The quest to manage cities is a huge issue in a time of globalised transformation. PFS/SIBs are a vital tool for any contemporary metropolis to become a city of the future – welcome to today’s SIB News…
Managing cities is a daunting process, and the challenges to innovation are enormous. Today’s short-term crisis trumps strategic long-term crisis prevention. Governments keep track of what they spend on education, infrastructure and innovation, but often have little idea of what they actually buy. And even if they seek to innovate, fighting among government agencies for scarce resources, limits on available data, and regional communication problems can stymie those efforts.
A new financing mechanism can solve all of these problems, and today, the Urban Institute launched a new initiative to aid the development of a new such tool in the United States. Referred to as pay for success (PFS) in the federal government or social impact bonds (SIB) in the private sector, PFS/SIBs are a way to shift the risk of new social investments from the government to the private sector (commercial banks, philanthropists and venture capitalists).
Understanding Social Impact Bonds And Pay for Success
Pay for success (PFS) financing and social impact bonds (SIBs) have generated immense enthusiasm in the public and private sectors as a means to shift risk and generate new capital for social programming. In PFS and SIB transactions, private investors provide capital for an evidence-based social program. The investors’ principal is returned with a profit if rigorous evaluation concludes predetermined performance goals are met.
There are more than a dozen operating SIBs in the UK, and several PFS projects in US cities and states. However, transitioning from an experiment to a stable social funding structure requires a rigorous selection and evaluation process, and an appropriate pricing scheme for governments and investors. Urban Institute researchers have developed roadmaps for the next step for PFS development in the United States by drawing on evaluation research, policy development, and cost-benefit analysis.