Social impact bonds burst onto the policy scene and seemed to many (including me) to be the greatest thing since sliced bread. (Here’s my take from 2012). As a refresher, social impact bonds are a new public-private financing tool where private investors support a program initiative and reap a return (or not) based on program performance. (For background on this tool, click here.) Social impact bonds were first used in the UK, and, in the US, were first deployed on a large scale in New York City. In both cases, bonds were used to fund programs seeking to reduce recidivism among ex-offenders.
These heavily-touted pilot projects—in Peterborough UK and New York’s Rikers Island—have now completed their first phases and the early returns aren’t great. As a recent Governing magazine piece notes, both projects failed to meet their performance targets and failed to provide early repayments to investors. In the New York case, the program is being shut down.
What can we make of these sobering results? They are likely to reduce enthusiasm for social impact bonds, but it’s important that we avoid overreaction. It’s not as if a new finance tool would make it miraculously easier to reduce ex-offender recidivism. It’s still a tough job—even with extensive resources. Let’s hope that these early pilots generate some rethinking about how to effectively use social impact bonds and how to design programs that can have significant impacts that benefit investors, but more importantly, benefit people in need.