What Happened?
The Harvard Kennedy School’s Social Impact Bond Technical Assistance Lab, funded by The Rockefeller Foundation, recently announced plans for a pro bono technical assistance program to support local and state governments. The strategy will leverage a “pay-for-success” model that uses social impact bonds to pay for social programs in four governments.
So What?
Social impact bonds help municipalities finance social programs in their communities through partnerships with service providers and private investors. Local governments outline what they hope to achieve with the social impact bond funding, typically developing programs that focus on prevention or finding solutions for vulnerable members of the community. If the goals of the social programs are met and governments are successful in their strategies, the private investors will be repaid. Social impact bonds represent a transition in the way many public entities are funding community programs, looking to private sector sources that are financially more stable than many local governments.
According to Professor Jeffrey Liebman, professor of Public Policy at the Harvard Kennedy School, governments using social impact bonds hope to continue to address and correct the social problems within their communities despite an inability to pay for the services themselves. By teaming up the public and private sectors, social innovation can be supported without further increasing local government debt.
Assistance Model
The Social Impact Bond Technical Assistance Lab’s model for providing assistance through performance-based payments includes:
- Helping local decision makers determine if the program can help them achieve social goals and where can the bonds have the greatest impact in the community
- Assisting local officials garner support and ideas on how best to use the social impact bonds in the public sector
- Working with agencies to evaluate cost savings of social impact bonds compared to traditional funding methods
- Establishing credible impact estimates
- Developing a procurement strategy
- Drafting a request for proposals
- Working through negotiations with service providers and intermediaries
- Drawing up contracts with providers and intermediaries to protect taxpayers and provide incentives for participants
How It Works
According to the Center for American Progress, pay-for-success models aim to redesign inefficient tax expenditures in healthcare, energy and education services; boost productivity and workflow management in public agencies for human resources, information technology and procurement; and build a foundation for greater transparency and evaluation of public program performance and cost-savings.
Goals of social impact bonds:
- Improve performance and lower costs of social programs
- Accelerate adoption of new solutions to common problems
- Discover what efforts work faster and more efficiently
Major challenges facing performance-based models:
- Social bonds must be used for projects with high net benefit potential to repay investors
- Community projects being funded must have measurable outcomes
- Population being assisted must be determined up front
- Impact assessments must be credible
- If the program fails, the community must not be harmed
Success Stories
In Massachusetts and New York, the Social Impact Bond Technical Assistance Lab has deployed its assistance model and uses a government innovation fellow to help local lawmakers perform technical analysis to measure achievements. Other cities are also experimenting with other partnerships with the private sector to tap into new sources of funding.