Issuing Bonds to Invest in People

Tina Rosenberg at the New York Times: “The first social impact bond began in 2010 in Peterborough, England. Investors funded a program aimed at keeping newly released short-term inmates out of prison. It reduced reoffending by 9 percent compared to a control group, exceeding its target. So investors got their money back, plus interest.

Seldom has a policy idea gone viral so fast. There are now 108 such bonds, in 24 countries. The United States has 20, leveraging $211 million in investment capital, and at least 50 more are on the way. These bonds fund programs to reduce Oklahoma’s population of women in prison, help low-income mothers to have healthy pregnancies in South Carolina, teach refugees and immigrants English and job skills in Boston, house the homeless in Denver, and reduce storm water runoff in the District of Columbia. There’s a Forest Resilience Bond underway that seeks to finance desperately needed wildfire prevention.

Here’s how social impact bonds differ from standard social programs:

They raise upfront money to do prevention. Everyone knows most prevention is a great investment. But politicians don’t do “think ahead” very well. They hate to spend money now to create savings their successors will reap. Issuing a social impact bond means they don’t have to.

They concentrate resources on what works. Bonds build market discipline, since investors demand evidence of success.

They focus attention on outcomes rather than outputs. “Take work-force training,” said David Wilkinson, commissioner of Connecticut’s Office of Early Childhood. “We tend to pay for how many people receive training. We’re less likely to pay for — or even look at — how many people get good jobs.” Providers, he said, were best recognized for their work “when we reward them for outcomes they want to see and families they are serving want to achieve.”

They improve incentives.Focusing on outcomes changes the way social service providers think. In Connecticut, said Duryea, they now have a financial incentive to keep children out of foster care, rather than bring more in.

They force decision makers to look at data. Programs start with great fanfare, but often nobody then examines how they are doing. But with a bond, evaluation is essential.

They build in flexibility.“It’s a big advantage that they don’t prescribe what needs to be done,” said Cohen. The people on the ground choose the strategy, and can change it if necessary. “Innovators can think outside the box and tackle health or education in revolutionary ways,” he said.

…In the United States, social impact bonds have become synonymous with “pay for success” programs. But there are other ways to pay for success. For example, Wilkinson, the Connecticut official, has just started an Outcomes Rate Card — a way for a government to pay for home visits for vulnerable families. The social service agencies get base pay, but also bonuses. If a client has a full-term birth, the agency gets an extra $135 for a low-risk family, $170 for a hard-to-help one. A client who finds stable housing brings $150 or $220 to the agency, depending on the family’s situation….(More)”.