The New Face of Privatization?
May 16, 2012
A new NUPGE study looks at one of the most recent threats to public services. Social Impact Bonds are the newest idea to catch the eye of governments attempting to “reform” the public service to save money.
Social Impact Bonds: a New Way to Privatize Public Services looks at this relatively novel approach which is being tested in a few places across the country. Finance Minister Jim Flaherty announced the government would “look at” adopting them in the most recent federal budget. The Drummond Report in Ontario suggested called for pilot projects of this nature, and the Progressive Conservative government in Alberta supports them as well.
Basically, a Social Impact Bond is a contract that is entered into between government and private investors. The investors put up money for projects that have the possibility of saving the government money. The government then repays the investors their capital and an agreed-upon profit, provided that agreed-upon social outcomes are met. If the service does not meet these outcomes, investors get nothing back. An intermediary organization would administer all aspects of Social Bond projects, including hiring of the organization that actually delivers the service. Government’s only role in a project would be the determination of social outcomes and payment if they are met.
The primary concern with regard to this mechanism is that Social Impact Bonds could become yet another way to privatize and/or cut funding from community and social services. Some of the areas proposed to use this approach include developmental services, homelessness, supports for people with developmental disabilities, mental health, justice and corrections, and public health.
While Social Impact Bonds are being promoted as a way to fund new services, attempts have already been made to use them to replace public funding. In 2011, the British government announced Social Impact Bonds to fund early intervention services after cutting funding for programs that support young families.
There are a host of concerns with regard to how the use of these Bonds could negatively affect public services. First of all, there isn’t enough empirical data to know if they work. They also create a new layer of bureaucracy, eating up money and staff time. Investor profits can add to the cost of a government project, and the need for these endeavours to be profitable means that the most vulnerable could be excluded. Like other types of privatization, transparency and accountability are limited under this model, and determining whether or not a project is a “success” can be a long and difficult process.
Even if social outcomes aren’t met, governments could still be on the hook. Like Public-Private Partnerships, although the intent is to transfer risk to the public sector, it remains likely that governments would end up having to pay even if a project doesn’t work. There remain a lot of questions and legitimate concerns about this financing model.
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