Innovations in Financing Public Services: Social Impact Bonds (SIB), Pay-for-Performance and Return on Taxpayer Investment
Date:  12-05-2012

Conference discusses non-traditional ways to provide capital for social programs
At a conference held at Connecticut’s State Legislative building in Hartford on December 4, some of the most prominent figures in financial investment, as well as social service providers, appeared on Skype or gathered to discuss major innovations in funding social programs. Sponsored by the Capitol Region Council of Governments, Community Impact Strategies Ltd., and the Connecticut Association for Human Services, the conference lived up to its promise of bringing together members of Connecticut’s General Assembly, as well as leaders in the municipal, philanthropic and non-profit communities.

With Connecticut undergoing a severe financial crisis, Governor Dannel Malloy announced last week that the state’s budget will be slashed as Connecticut faces a deficit of an estimated $415 million. According to the Hartford Courant,, Malloy has given State Treasurer Denise Nappier his approval to find lines of credit in the area of $550 million, to keep the state operating.

Along with other agencies, many social service providers are facing huge budget cuts. As Representative Diana Urban, paraphrasing Winston Churchill, said in her welcoming remarks, “Gentlemen and women, we have run out of money, now we will have to think.” A new way of thinking was presented at the conference. The Conference over view stated:

Around the U.S., and in other countries including the U.K., efforts are being made to break out of silo-based, annual funding grants for human services by using innovative financing methods. The sustained economic recession has accelerated development of several new approaches to financing the delivery of human services, with strong measurement components that link performance to the achievement of well-defined financial results. Traditional methods of funding lead to services delivered in isolation from each other, with inadequate focus on preventative services known to produce better outcomes. Coupled with inadequate resources and rising need, Connecticut and other states are seeing rising poverty, rising child poverty, growing need for job training, and a host of other negative social outcomes, many of which could be prevented with adequate investment in prior stages of development.

While the mechanics of these new approaches vary, they all share an intense focus on performance and financial results. The focus on results has led to a re-evaluation of how government spends money on social services and the lack of flexibility inherent in a system that funds pieces of a larger problem because of the constraint of funding separate agencies on an annual basis. The purpose of this conference is to provide an overview of some of the emerging efforts in process, to offer an overview of a number of innovative mechanisms, to look at national, northeast and Connecticut works in progress, and to lay out possible pathways forward for adopting more of these approaches in the State.

Antony Bugg-Levine of the Nonprofit Finance Fund offered recommendations on how to prepare and implement a SIB initiative. Bugg-Levine said the following questions must be asked and answered:

  • Are the right shareholders at the table?

  • Are the stakeholders aware of how risks will be shared, and of the implications that go along with risk-sharing?

  • Is what the stakeholders are planning tied with local conditions?

  • How will stakeholders make sure that the complicated syetem that is being implemented is balanced for the good of all?

    Bugg-Levine also offered five lessons others who have been successful in launching a SIB initiative have learned:

  • Local contacts matter. “Different flavors” are needed because there is not only one path all should take to reach a successful outcome.

  • It is very important to identify independent and trusted voices who are willing to work to find a common ground.

  • It is crucial to identify a local government catalyst. A ‘forcing mechanism” is needs to push people and ideas forward.

  • There is a real need to engage technical experts. Outside expertise is needed to measure outcomes, for example.

  • There has to be broad engagement across participating stakeholders. Stakeholders must know how the success of the initiative will benefit them.

    Bugg-Levine echoed the view of other conference participants when he stated that there is a great need to embrace change. “Trying to do what we have done is not working, said Bugg-Levine, adding, "Budget cuts will happen no matter who is in power. We need new ways to mobilize recovery and deploy effectiveness.”

    Governor Malloy put the issue of embracing the concept of SIB succinctly, “This is not rocket science. This is investment science.”
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