Social Impact Bonds: Partnering with government to go beyond dollars

By Tamara Copeland, President

If you’ve been following WRAG for awhile, you know our mantra about effective philanthropy: it goes “beyond dollars.” That is, philanthropy lives up to its potential for impact when it leverages all of its resources. One way that funders do this is by taking risks. Another is by forging innovative cross-sector partnerships. Social impact bonds are a vehicle through which funders are embracing both of these roles to go beyond dollars with their philanthropy.

For the uninitiated, a bit of a primer: “Social impact bonds” aren’t bonds at all. They’re contracts between government, service providers, an intermediary, and one or more investors – such as philanthropy. The premise is that, in instances where a social problem is both deeply entrenched and expensive to address, the government can save taxpayer dollars by having an investor finance a social service that is typically paid for by the government. If the service is effectively rendered and the problem is remediated, the investor receives a financial return and the government saves the funds that would have otherwise been spent on the service.

According to Dave Abbott, executive director of the George Gund Foundation in Cleveland, social impact bonds present an opportunity for philanthropy to go beyond dollars. He was in D.C. last week to speak with WRAG CEOs about why the Gund Foundation is part of a major effort to provide services to homeless mothers and their children in Cuyahoga County, specifically mothers whose children are already in foster care or on the brink of going into county custody.

According to Abbott, philanthropy should take a leadership role with implementing social impact bonds because:

  • Philanthropy has the ability to take risks that government on its own cannot;
  • Philanthropy has a broad range of assets that can be invested beyond grants;
  • By showing their own commitment, foundations can leverage funds from new and different funders, including the business community. (For instance, when the Bloomberg Foundation invested in a partnership with New York City to prevent recidivism, Goldman Sachs invested too);
  • Philanthropy can help to improve government effectiveness through the heightened accountability inherent in the performance contract; and
  • Government-philanthropy partnerships have more potential for success thanks to their bipartisan political appeal.

The Gund Foundation has already invested $350,000 in the due diligence necessary for a project that started in 2011 and will launch in early 2015, an investment that Abbott is proud of. He feels that the anticipated $1 million – $10 million savings that might accrue to Cuyahoga County if the county isn’t housing these families in homeless shelters or providing foster care services for the children will be well worth the $5 million – $6 million foundation investment. And, as WRAG participant Terri Copeland of PNC Bank pointed out, the projected ROI doesn’t come close to capturing the financial and societal benefits of having intact families that have the supports necessary to have a real future.

Joining Dave Abbott was Eric Goulet, Budget Director for Mayor Gray. The District is actively considering the social impact bond model for addressing a number of issues, including, teen pregnancy prevention, early childhood health, felony re-entry, high school completion, aging in place, and chronic homelessness. To learn more about the District’s efforts, contact Jennifer Stoff, Special Advisor for Social Innovation, D.C. Mayor’s Office of Budget and Finance.

To learn more about social impact bonds, check out the publication, A New Tool for Scaling Impact: How Social Impact Bonds Can Mobilize Private Capital to Advance Social Good.

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