Government’s plan to test social impact bonds signals growing US interest from both public and non-profit sectors

Alliance magazine

The US government is exploring the use of social impact bonds as a means of encouraging greater efficiency in the delivery of social services. The idea, which is currently being tested in a pilot to reduce reoffending in Peterborough prison by Social Finance in the UK (see the interview with Sir Ronald Cohen on the Alliance website, 1 January 2011), essentially involves foundations and non-profits putting up initial funding for a project with government reimbursement, and the possibility of a ‘return’ if the project meets certain goals.

According to the New York Times, President Obama is to launch seven pilot schemes, which would issue a total of $100 million in bonds to support programmes in the areas of job training, education, juvenile justice and children’s disabilities. Officials in Massachusetts and New York City are reportedly looking at similar funding mechanisms without, however, so far committing themselves.

In a separate but closely related development, the Rockefeller Foundation, which last month invested $500,000 in the UK scheme, has announced a $400,000 grant to the Nonprofit Finance Fund for a number of projects that will help bring the social impact bond concept to the US. The Fund, a community-development financial institution, recently launched an online platform for funders, non-profits and educators to share ideas about the bonds. After gathering research and opinions, they will conduct a feasibility study of the bonds in the US and identify opportunities where the financing structure could work. According to Anthony Bugg-Levine of the Rockefeller Foundation, ‘there’s $80 trillion in for-profit capital markets and we believe there’s huge potential in unlocking some of that money and deploying it to solve social problems’.

The Anne E Casey Foundation is inclined to look favourably on the idea, too. Christa Velazquez, director of social investments at the Casey Foundation, who was part of a US delegation that visited the UK last year to see the Peterborough scheme in operation, remarked: ‘The hope is that this will unleash large amounts of investor capital.’ Not everyone is so optimistic, however. Robert Embry of Baltimore’s Abell Foundation, for instance, points out that an untried scheme like this is unlikely to appeal to investors looking primarily for financial gain. He also expressed concern that the cost of collecting the kind of good performance data the bond model requires ‘may reduce the amount of money going to help people and increase the amount of money going to evaluation’.

Sources
Wall Street Journal, 15 February 2011
Baltimore Sun, 14 February 2011
New York Times, 9 February 2011


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