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

Wednesday, June 24, 2015

Goldman Sachs could be coming to a pre-K program near you. Or, at least, that may be the case in Pennsylvania.

The state is proposing to implement social impact bonds, where private investors, like Goldman Sachs, can provide the upfront cash for legislators to address problems, like early education.

“The governor wants to break down the silos that exist between the public and private sectors,” said Jeff Sheridan, press secretary for Pennsylvania Gov. Tom Wolf, who used his record as a businessman to get elected last fall. “This way, the taxpayer doesn’t foot the bill. This is a way to effectively allocate taxpayers dollars while increasing funding for services.”

The state is nearing the end of a 30-day review period to get perspective from citizens. Wolf identified five areas of focus that the funding could go toward: Early childhood care, education, recidivism and public safety, health services, and long-term living.

Pennsylvania is only part of a trend that is gaining momentum, and along with it, controversy.

Since 2014, 14 states began considering or passed legislation toward initiating social impact bonds, according to Social Finance, a nonprofit that designs public-private-nonprofit partnerships. Currently, 17 state and local governments are using social impact bonds to target problems, according to the Rockefeller Foundation, which invested in the first social impact bond in Peterborough, England.

Social impact bonds, also known as “pay-for-success” programs, allow governments to use money raised from private investors to hire specialized organizations to tackle a problem. The banks and private investors are only paid back if the initiative is successful.