Monday, Sept. 1, 2014

In our opinion: Social impact bonds offer a way to get measurable results for social service investments

Deseret News editorial

Published: Mon, May 19 12:00 a.m. MDT


Paying for initiatives in public education has traditionally required a tax levy or issuance of bonds backed by government entities, but a new experiment in Utah involving a public-private partnership is attracting national attention as an innovative means of alternative financing.

The Granite School District has partnered with the investment firm Goldman Sachs to issue the first so-called “social impact bonds” to pay for a public education program — in this case, the expansion of the district’s successful early child education program. An article in the Deseret News National Edition points out the partnership is nearly unprecedented and will be observed as an experiment of sorts in the use of private capital for financing a public policy venture.

Goldman Sachs and investment partner J.B. Pritzker committed to invest $7 million in the Utah High Quality Preschool Program, which provides targeted curricula for 3- and 4-year-olds in hopes of preparing them for academic success. The United Way of Salt Lake, also a partner in the venture, will oversee the influx of money.

The first $1 million allowed 450 children to enroll in preschool last fall. The district and its partners are convinced the upfront investment in “at-risk” kids pays dividends by sharply reducing the amount of money schools eventually spend on special education and remedial curricula for students who enter kindergarten without adequate preparation.

The investors receive a return based upon future savings accrued by reducing the number of kids who enter the school system unprepared. The Granite District’s program has been in effect since 2006, and tracking data over a three-year period shows that without high-quality preschool preparation, about 33 percent of low-income children would be in need of remedial education programs before they finished school. With the preschool program in place, that number is reduced to 5 percent, saving districts and taxpayers an estimated $2,600 per student for up to 12 years.

The investors receive a return on their capital based on an intricate formula that measures actual savings to the school system, and can possibly receive zero return if the measurement criteria fail to document savings.

The approach is unique because it envisions social as well as financial benefits. According to leaders of the partnership entities, “Research has shown that investments in children age five and younger improve school readiness and decrease crime, teen pregnancy, delinquency and substance abuse.”

The Utah project has already engendered significant interest, although actual measurement of success is years away. Nonetheless, the partners deserve congratulations for taking on a worthy cause in such an intriguing and innovative way.

1. liberal larry
salt lake City, utah,
May 19, 2014

Studies have consistently shown the benefits of early childhood education.

Why do we need Goldman Sachs to put up money for the program?

If early childhood education is so important, why shouldn't the tax payers of Utah reap the benefit?

2. kiddsport
Fairview, UT,
May 19, 2014

"Studies have consistently shown the benefits of early childhood education."
Nothing could be further from the truth.
The report from the Department of Health and Human Services found “few sustained benefits.” From the report:

In sum... the benefits of access to Head Start at age four are largely absent by 1st grade for the program population as a whole.

It would be great if every program and every law passed were required to have a verifiable and measurable goal within a specified time frame. If those goals are not met and substantiated by statistically valid data, the underlying law becomes immediately without force and no longer eligible for further funding. It would be additionally beneficial to require a bond to be posted such that if goals are not met, payment for funds expended would come back to the taxpayers from that bond. Of course, it might be a little difficult initially to find anyone silly enough to invest in that type of bond. The interest rate would have to be too high. It would be junk status.

3. Kora
Cedar Hills, UT,
May 19, 2014

kiddsport- I agree with you, but the Left loves these programs and being opposed means you hate kids in their mind. The truth is that they really don't provide long term benefit. There is no increased graduation rates or SAT scores because of these programs. The literacy rate is not increased either. The Liberals love these programs because they sound like they work, and they know funding will never get cut because it is "for the children". Even if they are shown to not work, as is the case with Head Start, as long as the public thinks they work they will never go away.
Even when presented with data, supporters of the programs will retort that regardless of the data, they "believe" Head Start works and that should be enough evidence.

The only thing these programs do is provide free daycare and babysitting jobs. The belief in liberal government is that a job does not need to be beneficial or effective to be worth spending tax money on. Many believe that paying someone to dig holes and fill them back up is worth it if it provides a job.