D.C. Explores Social Impact Bonds
The District is exploring a system that would allow private investors to fund programs that bring long-term cost savings to the city.
The mechanism, known as social impact bonds, solicits private investments into programs that tackle costly social problems for the city, like prison recidivism and chronic homelessness. Investors then receive a return on their investment if the program succeeds in reducing the social issue and saving the city money.
The Mayor's Office of Budget and Finance issued a solicitation in September for a firm to conduct a feasibility study of social impact bonds and whether and how they'd work in D.C. Responses are due today.
Several U.S. and international jurisdictions have issued social impact bonds in recent years, including New York City and Massachusetts, both of which are attempting to use them to reduce recidivism.
"We saw what New York was doing with them and wondered, hey, we’re not sure whether it would work," says Pedro Ribeiro, spokesman for Mayor Vince Gray. "But how would we know unless we looked into the matter first?"
Ribeiro says the city's hoping to figure out three things: whether New York's social impact bonds have worked, whether they're replicable in the District, and whether there are projects here that would be well suited to social impact bonds.
At a conference last week on economic growth in the District, John Ross, senior advisor to the D.C. chief financial officer, laid out a hidden rationale for social impact bonds in the District. The city is constrained by a debt cap that prevents it from spending more than 12 percent of its budget on debt service. We're currently at around 11.9 percent, said Ross, meaning we can't embark on tax-credit projects through mechanisms like the TIF and PILOT programs.
"For us, the issue is, what types of new programs can be developed?" he said. He put forward three options: public-private partnerships, an infrastructure bank, and social impact bonds.
The mayor's office issued its feasibility study solicitation without any announcement, and so far there's been zero publicity surrounding social impact bonds. "We didn’t make any hoopla about it because it’s a first step," says Ribeiro. But the city will award a contract for the study around the end of the month, according to Ribeiro—and once there are tangible programs that can be funded through social impact bonds, we're likely to be hearing a lot more about them.
Photo by Darrow Montgomery