They’ve been percolating at the state and local level, and now a bipartisan group on Capitol Hill hopes to fund social impact bonds (SIBs) with federal dollars. We lack extensive data about whether SIBs work, but in theory they’re the perfect match of seeking the public good while enforcing accountability, the yin and yang of conservative and progressive ethos.
Co-sponsors Reps. Todd Young, R-Ind., and John Delaney, D-Md., recently led seven other members from both parties to introduce H.R. 4885, the Social Impact Bond Act. The bill would enable the Treasury Department to reimburse for social betterment projects only after grantees have achieved targeted outcomes. Projects are typically initially funded by private donors, and the project length would be capped at 10 years.
The bill would also create a Federal Interagency Council on Social Impact Bonds to collaborate with Treasury; Council members would come from 10 government agencies or departments, including the Department of Health and Human Services, the Office of Management and Budget, and would be chaired by a member of the Office of White House Policy.
“Social Impact Bonds have the potential to transform our nation’s social safety net by shifting the focus of such programs from inputs to outcomes,” Young said following the bill’s unveiling. “In other words, instead of arguing about how much or how little we are spending, policymakers should reward what works based on actual evidence. Whether you think government ought to do more to help our fellow Americans in need, or you think government needs to save money wherever possible, social impact bonds provide a solution on both counts.”
John Perovich of Social Enterprise Associates gives some useful examples of SIBs in action, including the real-life 2012 case of the New York City Department of Correction and Goldman Sachs, where the investment bank issued a $9.6 million loan to fund therapeutic services for 16- to 18-year-olds incarcerated on Rikers Island. Under the deal structure, the City government will repay the firm on a sliding scale based on program results, i.e. less recidivism.
Source: Social Enterprise Associates
Perovich cited a fictional scenario from Social Finance US to explain SIB structure. Say the cost of homelessness (e.g., emergency rooms, jails, shelters) for a state is $100 million, though the state seeks to save money while improving life for the homeless. Under the scenario, building affordable housing would cost $40 million and ongoing social services $25 million in case management and behavioral health care. The state could tap private investors for $40 million in SIBs and monitor results in how the affordable housing reduces homelessness. The state would then pay out investor returns with a portion of cost savings, projected at $35 million.
Source: Social Finance US
SIBs are a better fit for human nature than guaranteed government appropriations since they tap into incentives. No results, no money. Should this federal endeavor--right now capped at $300 million--prove successful, it could be the tipping point for a wave of more SIBs.
*This original post incorrectly identified the source of the fictional SIB scenario. The source is Social Finance US.
