One tool a couple state lawmakers want to use in troubled Milwaukee neighborhoods is social impact bonds.
The name might be a bit of a misnomer because no actual bonds are issued. Supporters say social impact bonds, or SIBs, can help address problems such as recidivism, while also saving taxpayer money.
In a nutshell, here’s how SIBs work:
Government decides it needs to tackle a problem because it’s costly. They then contract with a so-called intermediary who then raises money to fund the project and hires an organization to do the work. The parties involved agree on metrics for measuring success. If the program meets the metrics, government pays the intermediary who then pays back the investors, plus some. If the metrics aren’t met, investors lose money.
Steve Goldberg is an independent social investment advisor. He says intermediaries are seeking out business.
“Very often they will come proactively to government and say we think there’s an opportunity to lower your recidivism, to improve your outcomes for former prisoners and to save money," Goldberg says. "Would you be interested in looking at this project?”
If the deal goes as planned, Goldberg says the government should spend less money than it would have otherwise, addressing the problem.
Last year, Massachusetts set out to lower its incarceration rate using social impact bonds. The state hired a company called Third Sector Capital to act as the intermediary and it contracted an organization called Roca to do the work – for seven years.
“The point of our project is to work with very high risk young men, which means that they’re (they’ve committed) serious crimes, they’re on track for future incarceration and future violence,” Molly Baldwin says. She's the founder and CEO of Roca.
Baldwin says in its first year, her company served nearly 500 young men and retained 80 percent of them. The program is voluntary and takes two years to complete.
“We run a series of employment and education and life skills programming designed for young people who won’t show up. So it can happen for one day, they can leave, they can come back. So we keep going at them until they start to succeed,” she says.
Baldwin says it typically takes the men in the program between 16 and 18 months to put in 60 consecutive days of work. Roca’s goal is to help half of them avoid incarceration. The cost to run the program for four years is $23 million. Big names such as Goldman Sachs are putting up some of the money.
SIBs got their start in England just a few years ago - in 2010. Investment advisor Steve Goldberg says while SIBs are a public private arrangement, it’s not about privatizing work done by the public sector.
“These are services that government is not itself directly providing. So for example, government provides police and prisons, they typically don’t provide re-entry services,” Goldberg says.
Goldberg admits however, there is a need for government oversight.
“Generally speaking these SIBs are investments in services for vulnerable populations. Children and juvenile offenders and kids in special education programs that government has responsibility for. So it’s important for government to protect tax payer funds, and so we don’t want SIB transactions are tilted in favor of investors,” Goldberg says.
SIBs are so new that it remains to be seen how effective they could be in addressing problems and saving money. Both Utah and Chicago are funding preschool programs.
In Wisconsin, GOP lawmakers will put forth a plan requiring all state agencies to look into whether social impact bonds could help solve problems or increase efficiencies.
