Spotlight Exclusives

Making Social Impact Bonds Work: Lessons from Maryland

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The Obama administration has included $100million in their 2012 budget to seed a new financing tool known as the SocialImpact Bond (SIB). This innovative idea has the potential to enable communitiesto fund basic supports for healthy development, making real the promise of ademocratic society where all people have the opportunity to succeed.

While SIBs have attracted wide interest, lessattention has been placed on the specifics of how they are applied. By lookingclosely at one particular approach the Maryland Opportunity Compact (MOC) it۪s possible to see how SIBs could transform efforts to fight poverty andimprove opportunity.

How do SIBs work? Effectively, they are afinancing tool to improve social outcomes in programs funded by the publicsector. SIBs allow for upfront private investments to provide a social service accordingto preset, measurable outcomes. If these outcomes are met, the government paysback the SIB with interest.

SIBs target the conditions that perpetuatepoverty. We already know that the environments in which infants, children, andadolescents grow and live play a significant role in whether they will succeed.Rather than citing problems in terms of groups of people teenage drop-out,drug addicts, and abused children – SIBs and related financing tools enablecommunities to address the underlying causes of poverty and its associatedrisks. This perspective puts an end to the insidious tradition of blamingindividual people for dysfunctional behaviors that risky environments  notonly foster, but too often demand, forsimple survival.

To understand how SIBs can address theconditions conducive to poverty, it۪s worth looking at MOC, which is currentlyin operation in Baltimore City, Maryland.

The MOC is a private/public financing toolthat redirects funding from ineffective, high cost programs (such as fostercare, juvenile confinement, and prisons) to alternative interventions thatproduce better results for less public funding. The savings that are generatedare used to grow the programs and opportunities that work.

Real change can occur when SIBs and the MOCare used in tandem. The MOC identifies what works to achieve better outcomesfor vulnerable people whom the state would otherwise be required  to house. Instead, the MOC finances pilotinterventions that help these people succeed while remaining in theircommunities.

The SIB then takes MOC projects to scale,raising enough funding through the impact bond to reach all those who areeligible. This renders custodial programs largely unnecessary and frees upfunding to reinvest in effective programs and opportunities. Some custodialprograms will of course remain, but they will no longer eat up the lion۪s shareof public budgets.

Forexample, 250 Baltimore youth are held in detention each day at a cost of $464per youth per day. This amounts to an annual bill to the state of about $42million. If a SIB provided enough funding to offer alternative programs forjust 50 percent of this daily population in accordance with proven programsalready demonstrated through the MOC, the state could use the $21 million in savingsto fund 21,000 summer jobs or 4,200 Little League teams. The uses are endless,and so too would be the accomplishments of our youth and the potential for animproved quality of life in Baltimoreif we invest in opportunity.

The state of Maryland already has theinfrastructure to grow effective alternatives. Under the O’Malleyadministration, the use of evidenced-based practices has been expanded. Anexisting Maryland Opportunity Compact  initiative called the Ready by 21 JobsInitiative has transformed an abandoned hardware store in a neglected neighborhoodinto a state-of-the-art training center where youth receive on-the-jobtraining, MST counseling (intensive treatment for serious emotionaldisturbances), and earn their high school diploma or equivalent. This has beenachieved at a fraction of the cost ($20,000) and lower re-arrest rate (15percent) than the only alternative: an out-of-home placement that costs $86,000per youth per year and results in a 75 percent re-arrest rate.

None of this is new. The idea that life turnsout better when you have opportunity  isnot controversial. Yet few cities can boast of equal and affirmativeopportunity for all residents. Together, the SIB and MOC give Maryland thechance to ensure access to basic opportunities to people whose lives have beenshortchanged by the false expectations that they will fail. All we need to dois convince our local and state officials to test and apply proven tools toinvest in success. 

To print a PDF version of this document, click here.

Hathaway Ferebee is executive director of theSafe and Sound Campaign.

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