenges decides that the best way to win a Democratic primary against an opponent who has lost a lot of support from the left is to tack left, well that’s fine, but I would suggest it says very little about what a Governor Raimondo would actually prioritize.
Sam, you know the bait-and-switch as well as anyone.
In any case, I think the main point of this election is the left needs to build a stronger organization to hold folks accountable for after the election, whoever they may be.
I think you’re missing a large part of the point, Aaron.
Though Sam gets a bit Kumbaya at the end, I don’t think his point is that you have to support Raimondo today, or trust her ever. Instead, the point is that reflexively attaching an agenda which, he’s right, would be assessed from any other candidate as very welled aligned with progressive platforms across the country is silly. You can dislike the person and you can distrust the person, but the idea is not “right-wing”, evil, wrong, etc because of who said it.
I think both Aaron and Jason are right on the money here.
Absolutely progressives need a better way to hold candidates who even pay lip service to the ideals of progressivism accountable. The problem is that as we enter into campaign season, partisan feelings increase. You either have to support Candidate A or at least be really good at pretending you do, because it’s a lot easier to go out and canvass for them when you like them. “Well, they’re the best we can do,” is not way to get motivated.
The other issue I’m seeing is that the gubernatorial race is going to suck up a bunch of resources which progressives might better spend attempting to win control of the General Assembly.
Am I suggesting we suddenly act as though Gina Raimondo is RI’s answer to Elizabeth Warren? Absolutely not, not even close. But I think a better response if you wanted to demonstrate skepticism of her platform isn’t to shout “Wall St. cash grab!” but rather “it’s a good platform. Now let’s see her spend her last year in office getting some of it passed.” The mayors in the race will still be governing come the election. Why can’t Raimondo get the economic part of her platform through the GA in 2014, at the very least?
Very slick, very ahistorical article. And, of course, I, or anyone else who had read about her history with Wall Street, will use facts from that history any time we want.
Sam, I’m sure that you’ve read Siedel and Taiibi on Gina. I’m sure that you are aware of Goldman’s record.
You’re slicing the artful baloney very thin here. Are you looking for a policy job? Or, do you not care where the money comes from as long as it glimmers long enough to accrue power to your heroine?
Yes! That is exactly it! This is all part of my poorly conceived and executed plan to get myself a policy position and make sure my “heroine” is super powerful! I will continue to write reasonably critical blog posts about her until my master plan is complete. And no one can stop me!
You have super powers!
Maybe you can make the historical record disappear.
I don’t think this is about WHO proposes it. It is about what the proposal is. IF it worked some kids would be helped. The state would pay the same (as I understand it), and Wall Street investors would get richer. That means those kids who were helped would now be at the mercy of an even stronger group of speculators. That is not a ‘win-win’. Let’s do it the old fashioned way – let the folks who have made so, so much money off the public, go back to paying a progressive tax, build the education at state expense, and let all the people reap the benefits, and not make those who make money off of other people’s money (aka Wall St.), even stronger. I don’t care if Lenin rose from the dead and proposed it – it’s a bad deal for the common good.
So, I’m almost in complete agreement with you. The ideal way to do this is for the state to make the investment, reap both the social benefit and the savings, and be able to reinvest the savings in other things leading to greater savings and reduced societal ills.
However, we’re not fortunate enough to live in a Rhode Island where our state realizes it could do this, or is willing to put in the effort.
The current political thinking is that either we maintain what we already have or we cut it (part of the horrific logic Raimondo used to get pension cuts was by suggesting we’d have to cut social programs instead, which pitted state workers and the social services sector against each other). What we already have tends to be the most expensive option, and at best a band-aid to what’s currently going on.
Now, I’d love for progressives to secure enough victories in the 2014 primaries and general election and then seize the moment to take control of the GA and pass legislation that would make the investment now and save us a ton of money later. But I doubt that’s going to happen. And given that the need is immediate, and the need is great, waiting for it to happen is rather callous – and reminiscent of how the Social Democrats got outmaneuvered by Bismarck in Germany in the late 1800s.
Yes, SIBs carry a risk. However, the primary risk falls on the investor; if the project doesn’t succeed and realize savings, the investor doesn’t get their money back. Now, as I pointed out in the post, the investors don’t have to be Wall St. In fact, they could easily be philanthropic organizations, and were when the original SIB was tried out.
The other issue is you say “some kids”. Well, children aren’t the whole population we’re talking about. And you’re underestimating the impact these things could have in RI. We’re not just talking “some” we’re talking “all”. A lot of social ills carry costs all over the place; ER visits, lost revenue from income taxes, costs of police and court, interactions with government bureaucrats, etc., etc. It costs a surprising amount of money for the state to keep someone poor.
If the choice is between doing nothing and doing something that has the potential to relieve human suffering, I know what my choice will be.
Given all the hoopla about “moral obligation” bonds and the bondholder-first laws, I think anyone has a right to be skeptical that these investors are taking any kind of a risk at all. We will sell a bond, and if the benchmarks aren’t met, there will be a hue and cry at the statehouse about how we can’t damage our bond rating and the bond will be repaid with interest anyway.
