What Happened?
States and local governments across the country and working with private sector entities to fund performance-based social service delivery models, also known as pay for success or social impact bonds. Through privatization projects, local and state governments are able to accelerate the development and advancement of many infrastructure programs amid tight budgets and mediocre economic recovery.
The Goal
The popularity of social impact bonds is growing rapidly, as more governments are experiencing success with the performance-based initiatives. For example, the Rockefeller Foundation and the Social Impact Bond Technical Assistance Lab at Harvard University held a contest earlier this year to award funding to the states with the most promising and developed social impact bond proposals. The winners included Colorado, Connecticut and Illinois. As more funding becomes available, the programs expect to expand even further across the country.
What Does A Social Impact Bond Entail?
According to the Rockefeller Foundation, social impact bonds enable public, private and nonprofit organizations to work together to create and implement community improvement solutions. The financial structure of social impact bonds sources funding from many participants and follows the return on these investments to determine the success of the initiative and whether further funding should incur. Because private investors are involved in these engagements, generating a financial return is a top priority, coinciding with creating a measurable and positive impact on society.
After the proposal is approved and the project is launched, public and private officials must evaluate the plan and its progress to determine if expected outcomes are met and what changes have been made to the community. By reviewing and improving the project regularly, organizations are able to increase and accelerate return on investment and improve the economic impact of the social measures. Because states have seen their budgets tighten over the past five years, social impact bonds offer an innovative way to keep new programs running without relying on taxpayer funding.
Break It Down For Me
The Rockefeller Foundation reported $85 billion in federal grant cuts were implemented in 2013 alone, creating a need for private sector funding assistance to sustain many local government programs and projects. States had federal funding cut from community and regional development programs, income security and social services, employment and training, and education support.
With the federal tap running dry, private investors and nonprofits were able to step in and provide about $37.3 billion of funding in 2011, while nearly $1 trillion in commercial capital could potentially be utilized as well in the next 10 years.
Social impact bonds start when a government body partners with private or nonprofit entities to develop and launch a project with potential social impacts. Because the private investors want return on their investment, stringent oversight is in place to monitor performance. With the local government leading the project, the community is able to leverage private funding toward public needs. When all goes according to plan, it is a clear win-win.
Joining Forces
Gov1 has followed several privatization efforts such as billing changes in East Chicago or the investment of private capital into Midway Airport.