‘Human capital bonds’ approved


Supporters hope an innovative pay-for-performance program will provide a new model for how the state funds social services in the future.

Sponsored by Rep. Keith Downey (R-Edina), HF681 would create a pilot program for contracting out certain state services to private nonprofits. Using appropriation bonds, the state would establish a pool of money out of which contractors would be paid based on documented savings they provide to the state.

The House Government Operations and Elections Committee approved the bill March 17 and referred it to the House State Government Finance Committee.

The concept is known as “human capital bonding.” Downey said the pilot would be modeled after Twin Cities RISE! – a program that helps poor people and convicted felons find gainful employment. In that program, the state provides money to the group only when its clients find jobs and when they’ve had employer-provided health insurance for a year. Savings to the state come in the form of increased tax revenue and reduced costs for incarceration.

Steve Rothschild, the founder of Twin Cities RISE! and a former General Mills executive, said the cost of repaying the bonds would be recouped through savings provided by the service providers. He said the concept is a “win-win-win” for taxpayers, nonprofits and investors alike.

Rep. Ryan Winkler (DFL-Golden Valley) questioned whether service providers might try to game the system by influencing the standards that are used to measure their performance.

“You have to make sure that the outcomes you’re measuring are the most important ones,” Winkler said.

The bill includes a line for an appropriation for the bonds, but it does not include a dollar amount yet. Sen. Julie Rosen (R-Fairmont) sponsors the companion, SF434, which awaits action by the Senate State Government Innovation and Veterans Committee.