Massachusetts recently announced a $27 million seven-year “social impact bond” aimed at reducing the number of at-risk former inmates who go back to prison or jail. It’s the country’s largest investment in this new type of funding.
Recidivism among formerly incarcerated inmates, of course, is alarmingly high. And for good reason. Many ex-offenders don’t have even high school diplomas. And even if they do, a lot of employers won’t consider them once they divulge their record.
The Massachusetts initiative targets at-risk young men in the Boston, Chelsea and Springfield areas who are in the probation system or exiting the juvenile justice system. It works with Roca, a nonprofit that helps ex-offenders through education and life skills and job training, provided over four years. (That includes two years of intensive work and two years of follow-up).
So what is a social impact bond? Also known as pay for success, it’s a new financing mechanism that targets longstanding social problems, like recidivism or homelessness. Specifically, it’s a partnership between government, philanthropies, nonprofits, and private investors aimed at achieving measurable outcomes related to an intransigent issue. If the initiative reaches its goal, as determined by a third-party evaluator, the government pays back donors with a small profit. No successful outcome, no pay back.
Or, here’s a definition from the Center for American Progress: Social impact bonds are “an arrangement between one or more government agencies and an external organization where the government specifies an outcome (or outcomes) and promises to pay the external organization a pre-agreed sum (or sums) if it is able to accomplish the outcome(s).”
It also isn’t really a bond, but never mind. The name is catchy.
The underlying idea is that new approaches to social ills have a hard time proving their effectiveness and, hence, getting government funding. But with social impact bonds, government is off the hook unless a program is successful.
There are critics who say that social impact bonds don’t really raise more money for social programs; they merely displace financing for other initiatives. What’s more, they can be expensive to run.
At any rate, Massachusetts will make payments for success if the third-party evaluator determines that Roca’s program has decreased the number of days participating young men spend in prison, improved their job readiness, and increased their employment. The specific target is a 40% decrease in days of incarceration. At higher levels of success, funders can get a small percentage return.
Third Sector Capital Partners, a nonprofit advisory firm, acted as an intermediary for the project, which means it arranged funding and is responsible for overseeing implementation, distributing funding and managing repayment. New Profit, a national venture philanthropy fund and social innovation organization, is providing additional management support.Goldman Sachs, basically the senior lender for the bond, is providing $9 million. In addition, the Kresge Foundation and Living Cities are putting in $3 million and Laura and John Arnold Foundation, New Profit and the Boston Foundation are anteing up $6 million.
The approach was pioneered in 2010 in the U.K. for a prison initiative. Since then, a growing stream of U.S. municipalities have shown interest. Last spring, the Rockefeller Foundation and the Social Impact Bond Technical Assistance Lab (SIB Lab) at the Harvard Kennedy School announced six winners from a pool of 28 applicants to a national competition; state and local governments will get technical assistance to develop pay-for-success contracts using social impact bonds.
It’s just too bad about the name. Or as a blog on the Center for American Progress says: “In an ideal world, the term describing the concept would not include the word “bond”, but it’s too late to change that.”