Social bond: Saskatchewan tries new way to finance single mothers in need

By Sarah Boesveld, National Post, May 23, 2014 - It’s a beautiful two-storey house on a nice street in downtown Saskatoon, with a tidy lawn that blends in amongst its well-kept neighbours. Inside, floral upholstered couches and comforter-covered beds fill the rooms — rooms that will soon all be occupied by single moms and their children, housed there as part of a new social program designed to support these at-risk families and keep them intact.

The home, called Sweet Dreams, is a huge opportunity for these women, who will be offered parenting and literacy skills and the tools they need to work, go to school and raise their kids.

“I would have had to give up school just to be able to provide for my son, and if I wanted to stay in school, maybe I would have had to have given him to someone else,” said Chantal McLaren, who will work at Sweet Dreams while training to be a nurse.

But it’s just as big an opportunity for the Saskatchewan government, as it claims its stake as the first Canadian province to launch a program using the social impact bond (SIB) funding model — a new way of supporting a community development project that wouldn’t otherwise get government money.

Instead of getting funding from government grants and charitable donations, social programs are funded, in part, by private investors — people, banks or corporations — who invest a significant amount of cash in a project over three to five year term in the hopes of being paid back if the project is successful. It’s not a bond in the traditional sense; there’s a fixed time period, but no fixed rate of return. And the goal is built around achieving outcomes — if the program meets its target in a set period of time, the government pays the investors back with interest. If it doesn’t, the investors don’t get their money back at all.

Last week, Regina-based Conexus Credit Union invested $500,000 in the Sweet Dreams home, run by EGADZ Saskatoon Downtown Youth Centre. Saskatoon couple Wally and Colleen Mah matched that amount. By 2019, Sweet Dreams aims to have 22 children and their mothers leave the home and stay together as family units for at least six months. Investors will receive a portion of their investment back if 17 to 21 children are kept out of foster care, plus 5% interest — a profit of $25,000. They will not be reimbursed at all if fewer than 17 children stay with their mothers.

It’s an appealing concept in an era of tightened government budgets and at a time in which corporate social responsibility and social enterprise is de rigeur. Proponents see this as an exciting and promising way to tackle complicated, long-term social problems without burdening the taxpayer.

The United Kingdom is seeing recidivism rates reduced as a result of this model. In its budget proposal for 2014, the Obama administration signalled its support for “pay-for-success” programs, giving states and municipalities the ability to spearhead their own SIBs. Canada is also keen on it —  Conservative cabinet minister Diane Finley, in her former role as minister of human resources and social development, gathered input from Canadians on how to introduce social finance into government funding models. A handful of federally-guided pilot projects are already charging ahead.

Saskatchewan’s minister of social services June Draude, who spearheaded the Sweet Dreams initiative, says it’s even politically popular, a bi-partisan home-run.

“I know that when you raise taxes, you’re affecting low-income taxpayers as well,” Ms. Draude said. “We need to make sure we keep as much money as possible in the pockets of individuals and let them [decide] how they would like to spend their money.”

She calls the project “innovative,” “flexible,” and “a new way of looking at social issues.”

Critics and skeptics have another word for it: A “fad.” They fear pay-for-performance models, which are too young to have solid proof they actually work, just allow governments to back out of funding important social programs, or leave future leaders on the hook for paying out investors. There’s also a fear that governments are flinging the door open to corporate interests.

“It’s in vogue at present for governments who don’t really want to invest in social services,” said David McDonald, senior economist for the Canadian Centre for Policy Alternatives in Ottawa. He calls it a “terrible public policy idea.”

“There’s no real need to pay 20% [in interest] to some bank or some financier to fund social programs,” he said, adding that there’s also no real risk of failure.

“What’s happened is these financiers have inserted themselves in the social contract and they’re acting as middle men. They don’t take on any particular risk, but they’re paid the middle man markup.”

Mr. McDonald believes the taxpayer will “almost certainly” pay more later and other social programs will be “cannibalized” in order to meet the three or five year targets of the ones tied to social impact bonds.

But pay-for-success models are often sorely misunderstood, said Bill Pinakiewicz, a vice-president at the Nonprofit Finance Fund, an American consultancy based in New York City.

“One of the major misconceptions is that somehow governments are not meeting historic obligations to fund these social services. That’s not the case at all,” he said.

When governments are under pressure, some of the first programs they cut or decline to fund are the ones that meet a preventative and long-term — something like the goal of Sweet Dreams, which is to help these women become contributing members of society and raising their children as such too.

The government, he said, is the “ultimate payer.” While it’s too early for a success story in the United States, the fact that Massachusetts recently announced it will use a social impact bond model to fight youth crime gives the concept a huge boost. The $18 million bond, backed by Goldman Sachs, The Kresge Foundation and others, will become the largest social impact bond in U.S. history.

Another misconception is the looming spectre of public-private partnership — dirty words in the minds of some.

“The transfer of risk is not privatization as commonly understood,” wrote Adam Jagalewski, associate director of the MaRS Centre for Impact Investing, in an email. “SIBs fund nonprofit [not private] programs that government doesn’t exclusively provide.”

The social impact bond started at Peterborough prison in the United Kingdom, 2010. Recidivism was a huge issue, and sporadic programs were too flimsy and unsustainable to halt the cycle of repeat offenders. So a group that eventually became the organized not-for-profit Social Finance U.K. drew up a plan that would have one group of people paying for interventions built on best practices, and another for results.

It’s appeared to have worked: recidivism levels are significantly down as the project heads into its fifth and final year.

The program is judged on a “frequency metric, said Alisa Helbitz, director of research and communications at Social Finance U.K. This urges them to focus on the hardest people going in and out of prison sometimes 20 times rather than one-time offenders. Now, the U.K. government is even introducing a new tax relief to encourage people to invest in SIB programs.

Canada’s minister of employment and social development, Jason Kenney, even paid a visit to Britain recently to look at the Peterborough example, said Jane Newman, Social Finance U.K.’s International director, who has also been working with the social impact investing team at MaRS.

“Governments are not always best placed to solve the most pressing or persistent social and economic problems,” Eric Morrissette, spokesperson for Employment and Social Development Canada wrote in an email to the National Post. “There are Canadians who possess innovative solutions to these problems and there are others who are willing to fund ‘social entrepreneurs’ in meeting these challenges.”

The federal Office of Literacy and Essential Skills is working on a pilot to test elements of the SIB model with an eye to boost labour market outcomes. The model is also being used to help social enterprises such as the Toronto Enterprise Fund. An international report on social impact investment is due out in September.

As the first province to give this a try, Saskatchewan is going to “walk before we run,” Ms. Draude said.

Don Meikle, acting executive director of EGADZ Youth Centre, the operators of Sweet Dreams, says the bond model removes the constant struggle of trying to secure new funding. The centre already works on an outcomes based model, so the investment expectations aren’t too big a stretch. The investors’ presence adds a new layer of accountability that translates to higher motivation to succeed.

As one of the investors, Ms. Mah saw the Sweet Dreams SIB as an “intriguing” opportunity to make a lasting difference for an organization they’ve supported many times in the past.

“I sometimes think we just give money to organizations and nobody reports back results,” she said. “Now you’ve got some skin in the game.”

To her, the real return on investment is seeing these women and their children blossom into contributing members of society.

Copyright National Post, with files from the Saskatoon StarPhoenix