Monday, November 9, 2015

Monday Musing: Social Impact Bonds

Monday musings are my way of sharing "brain blorts": brief, off-the-cuff thoughts about something I have read recently, both to help clarify my thinking an in the hopes of generating discussion and response. I give myself 15 minutes or so to jot down a summary of the article(s) stuck in my brain, and outline why I think they may be important.

I came across this article in the NYTimes last week:  

Success Metrics Questioned in School Program Funded by Goldman

and want to put it on your radar as an example of a rare but intriguing form of financing called social impact bonds.

I'm keeping an eye on this form of financing because it just might prove to be a new (and more sustainable) source of support for some of the work museums do. 

Many unfortunate things in society--homelessness, crime, unemployment--have a concrete cost. Focusing on numbers, rather than values, may help vault communities past political roadblocks. So while people may disagree about the role of personal responsibility, or the effects of entrenched inequality, they may come together on the desire to improve the bottom line. Historically nonprofits have been on the front line of mitigating the damage of these big social problems, and these nonprofits in turn asked people for, well, charity, to support that work. But this approach often creates a patchwork of programs that have insufficient or unreliable funding, and lack capital to take their work to scale.

Social impact bonds provide an alternate model of supporting groups dedicated to producing social good, one that appropriately values the financial impact of that work. A government (municipal, state) identifies a change it wants to effect in society--such as lowering the rate of homelessness, decreasing recidivism among ex-felons, reducing the dropout rate--and works to pair a social impact investor with an organization (frequently a nonprofit) that promises to deliver a measurable result.

The social impact investor provides the start-up funds for the service provide (and applies stringent screening in selecting that partner, since they want their money back!)

The service provider does their thing--designing, delivering, measuring results of programs that produce the desired the result

If the government entity is satisfied with the program's metrics, they pay back the investor (with an appropriate rate of return), and signs a contract with the service provider to pay an ongoing fee to continue to deliver the service, which is still a better deal (financially and morally) than managing the direct and indirect consequences of homelessness, etc.

Most of the examples of social impact bonds I've read about so far have deal with recidivism, so I was very interested in the Utah preschool experiment the NYT article addresses. (I know of some, but not many, museums that help former inmates reintegrate into society, but far more that deliver educational services.)

Starting in 2013 Goldman Sachs funded The Utah High Quality Preschool Program, an expansion of the Granite and Park City School District's existing program. The goal (and metric) was to decrease the use of special education and remedial services in elementary school. Goldman was to received a payment for each child that successfully avoided special ed. 

From a story in Republic 3.0 on the Utah experiment

Now the first results are in and (as the Times article reports) people are arguing over whether the gains the program measured are plausible (or possible), and whether the basic assumptions underlying the assessment (for example, that every kid who scored low on a particular test would have ended up in special ed without the preschool intervention).

And yes, it is going to be messy coming to agreement on how to measure cause and effect, and quantify the size of that effect. But with governments struggling to foster important social goods like employment, successful education, self-sufficiency, experiments with social impact bonds will probably proliferate. I'm waiting for the first example of a museum filling the role of service provider--let me know if you spot that before I do.

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