Sound like a reason to advocate we pilot the program, not a reason to dismiss it. Frankly it’s the kind of fundamental mistrust of government I’m more used to seeing from the AR/Norquist types.
As much as I get the point here, that’s not correct. It’s not a bond in the sense of a general or moral obligation bond. This is why the Feds use the terminology “pay-for-success contract”. The investor goes in knowing they can’t recoup their losses should the program not work out. That’s also why these are attractive to governments; the investor’s money is risked, not government money. The government only has to pay out money if the program is successful and produces savings.
I agree that the repayment of the moral obligation bonds is a travesty, and the howling of Moody’s is ridiculous, I think a large part of the confusion here is RI’s natural (and healthy) distrust of bonds. Raimondo erred by calling them “bonds,” that’s not an accurate description of what these are.
That’s exactly it. This is much more similar to certain venture capital deals (with follow on investments based on meeting benchmarks) and is the kind of leadership in creating new businesses we should expect to get from Raimondo as governor.
“I don’t think this is about WHO proposes it. It is about what the proposal is.”
Make no mistake, the criticism is entirely about who proposed it. Tom’s post doesn’t discuss the pros and cons of SIBs and whether they are worth looking into. The criticism is: Raimondo proposed the idea, Goldman was involved in one in NYC, therefore SIBs are categorically bad.
This is not uncommon, especially here. Tavaras is celebrated for forcing city unions to accept pension cuts under the threat of a city bankruptcy filing and central falls style pension hatchet jobs. Raimondo is vilified for proposing pension cuts to the state legislature, where they are voted on and enacted. Likewise, the City Pension Plan, headed by Tavares, is invests in hedge funds and other alternative without much of a peep. The State Investment Commission, headed by Raimondo, invests in hedge funds and alternative investments and its national news.
Who knew Gina Raimondo four years ago? Most of Rhode Island didn’t. Now, she has a track record, which consists of bringing in large-scale national rightwing money to hammer home her policies.
Therefore, she has become the focal point for criticism of those policies.
If Taveras had Gina’s money and organization, he would be the focal point. So what, anyway?
We’ve heard all about this bond stuff. It’s good for people who have portfolios.
Not everyone has the extra money to invest, and not everyone wants to be further marginalized by insider games.
It comes down to the candidacy of Clay Pell.
Will he have the capacity to win and to lead?
Of course one can understand the pressure for the “possible” (where affordable housing gets built only if some speculator somewhere can get a profit through a tax credit or whatever, or with this new idea, the general public must pay some speculator a profit, beyond the normal, just to build a school or pay teachers(!). So, its never good enough just for the public to pay and the public be served. No, the public must pay the speculators on Wall St. or elsewhere, for the privilege of social change. . . meaning, of course, that no real change happens for the “common good”, or for the actually building up of the public’s ability to for a society in which people have a chance – even if it doesn’t make a small group extra rich.
Here’s the thing about this “possible” and “doable” politics – Can ANYBODY argue that its actually a way of building popular demand for change? That it doesn’t actually make the wealthy stronger? That it, in fact, offers any way out of our current crisis?
“So, its never good enough just for the public to pay and the public be served.”
You act as if it’s one or the other, and I think we can agree that not all projects should be funded with this model. But why not fund projects that would otherwise go unfunded?
I think it’s unfair to label these folks “Wall Street speculators” simply for trying to create a business that serves the public good. Why not make RI the Silicon Valley of social impact entrepreneurialism? Progressives need an alternative model for economic development or we’re destined to be stuck with the cut taxes vision of the right.
Consider what these projects actually look like when not framed in the rhetoric of a gubernatorial campaign:
http://www.fresnobee.com/2013/11/20/3622136/fresno-is-site-of-first-ever-health.html
Fresno has been chosen to pilot a health-care project that could lead to new ways nationally to improve public health and reduce costs for treating chronic diseases.
About 200 lower-income children with asthma are at the center of the two-year demonstration project to show the financial benefits of asthma management and entice investors to invest in a social-impact bond…
The California Endowment has put up $660,000 to launch the Fresno project with Collective Health and Social Finance, Inc., a Boston nonprofit organization and social-impact bond intermediary.
The endowment’s funding will pay for data collection and evaluation to demonstrate that the number of emergency room visits by children with asthma can be reduced through disease management.
Getting investors to pony up money for a social-impact bond will be “based on our ability to demonstrate we’ve saved money on health-care spending and we can pay back investors a portion of those savings,” Brush said.
I followed up on the Fresno Asthma initiative. My first question is how were the 200 low income students chosen for this study. Do only low income people get asthma? What are the implications involved in studying how much the poor are costing the healthcare system in this country? Why focus on the poor? Is it to distract from other factors probably far more responsible for healthcare inflation – third party health insurers, pharmaceutical monopolies, the effects of poverty on health, environmental pollution?
I went to the Center of Disease Control to get information on the demographics involving asthma. Yes, it is more prevalent among certain populations but it is not exclusive to those populations. How relevant will the data collected as a result of this study be?
