The buzz about social impact bonds as an investment vehicle has prompted many municipal analysts to question what application could be next.
Storm resilience would be ideal, some advocates say.
"Oh God, in a heartbeat," said Philip Stoddard, mayor of South Miami, Fla., and an aquatic scientist. "If I were buying mortgage-backed securities, which would I want to buy? Something that's coastal or in a tornado alley or a fund that gave me mortgage-backed securities that are vetted to be disaster resilient?"
Social impact bonds - not bonds in the mainstream muni context, though supporters find the catchword handy - are also called pay-for-performance vehicles.
Last month, Social Finance, the U.K.- and Boston-based nonprofit behind the social impact bonds, announced a partnership with 100 Resilient Cities to launch the initial resilience pay-for-success initiative. The partnership will provide guidance to 100RC member cities in the U.S. exploring pay-for-success financing opportunities.
"There is a lot of potential for resilience in social impact bonds," said Elizabeth Yee, vice president for strategic partnerships and solutions at 100 Resilient Cities and a former muni bond banker.
The foundation, which has committed $164 million to the program, has chosen 67 cities to date, including 16 in the U.S. In July it began its push for the final 33.
"Cities are learning to do more with less, and pay for success offers a promising pathway to make better use of city resources, improve the lives of our cities' most vulnerable, and help cities become more resilient," said Tracy Palandjian, founder and chief executive of Social Finance.
Social Finance will consult with those U.S.-based cities on the viability of pay-for-success initiatives in their jurisdictions. The partnership, announced at the Impact Capitalism Summit in Nantucket, Mass., could also open up avenues for partnership with other 100RC platform partners, which include Amec Foster Wheeler plc, World Bank and Microsoft Corp.
"It is right on point," said Alan Rubin, a storm financing expert and managing director with Tigress Financial Partners in New York.
Rubin, nicknamed the "Hurricane Czar," helped design and underwrite the catastrophe fund for hurricane relief in 1992, while working in Lehman Brothers' investment banking division, after Hurricane Andrew caused more than $30 billion in damage in South Florida.
The Rockefeller Foundation pioneered 100 Resilient Cities to help municipalities worldwide become more resilient not only to climate challenges but also to social and economic ones.
"It's not all about disaster plans," said Yee, who spent 16 years as a muni bond banker at Morgan Stanley, Lehman Brothers and Barclays in San Francisco and New York. "Some of these stresses are harder to fix by traditional means. The social impact bonds addresses them."
100RC aims to help cities in its network build their own resilience capacity through chief resilience officers. The CRO, in a senior leadership position, reports directly to the city's chief executive and runs point for resilience building. Further, that person works across government departments to help a city improve internal communications.
One aim is to achieve multiple resilience goals with one project. For instance, a flood barrier could also serve as a bike path.
Social Justice in 2010 undertook the initial social impact bond for a prison program in Peterborough, U.K. There, 17 foundations committed to invest £5 million ($7.8 million).
New York became is the first anywhere involving a major financial institution. A three-year city program aimed at cutting recidivism rates among Rikers Island adolescent prison inmates failed to meet its desired goal.
As a result, the city paid nothing for it.
Goldman Sachs provided a $7.2 million loan to nonprofit MDRC, which oversaw the project. Bloomberg Philanthropies, the personal charity of former Mayor Michael Bloomberg, provided a $6 million loan guarantee. Goldman lost $1.2 million.
Had the program gone the full four years, Goldman's investment would have been $9.6 million, with Bloomberg Philanthropies' backstop at $7.2 million.
Many states are adapting or considering pilot programs. In Pennsylvania, where Gov. Tom Wolf and the legislature are stalled over a proposed $30 billion budget that is six weeks late, Wolf's administration issued a request for information related to a pay-for-success proposal.
