Social Benefit Bonds pilots

New South Wales, Australia

Ben Gales

Director, Program Review and Performance

Agenda

1) What is a Social Benefit Bond (SBB)?

2) Why is NSW piloting SBBs?

3) What are some of the challenges we are facing?

4) Conclusions

1a) What is a Social Benefit Bond?

Private Investors

Social Benefit

Bond Issuer Service

Provider(s)

Government

1. Up-front

investment for

working capital

2. Funding for

services

3. Payment based

on outcomes

achieved by

provider

4. Repayment of

investment plus

return based on

performance

4

1b) How do SBBs compare?

Traditional NGO-Govt

contracts

Social Benefit Bonds

Pay for process Pay for outcome

Prescribe that the same service

is delivered across the state

Allow NGOs to be responsive

to local and individual needs

Government bears risk of

unsuccessful interventions, but

reaps 100% benefit

Investor bears risk of

unsuccessful interventions,

shares benefit with Govt

Government oversight Investor oversight

Different sets of data used for

Government, donors and

operations

Alignment of data focussing on

outcomes

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1c) A social benefit bond must deliver financial benefit

Case Study: economics of avoiding unnecessary out-of-home care

entry (illustrative figures)

cost of out-

of-home

care p,a,

lifetime cost in

out-of-home

care

Savings to

Government

=$280k avoided

OOHC cost

Preservation

service cost

per family

Expenditure

per avoided

OOHC place

COSTS

Add’l

benefits

Savings to

NSW Govt

Additional

benefit to

NSW

community

Return to

investor

Lifetime cost of out-of-home care

25% effectiveness: foster care is

only avoided for one in four

children and families in the

service

All costs are purely illustrative. This example does not factor in the substantial costs of establishing and operating the bond.

$38k

$300k

(8 yrs

@

$38k)

$25k

$100k

$200k

$150k

Cannot

proceed

without

government

savings

$100k

$300k

Economics of the Social Benefit Bond

Public

Benefits

BENEFITS

2) Why NSW is piloting Social Benefit Bonds

• Support Innovation

– Government specifies the outcomes

– NGOs determine the best way of achieving these outcomes

• Increase investment in Prevention and Early Intervention

• Improve capabilities across the sector

– we get better at measuring what we do, in particular understanding what outcomes are achieved

– improve the evidence base of what works

• Improve outcomes for vulnerable people

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• It requires a change of mind-set for Government, NGO and the investor communities:

– The bond must work within Government procurement and funding environments, while encouraging innovation and flexibility

– NGOs must engage with investor community (and vice-versa)

– Investors back a financial instrument without a track-record.

• Government and NGOs must improve their understanding of what outcomes and benefits programs aim to achieve.

• It requires increased capacity for data collection, analysis and continuous improvement.

• High initial set up and transactions costs.

3a) Many implementation challenges

8

3b) The measurement challenge is large

Payments will be triggered by demonstrated improvement

against a control group or counterfactual, NOT a baseline

0

10

20

30

40

50

Start 1 Yr 2 Yrs 3 Yrs

ou

tco

me m

easu

re

Baseline Control Intervention

Improvement

in outcome

9

• The development of the Peterborough social impact bond took

– 18 months from the time Social Finance UK approached the Government to when the contract was signed

– 2.5 person-years of Social Finance employee time

– 300+ hours of pro bono legal advice

• It involves complex and time-consuming work on outcome measurements and analysis by Government, work that continues during the bond life

• It’s still too early to know whether Peterborough is a success

3c) UK Experience highlights the complexity

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• NSW Government is developing up to three pilots in the

areas of recidivism and out-of-home care (foster care)

• But SBBs are not a panacea

• Principles in SBBs are relevant to other contracts

– payment linked to achievement of outcome

– evaluating the impact of public spending ($ and

outcomes)

– providing incentives to innovate and improve

– NGO capacity to deliver and manage contracts

– intervention addresses need and Government priorities

4) This is an exciting opportunity for NSW

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THANK YOU

Social Benefit Bonds