This initiative is reminiscent of the kind of Welfare Capitalism and social retooling promoted by Henry Ford. This initiative, it seems to me, would require home monitoring by inspectors carefully reviewing not only lifestyle choices made by the parents involved but also place blame on those whose time is already stretched by focusing on parents who are not able to keep an immaculate household. I don’t see anywhere how these investors might be held accountable for environmental pollution beyond a parent’s control, which is also listed as an asthma trigger by the CDC, that might be caused by another entity where the investors may have also placed their financial “support”.
This initiative has all the earmarks of another Rockefeller Foundation Third World project taken on to exert more social control than it already does throughout the world. It makes a mockery of representative democracy. It’s also the latest manifestation of casino capitalism. Should the rulers of the counting houses be the ones who rule over society. NO! I definitely don’t think so.
Sam, you write:
It’s not a bond in the sense of a general or moral obligation bond. This is why the Feds use the terminology “pay-for-success contract”.
Well, it seems the operative word is “contract”. The term “pay for success” “pay for performance” is used to describe SIB’s but actually refers to a larger class of “bonds” and investment vehicles that bear certain similarities to Social Impact Bonds which also includes other investment schemes such as those known as “human capital performance bonds” or “hucaps”, pioneered by Steve Rothschild:
http://tcbmag.com/Industries/Human-Capital/A-Fresh-Angle?page=1
Social impact bonds offer investors in government services either a big return or, if a program doesn’t meet its target, nothing at all. These bonds, Rothschild says, are “more of a venture capital investment. It’s not really a bond—it’s a debt instrument.
He goes on to say:
Rothschild distinguishes hucap bonds from general obligation bonds, the instrument that government uses to fund the construction of buildings, roads, and bridges; and from revenue bonds, which support revenue-yielding activities . . . “States don’t renege on this, because if they did, their other bonds would get re-rated,” he adds. “That’s why they’re sometimes called moral obligation bonds.”
As much as I understand the differences, the similarities between the different investment vehicles are difficult to ignore. These sorts of neo-liberal “pay for success” schemes have a longer history than the lastest SIB variation of the theme:
In 1994, Rothschild approached Gary Stern and Art Rolnick, then the president and the chief economist respectively at the Minneapolis Federal Reserve, to help him put the idea of a pay-for-performance model into a formula.
What you say here echos the motivation and rationale to dream up the moral obligation scheme used by Nelson Rockefeller in the 1960’s:
However, our state legislators have proven unwilling to do the heavy lifting themselves, preferring instead to look towards business for solutions. Social impact bonds aren’t ideal, but they’re better than doing nothing.
from Edward Jay Epstein
The political problem, which restrained Rockefeller’s predecessors from constructing public works on a scale of the Egyptian pyramids, was that they could not be paid for out of taxes, since the wrath of the electorate over tax increases would far outweigh any advantages from special interest groups pleased with the expenditures.
With characteristic ingenuity, Nelson over-rode this stumbling block to expansion by devising special authorities which could issue long-term debt without the approval of the voters. These bonds were not legally backed by the full faith of the state, since they by-passed constitutional requirement of a referendum, but Nelson pledged the full moral authority of the state the bonds, bond buyers assumed that this pledge was tantamount to a state obligation. Through these “Moral obligation” bonds, as they came to be called, New York State raised over $6 billion. Through these and other innovation, its debt during the Rockefeller administrations rose from $1 billion to $13 billion, allowing Nelson to engage in a massive building and spending.
While, technically, there will be “no obligation” to pay for lack of success, there are two other possible outcomes in addition to the happy “win win” situation presented by those who want to arouse enthusiasm for these proposals:
1. Investors will want to have intrusive, obsessive control over various social programs to ensure their return on their investment and also control over the measure the success of the programs invested in. What are the possible conflicts of interest?
2. As Rothschild points out in the Twin Cities article linked to:
but Rothschild says that such bonds are well-accepted in the financial marketplace. “States don’t renege on this, because if they did, their other bonds would get re-rated,” he adds. “That’s why they’re sometimes called moral obligation bonds.”
So, if goals that will probably be established through the influence of investors are not met, what would be the situation where a state decided not to pay for a program that didn’t work?
Who would have the better team of lawyers to determine just what success meant?
This article is as instructive as can be re: end runs around gaining a consensus before saddling the public with the costs of various neo-liberal schemes. One of the most interesting tidbits mixed in with all the other very pertinent facts related by Frias is how the Port Authority was formed. For those whose memories span more than a decade, it will be remembered that it was the Port Authority Sundlun ransacked to ram the the Wyatt prison project through – one of those neo-lib projects placed in a depressed petri dish out of contempt for the poor and powerless portrayed as “concern” for the very same people.
There is so much more about deja vu all over again in this piece; RIHMFC for instance. What an acronym. Fact is stranger than fiction because fiction has to be believable. So, when one hears a very convincing argument, it might be a good thing to keep that in mind.
http://cranstononline.com/stories/The-immorality-of-moral-obligation-bonds,82913?category_id=222&town_id=3&sub_type=stories