As a part of the Mayor’s commitment to find innovative solutions to the delivery of public services and fund programs that are proven to work, the Office of Strategic Partnerships is currently evaluating the feasibility and possible application of Social Impact Bonds in Denver. In support of our efforts, we have received a one-year grant from the Harvard Kennedy School Social Impact Bond Technical Assistance Lab.
What is a Social Impact Bond?
Too often, service providers are unable to find the financing they need prove the effectiveness of successful programs and bring these successful programs to scale. Social Impact Bonds (SIBs) seek to harness the ingenuity of the public, private, and philanthropic sectors in order to (1) give service providers the upfront capital they need to innovative, (2) produce independent evaluations that fully examine a program’s effectiveness, and (3) directly connect proven programs with the government’s ability and commitment to bring that program to scale.
SIBs target proven preventative programs that both help citizens succeed and produce discernible governmental savings and benefits. At a technical level, SIBs are contracts in which a substantial portion of governmental payments are conditioned upon the achievement of negotiated outcomes. Private parties, most commonly “third-party intermediaries” or service providers themselves, are asked to find investors who will make available the capital needed to deliver services over the life of the contract. Governments only make payments based upon ultimate performance; but unlike typical pay-for-performance contracts in which service providers are only provided funding based upon the ultimate attainment of performance outcomes, under the SIB model, service providers are provided the ongoing capital needed to deliver services through investor funding and it is the investors and intermediaries that agree to only receive payments from the government if an independent evaluator determines that negotiated performance targets have been achieved. Ideally, these payments to investors and/or intermediaries are made based upon the size of government and/or societal savings that are realized due to the program’s effectiveness.
While there are many different structures that satisfy the principles of SIB contracts, the common characteristics of SIBs include:
- Upfront private-sector financing;
- Rigorous measurement of desired goals and outcomes, evaluated by an outside party;
- Performance-based payments made by the government to investors and/or intermediaries, only if outcomes are met; and
- Payments to investors and/or intermediaries based upon the savings/benefits produced by a successful program.
Questions and submissions regarding the City’s efforts can be sent to SocialImpactBonds@denvergov.org