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What’s needed is for governments to provide community services with adequate funding. And a first step would be to ask the wealthy and large corporations to pay their share of taxes — instead of allowing them to profit from the misfortune of others by investing in social impact bonds.
Ottawa (09 April 2018) — Over 4 years after service providers were first asked for proposals, the Ontario government has announced that 2 proposals for social impact bond pilot projects will be funded. The announcement was part of the 2018 Ontario budget.
What the process illustrates is how social impact bonds can be used to divert attention away from the underfunding of community services. Even worse, when social impact bond projects do go ahead, they eat up funds desperately needed for frontline services. Worst of all is the way social impact bonds turn the difficulties faced by the most vulnerable people in society into a way for well-heeled investors to make a buck.
4 years and counting to set up a social impact bond pilot project
On March 18, 2014, the Ontario Ministry of Economic development asked for ideas for a social impact bond pilot project. The deadline was May 2, 2014.
For organizations delivering community services, finding the resources to provide a submission would have been a struggle. In Ontario, like other provinces, funding for community services has not kept pace with need. It is a sign of how desperate organizations delivering community services are for funding that 79 organizations provided submissions.
It wasn't until May 2015 — a year after submissions were received — that the Ontario government announced a short-list of 4 ideas. It then took another 2.5 years — from May 2015 to November 2017 — to reduce the short list from 4 to 2 projects. Then it took another 4 months before it was announced that the 2 projects on the final short list would receive funding.
There are still more steps to come. It is not clear if investors for either project have been identified. Even after investors are found, investors and the province have to negotiate the contract for the social impact bond project. As the contract includes things like the targets the project will have to meet and how the success of the project will be measured, this is likely to be a long and expensive process. For projects where investors hope to get their money back, negotiations can take as long as 18 months.
Pilot project helped divert attention away from underfunding
While the social impact bond pilot project has yet to provide any funding for community services, it has helped divert attention away from the underfunding of community services. First, the social impact bond pilot project was used to create the hope that community services organizations might be among the lucky few to receive funding. As NUPGE pointed out 3 years ago, this effectively turned the process for funding community services into a lottery.
There’s also the way that social impact bonds have been used to give those involved in community services false hope. When community services organizations are led to believe that social impact bonds will eventually provide the funding they need, they are less likely to pressure the provincial government to adequately fund community services.
Reality is social impact bonds eat up funds needed for frontline services
While social impact bonds are being used to give community services organizations the false hope that funding will improve, the reality is very different.
Social impact bonds add a number of extra costs to the delivery of social services. Instead of just covering the cost of delivering the service, more things need to be covered: investor profits, the costs of negotiating contracts, the cost of an intermediary organization and consultants, and the costs of measuring whether the project met its targets all need to be covered. These costs add up rapidly.
The first federal government social impact bond project is a good illustration of how social impact bonds divert funds away from front line services: 60 per cent of the funding went to cover administrative costs; only 40 per cent of the funding went to fund the actual service.
Community services need adequate funding, not privatization
Those on the frontlines are all too aware of how community services are underfunded. In fact, were it not for the dedication and commitment of community service workers, the situation would be far worse. But dodgy privatization schemes like social impact bonds will only make the problem of underfunding worse — as well as bring a host of new problems.
What’s needed is for governments to provide community services with adequate funding. And a first step would be to ask the wealthy and large corporations to pay their share of taxes — instead of allowing them to profit from the misfortune of others by investing in social impact bonds.