Obama Proposes “Social Impact Bonds” to Fund Social Service Projects

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The White house is floating the idea of raising money from private investors to pay for privately managed social programs.  The Baltimore Sun reports on this experimental investment scheme that would rely on the private sector to develop solutions for problems such as homelessness and drug addiction.

Here’s how it would work:  A group of investors might fund a program to train teenagers who need job skills.  If it brings results, the government would pay them back with interest.  If it doesn’t work or doesn’t meet performance targets, the investors lose all or part of their money.

The concept comes from England, where the first social impact bond experiment is underway at Peterborough Prison. The British government has a deal with a nonprofit called Social Finance to provide job training and housing for 3,000 prisoner inmates who are getting released.  Social Finance is raising nearly $8 million from private investors, and promising them a 13% profit.

The Obama administration is asking Congress for permission to test the social impact bond model by creating pilot programs for job training, juvenile justice, education and other projects.  The White House wants to set aside $100 million from existing department budgets and spend the money only if the programs work.

The idea is getting a close look from experts at the Annie E. Casey Foundation .  In a new report out this month from the Center for American Progress, Harvard economist Jeffrey Liebman argues that current government run programs don’t pay enough attention to performance measurement, and there are better ways to support social innovations.

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