LOS ANGELES - The state of Washington could soon join the small handful of governmental entities that are trying a new mechanism called social impact bonds to fund social intervention programs.
State Representative Hans Zeiger, R-Puyallup, has introduced House Bill 2337, which would create the Washington Social Investment Committee to develop a program financed by such bonds, or other public-private financing models.
The program would deliver prevention-focused services in areas such as early childhood development, child welfare, mental health, juvenile justice, and public assistance starting in 2016.
"Potentially, investors could receive a return based on the success of the program in solving a problem and reducing costs to the state," Zeiger said in a statement.
Social impact bonds, also known as "pay for success" bonds, are not traditional financial instruments and the use of the term "bond" is somewhat inaccurate.
The way the "bonds" typically work is that a private investor loans money to a nonprofit and is only paid if it achieves goals. The investor makes money from the payments out of the savings from the program's success.
The idea is relatively new and there are only a handful of examples of social impact bond programs. The earliest one was developed around three years ago in Peterborough, U.K., where a program was created to address a recidivism rate of 60% among prisoners in the Peterborough Prison.
Seeded with money from a United Kingdom lottery and the MacArthur Foundation, private investors invested in bonds to support several nonprofit organizations that try to prevent repeat offenses by parolees.
Another example came about in late 2012 when New York City and Goldman, Sachs & Co. announced a program that would use a similar financing structure to try to reduce recidivism rates of youth on the city's Rikers Island Prison.
Massachusetts is also trying to use the funding mechanism to help reduce youth crime and homelessness.
"The old bureaucratic models of solving problems have too often fallen short — we need to embrace creativity and innovation as we seek to address some of the most difficult issues before us," Zeiger said. "It is time we engage the private sector in solving some of our biggest public problems."
HB 2337, which has bipartisan support from more than 20 legislators, was passed by the House Committee on Early Learning & Human Services and was referred to the Appropriations Committee on Feb. 3.
