First U.S. Social Impact Bond fails

“The failure of the Rikers Island project shows Social Impact Bonds and other pay-for-success schemes are fundamentally flawed,” said James Clancy, NUPGE National President

Ottawa (07 July 2015) — A Social Impact Bond project intended to help reduce recidivism among young people imprisoned at Rikers Island in New York City has been cancelled after it failed to meet its targets. The program was found to have made no difference to recidivism rates.

Failure confirms “pay- for-success” suspicions

The idea behind Social Impact Bonds and other pay-for-success schemes is that governments should pay only for services when it can be proven that those services have achieved the desired results. Where this idea runs into problems is that there are a lot of different factors that affect whether those results will be achieved that have nothing to do with the quality of service being provided. For example, an organization could be providing an excellent employment counselling service, but if most local employers are laying people off, very few clients will find work. 

According to the organization that was contracted to deliver the Social Impact Bond project, two factors that contributed to the failure were conditions in Rikers Island jails and the lack of services for inmates after they were released. The fact young people released from Rikers Island couldn’t get mental health care, drug treatment programs, and housing assistance in the community were all identified as serious problems.

Privatization schemes fundamentally flawed

“The failure of the Rikers Island project shows Social Impact Bonds and other pay-for-success schemes are fundamentally flawed,” said James Clancy, National President of the National Union of Public and General Employees (NUPGE).

“The organization delivering the Rikers Island project admitted that, even for a relatively simple project, success or failure depends on many factors that have nothing to do with whether services funded through Social Impact Bonds projects are effective," continued Clancy. "That explanation confirms what those of us concerned about Social Impact Bonds have been saying for sometime — that whether governments end up paying out will have little to do with whether Social Impact Bond projects made a difference.”

Goldman Sachs to be compensated by charitable donations

In theory, if a Social Impact Bond project fails, investors lose their money. But that won’t be happening with this project. Even though the investor, Goldman Sachs, is one of the largest corporations in the world, it will be getting most of itsinvestment back.

Public paying, even though Social Impact Bond failed

The fact that it’s a charity that is compensating Goldman Sachs makes a mockery of the claim that there will be “no burden on taxpayers.” The tax credits provided for charitable donations mean that even when charities are providing guarantees for Social Impact Bond investors, the public is on the hook.

Hold onto your wallets

That’s just the tip of the iceberg. While proponents of privatization schemes like Social Impact Bonds like to claim that it’s the private sector taking risks, they are also trying to find ways to make sure investors don’t lose any money.

This isn’t a surprise. There is never going to be much interest in privatization schemes that don’t make money for investors.

Tax credits and guarantees for investors are being proposed in Canada. The failure of the first Social Impact Bond project in the U.S. will mean more pressure to subsidize investors, and it will also be used to justify higher profit margins.  

NUPGE

The National Union of Public and General Employees (NUPGE) is one of Canada's largest labour organizations with over 360,000 members. Our mission is to improve the lives of working families and to build a stronger Canada by ensuring our common wealth is used for the common good. NUPGE