NSW Government To Launch Pilot Tender Process for Social Benefit Bonds

The NSW Liberal and National Government has announced that it will launch a pilot tender process for “Social Benefit Bonds” – taking up the idea first considered by the former Labor Government.

Releasing details in the State Budget, Treasurer Mike Baird said the Government was establishing a trial of two Social Benefit Bonds (SBBs) to focus on improved social outcomes and reduced demand for future government services.

These bonds are financial instruments that pay a return to investors based on the achievement of agreed social outcomes.

The Treasurer said that this approach changed the culture of service delivery to outcomes, improving the effectiveness of every dollar spent.

The Government says the first two bonds will be aimed at reducing demand for foster care (out of home care) and justice programs – lowering re-offending rates among former prisoners through education and support services.

The NSW Government has allocated $13 million over the forward estimates period and $21 million in total, to fund up to two pilots.

It says proposals for SBBs over this amount may be considered if there is a very strong business case.

A spokesperson for the Treasurer says the NSW Government will be working with a range of Not for Profits through an Expressions of Interest (EOI) process to look at two Social Benefit Bond pilots.

Private investors will make a return on their investments if the programs funded deliver improved social outcomes, such as lower recidivism rates.

During the NSW election campaign earlier this year, the then Labour Government pledged to invest $25 million in a Social Impact Bond Pilot, with $10 million to go to early-intervention programs that help keep young people out of juvenile detention, a further $10 million would go to help families at risk, and $5 million had been marked for disability services bonds, to be developed by the Department of Ageing, Disability and Home Care.

Prof Peter Shergold from the Centre for Social Impact (CSI) says the scheme could be a “win-win-win for the state, with better outcomes, less risk for the government and more involvement by the private sector with community organisations.

Shergold says the UK government launched a Social Impact Bond trial in 2010, and US President Barak Obama has proposed a similar program in his 2012 budget.

Social Impact Bonds are similar to those in traditional bond markets, however the are desinged to allow private investment in non-government community service programs.

Investors receive a return on their investment when services achieve targets and deliver public sector savings.

A CSI report released in February found the concept is feasible and NSW has the necessary ingredients to successfully implement the pilot.

The NSW Labour Government had commissioned the Centre for Social Impact to undertake the study into the Social Impact Bond Pilot (SIB) in 2010.

In developing the report, CSI says it examined a number of potential policy and program areas, developed selection criteria for assessing the capacity and programs of potential host NFPs, and designed a proposed structure for the Bond.

In the report, CSI recommended that the NSW Government:

• Proceed to the next stage and invite expressions of interest from Not for Profit organisations that meet the key criteria for the development of a SIB.
• Signal that they wish to encourage the development of a pipeline of NFPs and programs that are suitable for a SIB by raising awareness and developing NFP capacity and capability to use this new method of funding.
• Undertake initiatives to raise awareness across all NSW Government agencies and develop guidelines on how to assess the suitability of policy areas, program interventions and host NFPs.
• Explore the potential for the application of SIBs in policy areas where there is a shared responsibility and shared funding arrangements with the Australian Government.

The CSI Report says that despite record high levels of funding for NFPs, there is still a significant level of unmet need and new approaches to funding NFPs are needed.

According to CSI, a Social Impact Bond (SIB) is a financial instrument that has the potential to re-engineer relationships between government, Not for Profit organisations and social investors.

Under a SIB, a bond-issuing organisation raises capital from investors based on a contract with government to deliver improved social outcomes through programs delivered by a Not for Profit organisation. These improved outcomes generate future costs savings for government, which are used to pay investors a reward in addition to the repayment of the principal.

The Centre for Social Impact is based at the University of NSW and operates in collaboration with the University of Melbourne and Swinburne University of Technology.