Massachusetts Explores ‘Social Impact Bonds’

By: - July 13, 2011 12:00 am

Massachusetts is studying the idea of raising money for social services by offering investors the chance to earn profits on programs they establish, The Boston Globe reports.
The approach is known as “social impact bonds” or SIBs. It also is known as “pay for success.” It is based on the idea that if programs backed by investors succeed in reducing the number of inmates in prison or the homeless population, for example, governments will realize big savings that can pay investors healthy returns. If the programs fail, governments would owe little or nothing, the Globe explains.
The United Kingdom is currently testing the idea. The British Ministry of Justice has partnered with a nonprofit investment group called Social Finance Ltd., with the goal of reducing prisoner recidivism rates at a prison in Peterborough.
If the nonprofits succeed in cutting recidivism by 7.5 percent, the 17 investors will get back all of the $8 million they put into the program. If they reduce the rate further, investors could receive up to $12.8 million, a nearly 60 percent profit. If the effort fails to reduce recidivism by at least 7.5 percent, the government won’t owe the investors anything.
Governor Deval Patrick formally issued a request for information last month, making the state the first to formally explore social impact bonds, according to Social Finance, Inc . The Boston-based sister firm of the one in Britain  responded to Patrick’s request with what it calls a blueprint for developing and launching pilot programs to show that “SIBs can become a valuable addition to the Massachusetts funding and policy mix.”
The controversial idea poses some challenges. Joe Kriesberg, executive director of the Massachusetts Association of Community Development Corporations , pointed out a few of them during a WAMC public radio report on the Patrick proposal. “How do you effectively measure the outcomes to ensure that you’re getting the outcome you want, not simply the outcome that you can easily measure?” Kriesberg questioned. “How do you make sure that you don’t cherry pick the participants in programs so that you’re serving the easy to serve rather than the most in need?”

Molly Baldwin, executive director of Roca, Inc. , which works with high-risk young adults, told WAMC that the details about how a SIB model could go into effect are unclear. But the idea is a step in the right direction, she said. “It’s really powerful to look at outcomes, and to push all of us to be outcomes oriented.”

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