Gov. Pat Quinn wants to begin using private-sector investments to improve social outcomes, with the goal of government savings. Known as a social impact bond, money provided upfront by investors is used to help effective programs increase their success. If goals are met and government savings result, a portion of those savings are returned to the investors to pay off the bond with interest.
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For instance, if a program to lower the recidivism rate results in the state spending less on incarceration, and a predetermined goal is achieved, some of those savings would go to bond holders. While returns might not be substantial, investors would get both financial and social return. While the state still hasn’t specified which programs would see an investment (increasing school graduation rates, improving outcomes for at-risk youth, lowering hospital readmission rates, reducing ex-offender recidivism), several other states and countries are using social impact bonds. However, social impact bonds are still relatively new and returns on investments are yet to be seen.
Besides not having any proven returns on social impact bonds, there are concerns that private investors would want to invest only in something with a measurable outcome, leaving some social agencies that tackle huge social problems without access to investors.
In Massachusetts, a similar bond program called Pay for Success was launched in 2012 to invest in increasing housing for the homeless. The concept is that housing the homeless would result in the state saving money on medical treatment for the homeless. If savings are achieved, the state would pay back investors for their initial investment plus interest. Massachusetts is still negotiating a deal.
In the coming weeks the state will issue a request for information to explore potential initiatives in what the governor’s office calls “targeted policy areas.”