Social Impact Bonds: A Risky Investment?
Jun 12, 2015
Manitoba Opposition Leader Brian Pallister recently announced that if he becomes premier in next year’s election, his government would help fund non-profit groups using privately-funded social impact bonds.
At first blush, this announcement doesn’t seem to be particularly controversial. Social Impact Bonds (SIBs) have been around for a few years and chronic underfunding in Manitoba’s community-based social services sector is a major issue that seems to be getting worse with each passing year, so SIBs may appear to be the solution we’ve been waiting for here in Manitoba.
But before we go all in with SIBs, it’s important to understand how they work and ask how they could improve the delivery of public services.
A PC Government would enter a contractual agreement with an intermediary that administers the SIB. The intermediary would be responsible for identifying private investors, raising capital, and hiring and managing non-profit service providers. If the project achieves its specified objectives, the government then repays the investor’s capital contribution plus an agreed-upon return.
But that’s where the PC’s plan to inject private money into the social service sector becomes problematic in several ways.
Adding an intermediary would add another barrier to navigate when agencies apply for funding and report on their operations. Those who deliver community-based social services would no doubt appreciate a more simplified, standardized funding model – not see the funding process be made more complex and difficult to navigate.
The MGEU has been calling for long-term stable and predictable funding to allow community agencies to plan for the future without the threat of having their funding cut. Moving to a private investment model would compound this issue because available capital would be pulled if a program’s outcomes were unattainable and the return on investment was lost. What would happen to community agencies if this were to occur?
On the flip side, if the outcomes were achieved, does it make sense to pay out a profit when reinvestment is so important? Any savings resulting from social services should be reinvested into the programs and supports to those who need it most, not into the pockets of some of the wealthiest people in society. Community agencies need stable and consistent funding. Relying on the whims of the marketplace does not inspire confidence that agencies would benefit in any way.
Social service agencies are uniquely positioned at the community level to provide the support that some Manitobans need. Why would we allow private for-profit investors to manage and dictate what the services and outcomes should be when the community knows best? The intermediary would undermine the expertise and mandate of the social agency and refocus their operations on how best to make money for the investors.
When it comes to SIBs, perhaps the most important question to ask is “what is their purpose?” Will they clearly spell out to the public who is making money off each SIB and what their returns on investment look like? When profits are on the line, one can usually assume that investor and shareholder profits trump the priorities of our communities.
That shouldn’t be the case. The end goal in any change to the funding model for community-based social services should be to improve funding and the services for those in need, not help the wealthy get wealthier.
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