NN&V Exclusive (David Mansdoerfer) – As any real conservative would tell you, government is generally inefficient – especially when it comes to funding social services and education. Layers of bureaucratic mess, combined with funding mandates, have left many social service programs in a rut.
As social service programs are often decried as being underfunded, while also lacking the ability to adapt, new funding systems need to be considered going forward.
Now, imagine a system that focuses on innovation and efficiency while shifting the risk of failure into the hands of the private sector. That system, my friends, is called social impact bonds. Social impact bonds, which were originally thought up by a London based organization called Social Finance, provide an excellent way to increase government efficiency, protect taxpayer money, and, most importantly, provide social service programs with greater bang for their buck.
Here is how the system would work.
First, a program is picked where an outcome can be clearly measured. For this example, let’s use education literacy rates in Clark County. The goal of this program is to make sure that 90% of 4th graders are reading at a 4th grade level. (Right now, about 65% of Clark County 4th graders are proficient in reading) The Clark County School District (CCSD) then devises a plan that will increase literacy rates for 4th graders. In that plan, they lay out funding requests, timelines and accountability measures.
Once they have their plan in place, the Clark County School district would approach the state to gain the authority to issue a social impact bond. Once approval is gained from the state, they would then be allowed to go out and seek private capital to cover the cost of the program with the stipulation that the state would only pay back the bond if CCSD was successful. Knowing this, CCSD would then approach the private sector looking for upfront capital to cover the cost of their program.
In order for the private sector to put up sufficient capital for this program, it would have to be properly vetted to ensure that there is a reasonable chance for success and that the return on investment would be adequate. This might lead to additional oversights and requirements as directed by the investors, but this happens in a lot of private capital ventures and might end up being good for the taxpayer. If both parties can agree that there is a reasonable chance for success, the project will then receive the funding that it needs.
Then, as the program is being implemented, there will be two different bodies that are vested in the outcome – the Clark County School District and the investors fronting the capital. If the program is a success, the investors would receive their return on investment and the 4th graders of Clark County are much better off. If the program fails, Clark County 4th graders would still be better off and the taxpayer would be off of the hook for the cost of the program.
This is a win-win situation for everyone involved. On one side, you have private investors taking risks to improve social problems. On the other, you can better use the existing infrastructure that the government already has in place.
Imagine the possibilities for social service funding. Social impact bonds could be used to target areas of great need and bring about innovative measures to address that need.
Now, before you dismiss me as a conservative who has an IQ less than 100 or someone who cares only about attention grabbing stunts, I would like to note that this idea has also been championed by the left leaning Center for American Progress and was even included in President Obama’s budget.
Nevada should take a critical look at how social impact bonds could be used. We need a fresh and innovative way to look at funding social service programs. Social impact bonds could be exactly the system we need to address many of the social service problems we have today.
(Mr. Mansdoerfer is the Director of Legislative Affairs for Citizen Outreach. He holds a Master’s degree in public policy with an emphasis in international relations and state & local policy from the Pepperdine School of Public Policy. You can follow him on Twitter at @DPMANSDOERFER)