Using Private Capital To Do Public Good
Instead of asking the government to invest its slim budget in innovative programs, what if you could invest in them and get paid back if they save money? That’s the premise of these popular new financial instruments for good.
The prison system is a money pit. The 2.3 million Americans in jail right now cost taxpayers $68 billion, and the recidivism rate is an embarrassing 68%. But maybe that could change with an infusion of cash from the private sector into prevention and early-intervention programs.
Perhaps you’ve heard of government social impact bonds, which raise private capital for prevention programs in the hopes of staving off the need for expensive safety-net and remediation services. Unlike an actual bond, the government pays back the money to investors only if programs are successful and save money–for example, if the number of repeat offenders in the prison system drops, or if homelessness is reduced (in this sense, it’s more like a stock). It’s a way to take the burden of risk for these programs off cash-strapped governments and to allow the market to assess the best options. To put it more simply: You could invest in a new program that keeps people out of jail. If the program hits certain benchmarks and saves the government money from not having to jail people, you’ll get paid back out of those savings.
Social impact bonds are already in use in the U.K., where a pilot program launched in 2010 at Peterborough Prison–the world’s first social impact bond–is showing some evidence of reducing prisoner recidivism. The program raised $8 million to allow a group of nonprofits to create a reentry program for former prisoners. Now social impact bonds are set to start rolling out in the U.S.–last month, Massachusetts became the first state to solicit financing ideas to support homeless adults and youth leaving prison, and President Obama proposed $100 million in funding for social impact bonds in the 2012 budget.
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