CHICAGO - The Chicago City Council approved Mayor Rahm Emanuel and Chicago Public Schools' proposal to use $17 million in social impact bonding to expand an early education program.
The expansion, which relies on an additional $4.5 million of state grants and $10 million in city capital funds, will allow the school system to provide pre-kindergarten to more 2,600 additional children over the four-year term of the project.
The lenders -- Goldman Sachs Social Impact Fund and Northern Trust in senior roles and the J.B. and M.K. Pritzker Family Foundation as a subordinate lender -- are only repaid if students realize positive academic results. The program's goals include increasing school readiness, improving third-grade literacy, and reducing the need for special education services. The city said savings attained by reducing the need for special services and interventions would cover the loan's costs.
The firm IFF will serve as the project coordinator and will contract with an independent evaluator to analyze the program's outcomes.
With social impact bonds (SIBs), also called Pay for Success (PFS) contracts, a state or local government typically contracts with one or more service providers to obtain social services, such as reducing obesity or the percentage of juvenile offenders who end up in prison within five years after release. The government will pay based upon the provider's meeting certain specified performance targets, such as 10% reduction in recidivism. If targets are not met, the government does not pay.
There is often a several year lag between when services are delivered and when the results can be measured and government payments are made. Private investors bridge his cap, providing capital to fund the upfront operating expenses of the service provider. Typically a nonprofit entity helps develop the project, raise funds from investors, and coordinate key activities such as the contract and evaluation parameters.
Approval came during a city council meeting Wednesday after some council members questioned the interest costs on the form of alternative financing which could hit 6.3 % if all benchmarks are made. That's substantially higher than if the city or schools borrowed through the tax-exempt market. The city defended the rate noting that no taxpayer dollars are at risk and return is based on results.
Also Wednesday, Emanuel introduced his pick of Kurt Summers, a former chief-of-staff to County Board President Toni Preckwinkle, to serve in the elected post of city treasurer. The former treasurer, Stephanie Neely, resigned to take a private sector position with Allstate. Summers currently is a senior vice-president at Grosvenor Capital Management.
The council approved the city's new five-year collective bargaining agreement with the Fraternal Order of Police after months of negotiations between FOP leaders and city officials. The pact phases in an 11 % pay increase for the FOP's approximately 10,000 members in the Chicago Police Department, starting July 1, 2012.
