Objection to Social Impact Bonds Raised in Rhode Island

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June 15, 2014; Providence Journal

Anyone who has been paying attention to the nonprofit sector in recent years has heard of social impact bonds and the potential they represent to attract private investment in programs that have a proven track record in addressing specific social issues. Anyone who has been following Rick Cohen’s writing for NPQ knows there are a lot of questions about SIBs and their efficacy.

Despite the fact that there are a very limited number of SIBs currently active, excitement about the idea is quite high. Rhode Island is the latest state to begin considering the idea. A Senate committee recently advanced a bill that would provide $25 million in an SIB pilot program to help reduce costs in the prison system. The goal is to invest in programs that would provide an alternative to incarceration for certain populations, thereby reducing costs.

If, as is argued, the programs being supported are proven to be effective, it remains unclear why the legislature would not simply provide the $25 million over five years to the very same programs instead of giving it to an investor who has purchased the SIBs.

Beyond that, the legislation was advanced to the Senate floor for consideration despite the objections of the largest state employees union, the American Federation of State, County, and Municipal Employees. Jim Cenerini of the union argued that the legislation was a “back-door way to privatize the delivery of social services programs…and to most likely reward wealthy investors while you’re at it.”

In the name of saving costs, goes the argument, funds are being given to do work that would otherwise be done by public sector employees. At the same time, private sector investors have the potential to earn a profit. Therefore, according to Mr. Cenerini, the SIB is motivated more by a desire for profit than it is by a desire to help people in need.

The legislation was advanced out of the Senate Finance Committee easily and will be considered by the Senate. There is currently no parallel legislation in the House.—Rob Meiksins