Social Impact Bonds: Spurring Innovation in Mass./NYC

“Social impact bonds offer an innovative way for public, private, philanthropic and nonprofit actors to come together and align their skills and resources in pursuit of measurable, positive social change.”

-- Kristina Costa, Center for American Progress, 2014

Last week, Dax-Devlon Ross profiled Roca—a Chelsea and Springfield, Mass. based non-profit designed to steer “high risk” youth away from poverty and violence and toward gainful employment and a middle-class life. Roca has done something all too rare in the social service world—commit to a data-driven approach to securing its goals, whereby success must be proved, rather than assumed.

Roca’s latest project is designed to reduce recidivism among young men. As part of the project, Roca plans to track every interaction between its employees and the participants in an online data system. At the first sign of trouble, employees initiate an intervention to get at the underlying cause of concern and forge a plan to keep the participant on track.

Roca’s program was recently awarded $27 million in seed money from Governor Deval Patrick’s Juvenile Justice “Pay for Success” Initiative. As stated in the award release:

[I]n Massachusetts, 64 percent of young male ex-offenders reoffend within five years, and only 35 percent of these young men gain employment within a year of release. Roca’s groundbreaking approach to positive youth development aims to interrupt the cycle of recidivism by filling a gap in services for high-risk populations. Through this project, Roca will aim to reduce the number of days that young men in the program are incarcerated by 40 percent. If this goal is met, the project would generate millions of dollars in savings to the Commonwealth that fully offset the cost of delivering services. 

The Social Impact Bond (SIB) model (shown in the nifty graphic from the Rockefeller Foundation) holds great promise, not simply as a financing mechanism in an era of budget shortfalls, but as a spur to creative experimentation within cities and states to solve some of our most pressing problems. SIBs allow government to invest in programs today that improve the lives of thousands and save money over the long term.

On some level, this is not a particularly novel concept. Indeed, business owners have long understood that investing in new equipment or hiring additional employees imposes short-term costs in pursuit of long-term profit. American families understand that buying life insurance and depositing money in their children’s college savings plans will pay dividends down the line.

Government should be no different. And yet, we have encountered many situations in recent years where we fail to make short-term investments that yield long-term gains. For instance, in New York City, we continue to shelter families without homes for as much as $36,000 per family per year, while rental assistance with support services for families can cost less than $10,000/family annually.

While SIB programs have heretofore largely been confined to programs concerning recidivism and formerly incarcerated individuals, many have openly wondered whether they can be put to use in other fields, most notably early childhood education and public health initiatives that allow for concrete measurements over a discrete period of time.

In 2012, my boss, then-Manhattan Borough President Scott Stringer, proposed using a SIB to expand availability of Early Head Start (EHS), an early intervention and prevention program for pregnant mothers and families with children ages 0 – 3. Despite the fact that children who attend Early Head Start are more successful educationally and emotionally, the program is so poorly funded that it enrolls less than 1 percent of eligible infants. Only 7000 slots are funded for children in all of New York State. Once full-day pre-K is up and running, the Administration should turn its attention to the critical formative years before pre-K, with SIBs as a possible financing mechanism for EHS or other programs.

SIBs aren’t the only mechanism that should be used to secure long-term savings. Municipal labor should also play a key role in this effort through “gain sharing.” 20 years ago, Mayor David Dinkins launched a “Productivity Advisory Council” that advocated for a gain-sharing model that would streamline city services and share savings with city workers.

One of the great successes was a Parks Department effort to improve efficiencies in the mechanics of tree pruning throughout the five boroughs. In short, New York had been force to cut workers to balance the budget during the early 90s recession. In the winter of 1993, the city’s tree workers were given the power to craft their own strategy, with an implicit promise of hiring back some of those laid off should city workers prove the victors.

As noted in a Harvard Business School case study, “Prior to the study, climbers and pruners had no input into how the crews were configured or what work they would be assigned on a given day; these decisions were the prerogative of the supervisors, only some of whom had any prior forestry experience.”

In two months, the workers’ improvements made them far more efficient than contractors and saved the city an estimated $100,000.

Whether through a public-private SIB model or a gain-sharing model that leverages the expertise and ingenuity of public employees, cities and states owe it to taxpayers to do all they can to reduce preventable costs by proactively investing in innovative programs.