In our opinion: Social impact bonds offer a way to get measurable results for social service investments

Published: Monday, May 19 2014 12:00 a.m. MDT

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Paying for initiatives in public education has traditionally required a tax levy or issuance of bonds backed by government entities, but a new experiment in Utah involving a public-private partnership is attracting national attention as an innovative means of alternative financing.

The Granite School District has partnered with the investment firm Goldman Sachs to issue the first so-called “social impact bonds” to pay for a public education program — in this case, the expansion of the district’s successful early child education program. An article in the Deseret News National Edition points out the partnership is nearly unprecedented and will be observed as an experiment of sorts in the use of private capital for financing a public policy venture.

Goldman Sachs and investment partner J.B. Pritzker committed to invest $7 million in the Utah High Quality Preschool Program, which provides targeted curricula for 3- and 4-year-olds in hopes of preparing them for academic success. The United Way of Salt Lake, also a partner in the venture, will oversee the influx of money.

The first $1 million allowed 450 children to enroll in preschool last fall. The district and its partners are convinced the upfront investment in “at-risk” kids pays dividends by sharply reducing the amount of money schools eventually spend on special education and remedial curricula for students who enter kindergarten without adequate preparation.

The investors receive a return based upon future savings accrued by reducing the number of kids who enter the school system unprepared. The Granite District’s program has been in effect since 2006, and tracking data over a three-year period shows that without high-quality preschool preparation, about 33 percent of low-income children would be in need of remedial education programs before they finished school. With the preschool program in place, that number is reduced to 5 percent, saving districts and taxpayers an estimated $2,600 per student for up to 12 years.

The investors receive a return on their capital based on an intricate formula that measures actual savings to the school system, and can possibly receive zero return if the measurement criteria fail to document savings.

The approach is unique because it envisions social as well as financial benefits. According to leaders of the partnership entities, “Research has shown that investments in children age five and younger improve school readiness and decrease crime, teen pregnancy, delinquency and substance abuse.”

The Utah project has already engendered significant interest, although actual measurement of success is years away. Nonetheless, the partners deserve congratulations for taking on a worthy cause in such an intriguing and innovative way.

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