Bill to Promote Social-Impact Bonds in U.S. Has Support in High Places

Thursday, April 30, 2015

Republican Sen. Orrin Hatch of Utah and Democratic Sen. Michael Bennet of Colorado are trying again to advance legislation that would appropriate $300 million for state and local social-impact bonds over 10 years.

Although similar legislation stalled in the previous session of Congress, Mr. Hatch now has more clout to push the bill; he became chairman of the Finance Committee when the Republicans took control of the Senate earlier this year.

Sometimes referred to as pay-for-success contracts, social-impact bonds are designed to help government shift from reimbursing nonprofits for the number of people they serve to paying for measurable results. The idea has gained traction quickly, but some critics argue that the potential benefits have been overstated.

The new form of financing allows private investors to pay for a social program that has performance goals, such as reducing the number of teenage pregnancies. If an independent evaluator certifies that the program has met the goals, the government repays the investors’ principal and, depending on the results, may provide a profit. If the program fails to deliver, investors lose their money.

Source: The Chronicle of Philanthropy (link opens in a new window)

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public private partnerships, social impact bonds