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Focus On Social Investment

by Christine Stuart | Dec 4, 2012 6:30am
(2) Comments | Commenting has expired
Posted to: Equality, Nonprofits, State Budget, State Capitol

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As state budgets shrink and the demand for social services grows, a group of Connecticut nonprofit organizations are searching for ways to serve an increasing demand with fewer and fewer funding sources.

Things look bleak, but Liz Dupont-Diehl, policy director for the Connecticut Association for Human Services, sees a possible light at the end of the tunnel.

The sustained economic recession is forcing nonprofits and other social service organizations, including the state, to think outside the box when it comes to funding mechanisms. One of those outside-the-box ideas is called “social impact bonds.”

With a social impact bond, a private investor puts money toward preventative services and gets money back when and if outcomes are produced. Financial returns to investors are made by the public sector on the basis of improved outcomes. The bonds have been the subject of experiment in the United Kingdom as well as New York and Massachusetts.

New York City embraced the bonds and allowed Goldman Sachs to invest nearly $10 million in a jail-diversion program. The company gets its investment back when recidivism rates are reduced. If recidivism drops more than 10 percent, Goldman will make $2.1 million in profit, according to this New York Times article.

Social impact bonds also give government, nonprofits, and social service organizations a structure to better fund preventative services and track results for the people served, Dupont-Diehl said.

The second revolutionary funding mechanism that will be discussed today at a half-day workshop at the Legislative Office Building is called the “Human Capital Performance Bond.”

Steve Rothschild, the former General Mills executive and founder of the Twin Cities RISE! workforce training program, conceived of the idea and will be on hand today to talk about his experiment.

The concept is similar to social impact bonds, except it relies more upon the public sector to make the upfront investment.

Under Rothschild’s program the state enters into a contract with a service provider and is paid a certain amount of money to run a program. When certain performance standards are met, the bonds are sold creating a pool of funds to pay service providers. As the state begins to reap the financial benefits, money is set aside to back the bonds.

Today’s half-day conference, which starts at 8:30 a.m. and goes until noon, will provide an overview of some of the emerging efforts and lay out possible pathways forward for adopting more of these approaches in the state.

Last year, the Connecticut legislature passed a bill that allows the Department of Correction to enter into contracts backed by these types of innovative bonds.

Gov. Dannel P. Malloy, who is staring down a $2.13 billion budget deficit over the next two years, also will speak.

The conference in room 2C of the Legislative Office Building in Hartford is sponsored by the Capitol Region Council of Governments, Community Impact Strategies Ltd., Connecticut Association for Human Services, Connecticut Conference of Municipalities, Connecticut Institute for the 21st Century, and BlumShapiro.

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(2) Comments

posted by: DirtyJobsGUy | December 4, 2012  8:59am

Hmm,  so we want to quantify the performance of social workers but not public school teachers.  Lots of problems.  First and foremost is the same thing that happens with teachers, the test data are fudged to get a good result.  Second the bonds are payable by the state and disappear into the mass of other unaffordable debt.  It strikes me that the same people who decried fancy financial instruments in the private sector want to import them into the public sector?

posted by: BrianO | December 4, 2012  8:06pm

Everyone should encourage conversations regarding financial tools tied to social services.  They promote measurement of results and funding of preventative services.  If we are unhappy as an electorate with large deficits and we think government is wasteful, then let’s measure what we do, fund successful services and scale the most successful programs.  We will be more efficient, safe and healthy as a result.