When I first heard about “social impact bonds,” where private investors loan money to pay for social services and then are paid “success fees” for behavioral improvements, I thought they were overly complex and unnecessary. If social programs are not effective, just change them. It is inefficient to inject another layer of bureaucracy and oversight that social impact bonds seem to require.
Lynn Hume, a reporter at The Bond Buyer, covered a recent U.S. Senate hearing on social impact bonds that was chaired by Virginia Senator Mark Warner (click here for a video recording of hearing). Hume wrote:
Federal lawmakers’ first look at so-called social impact bonds resulted in more questions and concerns than support on Thursday.
During the first congressional hearing on this financing tool, Sen. Mark Warner, D-Va., chairman of the Senate Budget Committee’s Government Performance Task Force, said social impact bonds ‘have some value’ because they bring private investors, and therefore private discipline, into a financing scheme that is designed to finance social programs.
But other task force members, including its top Republican, Sen. Kelly Ayotte from New Hampshire, and Sen. Angus King, an Independent from Maine, had concerns, saying this kind of financing seems complex and costly.