The new normal of government – doing more for less is discussed in the second article while our lead story today is a tale of shortsighted government in working with the SIB opportunity.
Government Shortsightedness Is Strangling Life Out of Social Impact Bonds
Mathu Jeyaloganathan – Student Reporter
At present, government’s misunderstanding of SIBs and their innovative approach to social sector problems may have adverse effects in the development of these bonds. Specifically, a low buy-in from government may result in limiting the scale and diversity of SIB pilot programs.
Social Impact Bonds: An Explanation And A Call For Resources
Jitinder Kohli (Director, Deloitte Consulting LLP) & David Rabinowitz (Management Consultant, Deloitte Consulting LLP) – NCCD
A new normal exists in government: Everywhere in the world, government agencies have to do more with less. In order to cope, they are embracing increasing amounts of innovation. One such innovation is Social Impact Bonds (or SIBs); this idea that started less than five years ago seems to be spreading rapidly. Across the country, more than 25 SIB deals are under development or underway. Early experience of SIBs shows that they require intense activity to implement. Deals in Massachusetts, Michigan, New York, and Illinois have benefited from extensive technical assistance. But as the concept takes off, the process needs to become easier—with “plug and play” tools to make SIBs easier to replicate.
What is a Social Impact Bond? Also called a Pay for Success Bond or Contract, a SIB, at its core, is a type of contract between an external organization and a government agency. While the external organization aims to reach a specific outcome, the government agency defines a social outcome (e.g., improvements in education) and promises to make a payment only if the outcome is achieved. The external organization needs funding to carry out the activities necessary to achieve the outcome and raises funds directly with outside investors (often foundations or socially conscious individual investors). The key difference from traditional government funding—and even other performance-based funding schemes—is that government payment only flows if outcomes are achieved. In addition, service providers have tremendous flexibility and autonomy in designing and managing activities.
The first SIBs in the United States mirrored early counterparts from the United Kingdom. In New York, a SIB was launched to help inmates released from Rikers Island, New York City’s main jail complex. This SIB closely mirrors one of the earliest deals at HMP Peterborough, a prison in England. Early indicators show that the Peterborough SIB is succeeding in reducing recidivism.
Now SIBs are being applied to other social issues. For example, in California, organizations in Fresno have launched one designed to reduce asthma among low-income children. This deal aims to offer in-home services to reduce exposure to smoke, pests, etc. If successful, the number of trips to the emergency room will decrease, and the model could be scaled to address the nationwide costs of asthma hospitalizations—which exceed $1 billion each year.