Social Impact Bonds provide an innovative opportunity for addressing expensive social issues that place a heavy burden on taxpayers and governments.
In the June, 20, 2012, New York Times Opinion pages, Tina Rosenberg, writes about an experiment by local government in England to decrease chronic homelessness among the population of single homeless adults who cycle in and out of the prison system, courts and hospital emergency rooms. In the case, bonds will invest in people instead of projects such as roads and bridges. They provide the mechanism to raise money from third party investors for prevention and supportive housing.
Social impact bonds focus on outcomes (not outputs such as how many clients served) and only pay nonprofits for success. And while they have their drawbacks – their structure is complex and a certain threshold is required for the government to see a benefit – both local states, Massachusetts, and the federal government see them as an opportunity to decrease homelessness and crime.
“Social impact bonds could also make service work more strategic and rational. Like politicians, nongovernmental organizations are constantly fundraising. Financial uncertainty can rob them of the power to plan more than a few months ahead. Social impact bonds could give them the up-front money they need to be effective, and they can use the money however they think appropriate to meet their targets.”