On September 9, the GAO issued a report, Collaboration Among Federal Agencies Would Be Helpful as Governments Explore New Financing Mechanisms that examined the use of social impact bonds and their potential as well as where the federal government can play a roll.
Social Impact Bonds are a concept designed to bring together government, non-profit and for-profit communities to address serious social challenges. Sometimes called, Pay for Success (PFS) investors provide capital to implement a social service to address a challenging area. A third party can leverage investors and other resources to address the problem. If that entity can meet specific targets, investments will be paid back along with a profit based on meeting specific targets that also result in government savings. A prime example of where it is being tried out is reduced recidivism rates amongst former prisoners re-entering society. If the service provider achieves agreed upon outcomes, the government pays the investor, usually with a rate of return, based on savings from decreased use of more costly services. In this example the savings would come from reducing the number of people returning to prison.
Several of those interviewed by GAO said that PFS offers potential benefits to all parties in the project. The GAO also took a closer look at several state projects and their designs. Many of those programs or initiatives are too new to have definitive results. The GAO report also indicated that of the parties they interview there was agreement about three areas the government could provide an assist: helping with outcome payments by state and local governments, helping to build capacity initially in a social impact bond project, and by providing loan guarantees which might help localities generate start up revenue.
