Housing Complex

D.C. Explores Social Impact Bonds

Social impact bonds could target issues like prison recidivism. Above, the D.C. Jail.

Social impact bonds could target issues like prison recidivism. Above, the D.C. Jail.

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

  • DC Voter

    Thank you Aaron, finally some actual, interesting news.

    I defy anyone to convince me that Tommy "Tosspot" Wells or Muriel Bowwowser could even begin to follow what John Ross was saying.

    "Muriel Bowser, it's Kwame in a dress!

  • Dan

    Here you go, in a nutshell. Plus I might add these are supposed to be 5 or even 10 year projects, so just taking a look at "what is working" in NY is a fairly pointless exercise. They just started their (tiny) project last year.

    http://www.economist.com/blogs/democracyinamerica/2012/08/social-impact-bonds

    "These are basically pragmatic issues. Along the same lines, what I'd envision is that if financial institutions' return on investment is dependent on achieving certain metrics, those metrics are going to end up being defined such that they're always achieved. There will be a brief period after the adoption of social-impact bonds during which they may serve as a meaningful guarantee that service providers will deliver their promised results efficiently. But after a few years, if the bonds become all the rage in the non-profit sector, they will become another meaningless charade of pseudo-accountability that teams of grant-writers know how to plug in to get the money flowing, with the metrics selected such that the financial institutions are almost guaranteed of receiving their full payout. Basically, they'll become a means for government to use the prestige of financial institutions to claim to taxpayers that their money is being well spent. "Our elementary-school music programme must be an efficient use of tax dollars—after all, the social-impact bond is provided by Goldman Sachs!" Will taxpayers buy that pitch? Alas, they may."

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  • nivin

    TOO TRUE Dan. Too true!!

  • Kyle
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