Social Impact Bonds See First Statewide Launch in the United States

MacIver News Service | January 31, 2014

by Haley Sinklair

[New York, NY] A bipartisan bill proposed by Representative Angel Fuentes (D) of New York and signed by Governor Andrew Cuomo will launch the first state-level Social Impact Bond initiative in the United States. This public-private partnership has created a four-year, $13.5 million program in Rochester and New York City aimed at reducing recidivism among 2,000 recently released inmates.

MacIver News Service reported on Social Impact Bonds, how they work, and their future potential in November 2013.

Social Impact Bonds, also known as Pay-for-success bonds, incorporate several key players. These players usually include: a local or state government, an intermediary, a private investor, and a service provider.

The government is also responsible for finding a research group to assess whether or not the program is successful. This will determine the amount of payment to be paid to the intermediary for the reduced usage of public social services.

The $13.5 million invested in the program was raised by Bank of America Merrill Lynch, the Rockefeller Foundation, and the Robin Hood Foundation to help the nonprofit Center for Employment Opportunities (CEO) provide rigorous employment training and job placement services.

The intermediary, Social Finance Inc., organized the various organizations and assembled the investment, while the Chesapeake Research Associates will work to determine whether or not the program reaches performance targets.

Goals for the New York State initiative include reducing recidivism by at least 8 percent or increasing employment by at least 5 percent. If these targets are met the government pays the intermediary, which forwards that money to the investor for a return on investment (with a 12.5% cap) and saves taxpayer money due to reduced usage of public social services.

According to the Reason Foundation, the state could see $7.8 million in taxpayer savings if the program reaches it’s outlined goals.

Several other states across the country are picking up on the idea including Washington and New Jersey. Both are hoping to create programs designed to provide preventative or interventionist social or health care services.

With taxpayer savings in mind, Social Impact Bonds may pave the way towards more fiscally sound and innovative social programs.