Social Impact Bonds: A New Form of Public-Private Funding

by | Aug 8, 2013


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The Rockefeller Foundation and the Harvard University Kennedy School of Government recently announced six winners of a national competition to provide state and local governments with technical assistance to develop pay-for-success contracts using social impact bonds (SIBs). Also known as “pay for success” bonds, SIBs are a way to fund and scale effective social services in a time of economic constraint. The Rockefeller Foundation supports SIBs as a way to “substantially transform the social sector, support poor and vulnerable communities, and create new financial flows for human service delivery by offering an innovative way to scale what works and break the cyclical need for crisis-driven services.”

This model creates a public-private partnership. The private investment capital raised by SIBs fund prevention and early intervention programs that reduce the need for expensive crisis responses and safety-net services. SIBs have the potential to save tax payer dollars in the process, by reducing high-cost social problems like homelessness or the number of repeat offenders in the criminal justice system. Investors are repaid only if and when improved social outcomes are achieved. If improved outcomes are not achieved, the government is not required to repay the investors, thereby transferring the risk of funding prevention services to the private sector and ensuring accountability for taxpayer money.

The Social Impact Bond Technical Assistance Lab (SIB Lab) at Harvard conducts research on how governments can foster social innovation and improve the results they obtain with their social spending. Over the past year, the SIB Lab has helped Massachusetts and New York become the first states to develop pay for success projects. The winning state and local governments for this national competition are Colorado/Denver, Connecticut, Illinois, and New York. These states will receive pro bono technical assistance to help design, procure, and implement these policy initiatives, and plan to address issues ranging from early childhood education to helping seniors remain in their homes longer.

Projects were chosen by a distinguished selection committee made up of former Indianapolis Mayor Stephen Goldsmith (now a Harvard Professor), former Massachusetts Secretary of Administration and Finance Jay Gonzalez, and Harvard Kennedy School Professor Jeffrey Liebman. The committee evaluated the proposals based on the level of commitment and readiness demonstrated by the government, the feasibility of the proposed projects, and the extent of interest in applying the SIB model to new policy areas. The SIB Lab will provide each winning government with a full-time fellow, pro bono advising from Harvard and other senior experts, programming and data support, and a small pool of flexible funding support.

“We’re constantly looking for new ways to innovate in order to provide better value for taxpayers, and the social impact bond model can help us do that. Not only does this approach help pursue solutions to tough problems, but it does so in an accountable, results-oriented way.” -Governor John Kasich of Ohio

Transform Consulting Group helps organizations align their services to “what works” to demonstrative strong outcomes. Want to learn more about innovative funding opportunities for your organization, or how to develop outcomes for your programs? Contact Transform Consulting Group today for a free consultation!




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