Posted by Jonathan Martin
Across the globe, an unlikely pairing is cropping up. Private investment capital is being tapped by cash-strapped public human services agencies to boost prevention programs. If the prevention programs produce cost-savings, investors get a cut.
Money goes in to a prevention program. If it works, investors are rewarded. (Image courtesy of Social Finance)
This “pay for performance” model, also called social impact bonds, is cutting-edge stuff, still theoretical. It was pioneered in the U.K. in 2010 to cut criminal recidivism at the Peterborough Prison. Although that data isn’t in yet, it has, as a Los Angeles Times editorial last week described, “become the talk of the financial and nonprofit worlds, and now governments, nonprofits and financiers are clamoring for a piece of the social impact bond action.”
New York is trying it to reduce recidivism for Rikers Island inmates. Massachusetts is trying to save money on emergency care by providing housing for the chronically homeless. Utah and Santa Clara, Calif., also have projects.
It now may be on the way to Washington state.
State Rep. Hans Zeiger, who was a Ph.D. student in political science before he ran for office, introduced a bill to give social impact bonds a try. Zeiger, a Puyallup Republican, rounded up bipartisan co-sponsors, many of them social lefties.
State Rep. Hans Zeiger, R-Puyallup
“The pay for success program is one that you create an incentive to solve a problem,” said Zeiger. He notes that the idea cuts across ideology, a rarity in human services, by “engaging the market” to increase human services funding.
I haven’t fully vetted the idea, but it seems as promising as any I’ve heard in a while. Governing magazine declared pay for performance “will be front and center in 2014.” Zeiger said the state treasurer hasn’t found any big impediments, although using federal funds would likely be difficult.
Zeiger mentioned social impact bonds as a vehicle to pay for early child intervention programs, which have proven to have a big return on investment. Locally, Partners for Our Children, a human services think tank at the University of Washington which partners with the state Department of Social and Health Services, suggests using the bonds for a project in child welfare. It has a good explainer on social impact bonds, including the caveat that such programs are ” very complex and require high levels of cross-sector collaboration and trust.”
Zeiger’s bill, HB 2337, doesn’t have a hearing scheduled.