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    Could Private Investment be the Answer to Appropriators’ Prayers?

    For the past several years, efforts to advance annual spending bills have broken down. The result is usually end-of-the-year political theater that causes most constituents to shake their heads in disgust and keeps Congressional approval rates at historically low levels. But to be fair, Congressional appropriators face increasingly difficult choices. Here are the corner pieces of the puzzle appropriators must piece together each year.

    • The list of national priorities is growing.
    • The amount of money available to fund priorities is not keeping pace.

    Therein lies the dilemma. If Congress wants to fund something new, they must either cast an unpopular vote to raise revenue (i.e. increase taxes), or cut spending on other programs to offset the new spending.

    Therefore, last week as Congress prepared to break for the Memorial Day recess, it was no surprise when Sen. Barbara Mikulski (the ranking Democrat on the Appropriations Committee) vowed that Democrats would block advancement of FY 2015 spending bills unless a budget deal can be reached that would elevate austere budget caps. Cue pundits debating the looming government shutdown.

    With government funding stuck between the proverbial rock and a hard place, policymakers are recognizing that other financial sources could be leveraged as an alternative. Social impact bonds could represent an important new source of funding for social programs that ties funding to effectiveness.

    The Effects of Social Impact Bonds

    Social impact bonds are government funding sources that may be made available to incentivize the creation of public-private partnerships that leverage philanthropic resources and/or and other private investments to scale up social programs, including those run by local Goodwill agencies, that have proven results. This week in fact, MDRC’s (a nonpartisan education and social policy research organization dedicated to learning what works to improve programs and policies that affect the poor) featured question is, “Can social impact bonds be an effective tool for spurring private investment in solving pressing social problems?”

    A handful of states have already launched social impact bonds, several others have explored them, and legislation (H.R. 1336/S. 1089) has been introduced in Congress to create a federal version of the model.

    While social impact bond models may vary, the government contracts with a private entity – sometimes called an intermediary – that is responsible for achieving desired outcomes. The intermediary hires and manages service providers and solicits resources from private investors to provide the needed funding to implement interventions. Investors are only repaid, and receive a return, on their investment if and when the desired outcomes are achieved.

    While the jury is still out on social impact bonds, the bottom line is that there is growing interest in alternative funding sources from government and the philanthropic community. But because private investors are being looked at to take the risk, programs and innovative interventions that are tied to data and outcomes will be increasingly attractive.

    Seth Turner
    GII Sr. Director of Public Policy until 2015
    Read More Posts By This Author

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