NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Monday, March 9, 2015

Every two years, the residents of Richmond, Calif., a city long known for some of the highest rates of violence in the United States, gather to discuss its priorities. For years, the No. 1 concern was crime.

But things have started to look up in Richmond, a city of about 100,000 people in the midst of Bay Area opulence. At the most recent meeting, Richmond residents were more concerned about blight. An obvious — and seemingly fixable — example was the city’s 800 or so abandoned homes, which cost it thousands of dollars a year to maintain in their dilapidated state.

Enter a twist on social impact bonds.

Typically, social impact bonds are contracts, not bonds as investors think of them. If the group receiving the proceeds can improve a certain social condition, the investors are paid back with some interest; if it fails, the investors lose. The bonds have been used to reduce recidivism rates for criminals released from prison and to reduce teenage pregnancy rates.

Jim Becker, president and chief executive of the Richmond Community Foundation, said he had found a way for the city to sell social impact bonds to raise money that the community foundation could use to buy the homes. Local workers would rehabilitate the homes, which would then be sold to people through first-time home buyer programs.

A sale of $3 million in bonds is expected this month, pending final approval by the Richmond City Council. That would pay for the rehabilitation of 20 properties a year over five years. And Mr. Becker believes there is investor interest for another $3 million.