Goldmans are in the market again and TED are talking about it…that suggests a market with momentum to the upside to us…
Goldman Sachs is making its second foray into an experimental method of financing social services, lending up to $4.6 million for a childhood education program in Salt Lake City.
This “social impact bond,” in which Goldman stands to make money if the program is successful but will lose its investment if it fails, will support a preschool program intended to reduce the need for special education and remedial services. The upshot, in theory, is that taxpayers will not have to bear the upfront cost of the program.
Goldman is being joined in this effort by the Chicago investor J.B. Pritzker, who is providing a subordinate loan of up to $2.4 million, bringing the total financing to $7 million. The loans will be announced at an event in Chicago on Thursday.
State and local governments deliver and fund many of the nation’s most important social services — educating our children, training our unemployed workers, and caring for our seniors, among many other important functions. But even as tax revenues begin to rebound with the strengthening economy, the funding outlook for most social services remains bleak. In inflation-adjusted dollars, per capita state and local spending remains 4 percent below pre-recession levels, even before the full impact of the federal budget sequester kicks in. And health care spending — for Medicaid and the health benefits of current and past government employees — is projected to continue to absorb an increasing share of state and local tax dollars. According to the U.S. Government Accountability Office, state and local governments face a long run fiscal gap equal to 14 percent of expenditures.
Toby Eccles doesn’t believe that the private and public sectors have to operate separately for social change. And he and his colleagues at Social Finance have been working since 2010 to prove it — with a new financial instrument known as social impact bonds. They are, as Eccles says, “not a new intervention, therapy or way of working with kids,” but a new way of doing business for social change.
Consider the problem of recidivism in short-sentence prisoners. In Britain, 63 percent of men who serve short prison sentences are expected to reoffend within a year. In fact, on average these men have committed 43 previous offenses and been to prison seven times before. Eccles and his team approached the Ministry of Justice and asked them: What is it worth to you — economically, in terms of police time, court time, prison time, etc. — to have these men reoffend fewer times? The social benefits are important, but it’s the economic value that makes the case truly compelling and irrefutable, says Eccles. And more important, if Social Finance and the Ministry could agree on how to measure progress, including a dollar value that demonstrates that progress, they could agree on a contract.