Social Impact Bonds in New York and elsewhere

I last wrote about social impact bonds back in August and its sister health impact bonds about a month later. The field is moving, and it's time for an update. According to news reports like this one, there are 14 social impact bonds (SIBs) issued or in development in the UK. The UK organization Allia, "The Social Profit Society," has issued what it calls a "Future for Children" bond. And New York's own SIB has moved from pilot stage to full implementation.

New York City's efforts focus on youth held at the City's jail at Riker's Island, where a bed costs $85,000 a year. Studies show that youth who have been in custody are likely to return to jail over the succeeding six years. It's obviously better for the youth not to return to jail, and there's a large possible savings in reducing their future days in jail. In New York, the SIB-funded program provides a specialized cognitive behavioral therapy program called Moral Reconation Therapy (MRT) to 16-18 year olds who are held at the City's jail on Rikers Island for four days or more.

You'll notice, from the screenshot illustrating the transactions among the players in New York City's SIB, that there are some differences from the simpler model I described in my earlier post. Evaluation is expensive, and the independent evaluator is funded outside the SIB. So is the work of the intermediary, MDRC. The other major difference is the funding mechanism itself: Goldman Sachs has loaned MDRC, the intermediary, $9.6 million. That loan is backed by a $7.2 million grant from the Bloomberg Family Foundation. If the program succeeds - its break-even point is a 10% reduction in future jail days - the investors profit, and there are large possible savings for taxpayers. If the program does not succeed, Goldman has not put all its money at risk.

Why this structure? Not all social programs are equally successful. The least risky are evidence-based programs, those that have been shown to be successful, at least for a well-defined population over a set amount of time. Other programs, like MRT are quasi-evidence based: the research results are mixed. (One reason MRT was chosen as the intervention is that it fits well into the jail's operations.) New, untested programs are the riskiest. Even tested programs can be risky: a SIB-funded program might require a scale of services that has never been used. The challenges of translating a program that works in one setting (the community) to another setting like a jail also increase the uncertainties.

A couple of other things to note. A lot of learning happened during the pilot period. Although there's no opting out of the prison-based program, a lot of kids weren't participating, and "we had to figure out why," says MDRC's David Butler. In jail, there may be a lot of reasons that have nothing to do with the program, such as administrative and punitive segregation, or programs cancelled due to various jail issues. As in many other social service programs, data collection is a challenge. MDRC staff member Timothy Rudd pointed out other uncertainties to the program as well. Any savings are not spread out evenly over all program years, but become more evident, if they exist, in later years. And while the evaluation will examine the first cohort of participants, those results will be extrapolated to five subsequent cohorts.

So this is a program to watch. I'll keep updating every six months or so, as we see what happens.

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