OP-ED | Different is Better
Tipping points often come upon us unnoticed.
If you are paying attention, there is a great deal of discussion about income, poverty and the quality of life. Whatever the focus — the minimum wage, early childhood education, wealth disparity, academic achievement gap, unemployment, crime — at the core are economic issues. The root causes of these issues are complex and addressing them could also cost money. What if we could address these issues and save money?
Several weeks ago, I was part of a conference at the Legislative Office Building to promote the concept of social innovation financing. This was the second conference on the topic. The legislative expression of this idea is set forth in SB 105, “An Act Concerning Social Innovation Investment.”
The legislation still seeks to find “packaging” that legislators, government, and the public can embrace. This is unfortunate, because the idea is very simple. Unfortunately, the deviation from business as usual can be disorienting. Thinking different is hard.
The popular label is a social impact bond or pay-for-success contract. Government would agree to pay the provider of a social service program only if the services it delivers are proven successful. Hence, a pay-for-success contract. If the provider cannot establish success and significant financial savings, no payment is made. In a state where over $1 billion is spent each year for social services never measured for success, what exactly is the problem?
Central to a pay-for-success contract is the capture of data. The purpose of the data in a pay-for-success contract is to establish that services accomplish a stated goal and save money. Data in relation to public investment is growing as a topic of interest and pay-for-success contracts are part of this movement. A successful pay-for-success contract can establish a protocol for the future that, if adopted by government, will save money and improve lives. This is positive change.
There has been increasing concern with measuring the impact of a variety of public investments in areas such as workforce development, early childhood education, and recidivism reduction. Why these areas? Because when successful, they have the ability to save a huge amount of money. This is good.
The “impact investing” movement is not about making money. It is about saving money. It is also about improving lives. Unfortunately, all the “noise” around pay-for-success contracts is because the funding that enables the delivery of the “preventive” services comes from philanthropic, but private sector parties. If the services are successful, some of these parties are repaid, possibly with a minor return for the cost of funds. Many of the parties seek no return of capital.
The private sector is trying to prod government toward evidenced-based practices that will address root causes, improve living conditions, and save money. We have a legitimate interest in a well-educated, safe, and productive populace. As a state with increasing poverty and decreasing human productivity, we all should care.
Many of the people involved in the “impact investing” movement are visionaries who want to apply the lessons they have learned for the common good. Names like Buffett, Hewlett, Gates — even Bush, Bloomberg and Clinton — have achieved success and are looking to serve a higher purpose. To think these are rich people looking to get richer on the backs of the poor is the height of cynicism.
Our collective interest is served by using tools that seek to improve lives and save money. The federal government is taking notice and is increasingly rewarding states that have the ability to leverage data to increase effectiveness and save money. Both the federal Departments of Labor and Education are paying attention and the White House Office of Social Innovation is working with both to promote social service delivery that saves money. With increasing need and decreasing revenues, we have no choice.
For example, the parties that our Connecticut team attempted to use for a social impact bond program three years ago recently announced “our” transaction in New York State. More than $13 million will be invested in a reentry program that seeks to employ the formerly incarcerated. The economic impact of such a program is extraordinary (converting citizens that cost money to folks who can pay taxes) and the federal government has awarded a $12 million grant to New York State if the program is effective. A Massachusetts program that seeks similar results for juvenile justice will receive $11.7 million from the federal government, if it can prove success.
The visceral opposition to social innovation financing continues for a variety of reasons not associated with its’ true purpose.
Seriously, are things working so well that we don’t want better results at less cost?
Brian O’Shaughnessy of New Haven is a principal in the consulting firm Community Impact Strategies, Ltd.