A bi-partisan group of US congressmen have introduced the first-ever bill proposing a social impact bond framework at the federal level.
The Social Impact Bond Act has been co-sponsored by Republican representative Todd Young and Democratic representative John Delaney, with the support of seven other congressmen.
Under the proposed legislation, the federal government would establish desired outcomes to pressing social challenges, such as increasing adoption rates of teenagers in foster care. State and municipal governments would then submit proposals to work towards these outcomes by scaling up existing interventions by social sector organisations.
It’s envisaged that private sector investors would provide the capital needed to expand the existing programmes, and, if an independent evaluator validates the outcomes and the money savings, the investors would be paid back their initial investment plus a small return from the realised government savings.
The bill proposes that the US Treasury would set aside $300m to pay for positive outcomes of the projects, fund feasibility studies and evaluate the projects.
The proposal would permit a bank’s investment in social impact bonds to be considered as part of its requirement under the Community Reinvestment Act (CRA), the 1974 act intended to encourage banks to give credit to low- and moderate-income neighborhoods.
“This bipartisan legislation harnesses the power of the private sector to improve government services while saving taxpayer dollars,” said Delaney. “Best of all, it moves our government to be more evidence-focused, so we can pay for achieving desired outcomes rather than paying for services regardless of the outcome.”
A spokesman for Delaney said that the bill would now be referred to the House’s Ways & Means and Financial Services committees. If the bill gets through these committees, it will be brought to the floor for debate by the Speaker of the House. The spokesman said this was likely given the bi-partisan nature of the bill and the Republican majority.Meanwhile, a proposed $25m social impact bond in Rhode Island has been put on hold amid opposition by the state’s largest employee union, AFSCME Council 94, which is affiliated to the nationwide American Federation of State, County and Municipal Employees (AFSCME).
The Rhode Island Social Impact Bond bill, sponsored by Democratic senator Joshua Miller, would have established a five-year social impact bond pilot programme and a committee to look at how a permanent programme could work.
The bill passed the Senate Committee but did not get any further. Its current status is what’s known as “held on desk”. Speaking to Responsible Investor, Senator Miller said that he left the bill on the table deliberately as it looked like it would not get enough support from the Rhode Island House of Representatives – though he said he would definitely revisit the bill next year.
He said an obstacle was that very few people understand social impact bonds and that opposition from unions had contributed to that misunderstanding. Jim Cenerini, AFSCME 94’s legislative affairs director and political action coordinator, said: “Our skepticism comes from the fact that the impetus for this was created by a large Wall Street corporation that obviously has something to gain, ideologically and financially, from the implementation of these bonds. It seems wrong that already very wealthy individuals should be able to make money off of reducing recidivism.”
In a 13-page position paper by AFSCME sent to Rhode Island representatives, which used evidence from studies in Maryland and Hawaii and elsewhere, it argues that SIBs are not costless for government or taxpayers.
Elsewhere, Denver in Colorado has committed to a SIB to tackle homelessness. Mayor Michael Hancock announced the initiative during the Clinton Global Initiative event last month. The initial goal is to raise over $8m from private investors to support 300 individuals. Hancock said: “The social impact bond program will create long-term solutions that combine evidence-based programming with smart financing to help our most vulnerable stabilize their lives.”