Maori Authority boss puts cost of failing a struggling child at $145K a year

National Urban Maori Authority boss Lance Norman puts the cost of failing a struggling child at $145,000 per year.

He says an upfront investment of $28,000 a year in the right programmes can stop children going off the rails.

Mr Norman says returns  on government social bonds need to be at least 15% for investors and calls for “a robust conversation” on profit-sharing as he believes his plan could save taxpayers $50 million.

He argues the private sector is “not doing a great job” and many people have had “adverse” experiences with state agencies, so private service providers are better placed to do the work.

Nearly $29 million was set aside in last year's Budget to roll out four social bond programmes.

A social bond uses private investors' money rather than public funds to provide a social service.

However, this week, nearly a year after the announcement, negotiations were still under way between social bond advisor ANZ and potential investors.

Philanthropy New Zealand, whose 250 members have yet to support the initiative, says a government guarantee would give it more confidence in the new scheme.

RAW DATA: Phil Norman interviewed on The Nation

Lisa Owen: Welcome back. National last year started dabbling in social bonds, in which investors make a profit from the government if a social service agency meets certain targets. In other words, the government pays for outcomes rather than just providing services. Waipareira Trust, the West Auckland Urban Maori Authority, has put together a bid to create one of the first four bonds, and in doing so, they’ve done some fascinating research into the costs of struggling families, so with me this morning is chief executive of the National Maori Authority Lance Norman. Morena.

Lance Norman: Kia ora.

You have a pitched a social bond to the government, and it’s to combat truancy. As part of that, you’ve figured out the costs of failing one of those truant children. We’re going to put something up on our screen now, which is a graphic where you estimate the costs to taxpayers every year if we do nothing. Can you just talk us through what those costs are?

Sure. Firstly, you’ve got the cost of the truancy officer themselves, looking after the non-attending child. You’ll also have a social worker, probably a social worker in school, maybe a social worker in the house environment as well. If you were going to be incarcerated, you’ve got the police system involved, you’ve got the justice system involved, and then also you’ve got the court system, and then, obviously, if they’re incarcerated, leading onto imprisonment.

So you’ve got $16,000 there for police time, $100,000 for a year in jail, $20,000 for Ministry of Justice, court time, but how did you—? How do you know it will end up this way? Are these just guesses or…?

All this data’s actually off Ministry websites. We’ve done a lot of data review ourselves, but the $100,000 is actually straight off the Ministry  of Justice website. We’ve had—

For a year in a jail?

For a year in jail.

But how do you know your kid will end up in jail, the child that you’re about?

The profiling—Not the profiling, but the data we have, there’s a high likelihood. If you’re born into poverty or hardship is probably the starting point. There’s a likelihood you’ll be a truant, not attend school. There’s a few—and there’s international and New Zealand evidence that says if you’re a truant, you’re more likely to have a negative pathway in terms of employment and potentially incarceration. Not everybody, but there’s a high likelihood you’ll end up in prison.

Do you know how much more likely it is that that will happen to you?

I know at least 90% of people in prison have been truant significantly over their pathway, so we know that data of categoric evidence in prison, that truancy is a lead indicator of potentially going to a jail. We haven’t done—We do have this data in New Zealand, but we’re just analysing at the minute.

So the cost that you worked out there are based on evidence and profiles that you know,…

Correct.

...things that happened to truant children if they’re not looked after.

Correct.

So, the whole point of the bond is to stop this happening, so how much would it cost, what do you have to invest in that child to stop them costing us that much money?

Although the math we’ve done is—You’re going to need a bunch of programmes. You’re going to need some numeracy-literacy; you’re going to need some budgeting with household; you’re going to need social work; you’re going to need nurse support to help on some of the clinical activities required in the family and a lot of strength-based initiatives. It’s less than $30,000 per individual. Our numbers – it’s about $28,000. Sounds like a lot, but when you look at the cost of the negative indicator, where you potentially could go $100,000 per annum – if you in jail for three to five years, that’s $500,000 for one intervention for one family.

So basically, you’re saying we invest $28,000 in a child per year – that’s on this path, a truant – and we will save ourselves $145,000 a year. Is that what you’re telling us?

Well, it’s $145,000 for the first year, notwithstanding you’re probably going to be in prison for three to five years, depending on your crime, so when you extrapolate that number, it has the potential to save $1 million per individual, depending on the nature of where that individual could end up.

And these figures are robust? You’ve had the tested or looked at by someone?

These are all off Ministry databases.

But you had it peer-reviewed?

Yeah, we actually involved Deloitte, who’s a worldwide accounting firm to peer-review and also get international evidence across their different networks to peer-review the data.

To bring together this information, you’ve looked at a thousand families in your own area, haven’t you? And identified 400 that area really problem families, so in essence, you’re profiling them, aren’t you? And people don’t like that word, but that’s what it is, isn’t it?

They don’t like that word, but if you looked at all the databases that New Zealand have, with respect, it’s similar families, so our health issues, our housing issues, our social issues, if you were to combine those databases – and I think Bill English is heading the right way by having a centralised database – you’ll actually find it’s the same cohort of families that are in these particular hardships and moving onto negative statistics.

So, the government wants to use these things that they call social bonds to fund these services. As simply as possible, can you explain to us how they work?

So the general—How they should work is – you have an intermediary who brings together some financial institutions to raise some private equity. Then that person or that group also works with a group of providers or one provider who has a programme that’s been proven that can save some money. Then, effectively, the bond is set up as a private funded programme. The investor receives a percentage amount back on their investment, and then what should happen is you should save a lot of money for the government and there should be some sort of profit-sharing arrangement.

