Association for Public Policy Analysis & Management

Social Impact Bonds (SIBs) offer the hope of increased investment in effective social programs in the context of limited public funding. With 13 in operation and more on the way, SIBs are an increasingly popular tool for funding social services in the U.S. We ask: do early SIBs deliver on promises to broaden the scope of public investment or do they fail to perform as designed and narrow the scope instead? With limited political willpower and public funding, some SIBs in the U.S. have used their evidence-based results to leverage new support for social programs. We connect to the APPAM conference theme of “Measurement Matters” through our review of this new performance management mechanism as an implement for public service delivery.

 We focus our attention on SIBs in the early care and education (ECE) arena. Prior studies in this field reveal the deep possibilities for child development, support for families, regional market returns, and broadly conceived social reform. We consider two preschool expansion programs, the Utah High-Quality Preschool Program in Salt Lake City and the Chicago Child-Parent Center Pay for Success Project, as well as the South Carolina Nurse-Family Partnership Pay for Success Initiative, a statewide expansion of a home visitation program focused on maternal and child health. We conduct a document review of contracts, loan agreements, and press releases as well as interviews of stakeholders, including intermediaries, service providers, and funders. Our methodology is a comparative critical geography analysis that uses six foci: Structural Change & Sustainability; Metrics & Breadth of Objectives; Pricing & Efficiency; Equity; Innovation; and Risk & Transparency.

We draw on Polanyi’s notion of a double movement and the debate on public values between Dahl and Soss and Moore to navigate our results. By focusing on the “shareholder value” of public values governance, SIBs’ internal financial logic privileges investor premiums and a narrow scope of metrics. But in a Polanyian double movement, SIBs have the capacity to push back against the marketization of social services by translating complex services into quantifiable metrics that support an argument for broader social welfare. We find that efforts in South Carolina and Utah broaden public investment somewhat while Chicago does not. We show that the context of political fiscal climate and the nature of governance networks matters in the justification and impact of SIBs. SIBs have the potential to move the needle in difficult political contexts when long-term policy change is the goal, such as in Utah and South Carolina, but they risk overwhelming the social mission otherwise, as in Chicago. Their complex transaction design requires strong state actors to steer the project toward greater equity.

As policymakers seek broader investment in human development, they must be cautious of false hopes from SIBs’ focus on monetizable outcomes. SIBs are costly in both financial and public value terms. If they can lead to broader sustainable financing, then they have the potential to use markets and outcomes measurement as a means to broader social ends.