Using Social Impact Bonds to fund evidence-based programs
Evidence-based programs (EBPs) that help troubled youth are usually funded through the government and philanthropy. But to increase the reach and impact of these practices, the funding base must be expanded.
Steve Goldberg of Caffeinated Capital LLC gives a detailed analysis in his paper, "Investing in Social Impact Bonds" on how to get "big money" into the EBP pipeline. Social Impact Bonds (SIBs) are a mechanism designed to bring private capital into the arena of solving social woes. But as Goldberg points out, "Until mainstream investors see SIBs and other social investment vehicles as viable business opportunities, social impact investment will remain a modest enhancement of philanthropic and government funding."
The U.K. offered the first Social Impact Bond at Peterborough prison in 2010 in hopes of paying for programs that would reduce recidivism. The first MST-based SIB was commissioned by the Essex County Council in the UK in 2011 with the objective of keeping as many as 380 youth out of placement. Naturally, the goal for those buying bonds of any kind is to make money. With SIBs, some of the money governments save by keeping, for example, juveniles out of prison would be returned to SIB holders.
Saving money with EBPs
The numbers speak for themselves. There are 60,000 youths labeled at-risk of imprisonment in the US every year. It is estimated that 70 percent could be kept at home with evidence-based programs, including Multisystemic Therapy (MST), at an average cost of less than $10,000 per family. Compare that to the $88,000 average cost of out-of-home placement. Keeping those 42,000 troubled kids at home and in school would avoid spending $73,000 per household, or nearly $3.3 billion nationwide each year. Goldberg crunched more numbers. "If quality controls required to scale EBPs without compromising their effectiveness cost another, say, 10 percent, making these prevention programs available to everyone who needs them could save $2.95 billion annually. Fixed costs for legal, compliance and audit expenses of an additional 10 percent would yield a pool for shared savings of nearly $2.7 billion per year."
Expanding the reach of evidence-based programs
Unfortunately, evidence-based programs reach only a tiny portion of the populations that could benefit from them. More money is needed to push greater implementation. While SIBs would appear to be a good way to do so, Goldberg there are some barriers, including the legal fiduciary responsibilities of institutional investors and some EBPs don’t have market-rate returns. Actual cost-effectiveness can only be measured after outcome evaluations show that the program works.
Still, he notes, using SIBs to finance programs is "a challenging, but feasible undertaking." And it is important to remember how helping kids to stay at home and out of the system is about more than just money. It’s about making them well-adjusted, happy adults and citizens.
To learn more about the impact of Social Impact Bond Investing, download this whitepaper here.