Or bonus at the end of it.

Or bonus at the end of it.

So just to be clear, in your case, you had lined up an investor, which was Westpac Bank,…

Correct.

…and your own Waipareira Trust would kick in some money, and the bank would bring in some other investors, and you spend that on the core social service.

Correct.

What targets would you have to meet?

They wanted to target at least 400 families so you had some good evidence across the network, but our data showed that—I mean, mathematically, if you had the worst whanau or the worst families and we targeted those and they were more likely to go to jail in the seven-year category, that’s $1 million cost, so mathematically, the bond we put up for $5 million per year for five years. Mathematically, if you kept five people at a jail, that would cover that $5 million. If you’re looking after 400 families who are more likely – because of truancy, maybe some other issues that we’ve identified – to have a negative pathway, then the likelihood of getting five out of 400 is probably higher than less.

So what you’re saying is you actually only have to make a positive impact on a very small number of those people for this to pay for itself, in your view, but in terms of actually deciding whether you have done the job properly, what are the measures that you put forward to be judged against?

Sure. So there’s three really easy ones we did. A lot of the families that we see in hardship aren’t engaged in healthcare or they use the hospital system as healthcare, so one is – are you enrolled at a general practice, which then gives you a positive pathway into subsidised healthcare within New Zealand, because we also recognise that some of these families are clogging up the hospital system. The second one is – are you at school? That’s clearly evident by any truancy data that the Ministry of Education would have. Thirdly – did you go to jail? And that’s just a yes/no question, so we wanted to have relatively easy, measurable targets but also that are government targets as well.

‘Did you go to jail?’ is something that you can’t immediately answer, though.

Correct.

So you would be waiting some time to know if you had done a good job.

Well, the issue we have is a lot of these pro— the issues our communities are facing are long-term issues, so we need long-term solutions. So you’re talking potentially three to five years before you may even see some positive turnaround, but you’re going to get some immediate turnaround by having those children at school. Not only are they at school learning and not going to a negative pathway; they potentially could become a positive contributor for tax when they get a job down the line.

Get a job, pay their tax.

Correct.

But the thing is, if you do have success further down the line, you expect to be paid for that, don’t you? What happens?

Well, that would be helpful. I mean, we’re a not-for-profit, but we’re also not-for-loss. So in order for us to invest in community programmes, we need to generate money to keep reinvesting into other programmes in the community.

So the Government pays you if you are successful?

Correct.

But what? Interest on the investment? A profit share? How is the money—?

Well, the devil’s in the detail, but you’d want at least the principle repaid. Our investors would want at least an interest payment made, and we would suggest there should be some sort of profit share.

How much, do you think?

Well, given that we’re going to beat the state on most things that they can’t do at the moment, and just on the numbers you put up before, you could be saving millions of dollars per individual.

So what’s fair for payment to you, then? 10%? 15%?

I think 15%, at least, needs to cover the risk that the provider puts in, but there also needs to be a robust conversation about profit sharing, because this could be, potentially, a $50 million saving to the Government. Now, as I say, I’m not for-profit, but I’m not for-loss, so how do we share those savings across the people that have actually done the work?

This is bringing the market into the care of kids, isn’t it? Aren’t you just a little bit queasy about people betting on making money out of misery, because that’s kind of what it is, isn’t it?

That is a good comment, but at the moment, you have to say the state is not doing a great job. If you look at incarceration at the moment, it’s sitting at 9300 people in prison, heading towards 10,000. That is not a good use of taxpayers’ money. When you look at truancy, the cost of that through unemployment, etc, etc… So we’re already paying that in society. All we’re trying to say is on behalf on these communities who can’t advocate for themselves, how do we provide programmes?

But why not just give proper funding to state agencies and have them do it themselves? Because this sounds awfully complicated, so why not just stick with state agencies and give them the funding they need?

Once again, so the families we work with are averse to working with state agencies. They’ve had so many negative conversations through either CYFs or Ministry— a schooling issue or a truancy issue, or some people are in prison in their families, so the communication flows they’ve had with state agencies is not positive. So a state official going around to the house does not help advance that family at all. We are from the community. Our boards are the community. Our workers are from the community. We know the individuals, some of them we know personally, so we have more likelihood of getting into the family and resolving some of these complex issues.

But critics will say it’s privatization by stealth; troubled kids are the responsibility of the state, pure and simple.

I would agree with that comment. However—

What, that it’s privatization by stealth?

No, that it is the responsibility of the state. I would agree with that. However, the state is not doing enough for these families. Clearly, the evidence is not working favourably for some of these families who are in huge hardship. There’s family violence issues. There’s budgeting issues. So there’s not been enough done by the state, so we’re saying we will do that.

But what about the privatization tag?

Privatization – there’s positive examples of privatization. General practices within New Zealand are all owned by private GPs. That’s a good model.

Serco was privatization.

That’s a bad model, but that’s a good example of where the Government actually took the cheapest option rather than saying, ‘In prisons, half the population are Maori – how would we deal with those prisoners to rehabilitate them?’ They just went with the cheapest option. So you’ve got to be careful that you don’t privatize just for the sake of saving money.

So you have no fundamental issue with basically putting a price on these kids’ heads, in essence?

Effectively, the state already does, because they put a $100,000 price tag on their head when they go to prison. They put a price on their head when they’re going through the justice system, and they put a price on their head through truancy and social workers. So those costs are already there now. We’re just saying there’s a much positive and more economical way of working with whanau to have positive achievement with them but also saving the taxpayer millions and millions of dollars of bad money, really.

Lance Norman, thanks for joining us this morning. Very interesting and lots to talk about there.