OPINION: Social Impact Bonds: Phantom of the Nonprofit Sector

Monday, July 28, 2014

What issue could bring Senator Ted Cruz (R-TX) and Senator Al Franken (D-MN) into bipartisan partnership? Social impact bonds (SIBs)—or pay-for-success (PFS), depending on one’s preferred terminology. Both legislators have been effusive about the reauthorization of the Workforce Innovation and Opportunity Act (WIOA), and Franken seems to have made workforce development one of his top priority issues. A core component of WIOA noted by many of its supporters was the legislation’s $300 million commitment to pay-for-success programming aimed boosting effective, evidence-based efforts in job training.

For the two senators and most of the U.S. Congress, SIBs are real, immediate, substantive, and promising—enough to justify devoting hundreds of millions of dollars to pay-for-success programming on a range of social issues. For others, they are a public policy phantom, largely unproven but highly touted by some academics, a number of private foundations, and a bevy of consultants, and broadly endorsed by Republicans and Democrats, nonprofit service providers and for-profit entrepreneurs. As this issue of the Cohen Reportexplores, this potentially phantom program is getting serious consideration at the federal government level and in a variety of states.

The WIOA legislation is the latest piece of federal policy promoting SIBs/PFS as an avenue for public policy solutions to knotty problems. According to a fact sheet distributed by the office of Senator Patty Murray (D-WA), the bill’s lead sponsor, up to 10 percent of funding for job training projects administered by local Workforce Investment Boards can be used for pay-for-performance initiatives. Don’t think that this was a throwaway component of the legislation. Social enterprise lobbying groups like America Forward (which played a big role in the adoption of the Social Innovation Fund) lauded the PFS provisions of WIOA. America Forward, in fact, specifically noted its role in working with Senator Rob Portman (R-OH), Senator Michael Bennett (D-CO), and Representative Susan Brooks (R-IN) to get the PFS language included. (America Forward is identified as a “nonpartisan initiative” of New Profit, Inc., which was founded by Vanessa Kirsch, who herself founded Public Allies, and is governed by a 15-person board that includes three executives from Bain Capital as well as representatives of other investment firms.)

Source: Nonprofit Quarterly (link opens in a new window)

Impact Assessment
financial inclusion, impact bonds