Social impact bonds: the latest scheme to privatize public services

Higher costs, reduced accountability and privatization are all risks in the social impact bond funding scheme for public services.

Ottawa (10 May 2012) - Even though they have yet to produce results, many governments are enthusiastic about the way social impact bonds allow them to “buy now, pay later", says the National Union of Public and General Employees (NUPGE).

In the new publication, Social Impact Bonds: A new way to privatize public services, NUPGE uncovers several major concerns with the new funding scheme being embraced by Canadian governments.

In the recent federal Conservative budget, Finance Minister Flaherty announced that the bonds hold "promise" and signalled his government was considering them. In Ontario, Don Drummond recommended in his report recommending public service cuts to the Liberal government the start of pilot projects in several different areas. During the recent Alberta election, Progressive Conversative leader Alison Redford ran on a platform of introducing social impact bonds.

As NUPGE points out, there are several dangers with this new funding scheme. Specifically, for community and social services, social impact bonds will mean privatization, higher administrative costs and reduced accountability.

Currently, in Britain, these bonds are being used to divert attention away from funding cuts.

The way social impact bonds work is that private investors fund new services and are repaid their capital and an agreed-on profit, if agreed-on social outcomes are met. These profits would certainly increase the overall cost of any project or program.

If the service does not meet the agreed-on social outcomes, investors get nothing back.

The bonds are being considered as a way to provide services in areas such as developmental services, homelessness, supports for people with developmental disabilities, mental health, justice and corrections and public health.

Intermediary groups whose first responsibility is to investors, not the public, would manage the services. Because investors lose their money if a project doesn't succeed, there will be little interest in helping those facing problems so severe that success is uncertain. Additionally, how a service is delivered, including spending on things like staffing, will be up to the intermediary group.

The only social impact bond service currently operating is relatively simple, but it still took 18 months to reach an agreement on how to measure success. With lawyers and other expensive professionals involved, the negotiating process pushes up administrative costs and that will be much worse for more complex projects.

"We will oppose these deals at every step," says James Clancy, NUPGE National President. "Social impact bonds are just the latest quick fix funding scheme to catch the attention of governments. We urge governments to find the financial resources through a fairer tax system to invest in social programs and public services, instead of wasting time on more expensive and riskier ideas."

Download the report: Social Impact Bonds: A new way to privatize public services

NUPGE

The National Union of Public and General Employees (NUPGE) is one of Canada's largest labour organizations with over 340,000 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

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