Social Impact Bonds: Illinois Experiments With Funding Social Innovation

October 10, 2014

The philanthropic and nonprofit sectors are quite familiar with the challenge of funding new initiatives in the current government budget environment. Funds at all levels, especially State and local levels, have constricted, which makes it nearly impossible to support extensive new efforts. A new effort being launched by the State involves using social impact bonds as a way to provide the capital needed for efforts that can bring social benefits along with government savings. Donors Forum hosted a presentation on the Pay for Success program the State is launching that featured presentations from Tim Pennell, Third Sector Capital Partners, Scott Kleiman, State of Illinois, and Mark McHugh One Hope United.

The Pay for Success program focuses on improving outcomes for youth involved with both the foster care system and the juvenile justice system, and presenters outlined three goals for the program: safely maintain youth in communities and homes or transition them there; divert them from future delinquency and criminal behavior; and prepare them for successful transition to adulthood.

The program will use evidence-based services based on a model designed at Georgetown University to improve outcomes. Mr. McHugh said that one of the crucial aspects of the program will be ensuring that youth who need services are identified promptly and connected to the right services. A wraparound services facilitator will make sure plans are implemented as they need to be for each youth in the program.

The goal is for the program to serve two hundred youth a year over a period of four years, and providing coordination for that many youths requires significant initial investment. The funding for this program is coming from a mixture of grants, program-related investments, and other investments. The goal of the program is to bring savings to government through improved services—in this case, by reducing the number of days youths spend in institutional facilities. Mr. Pennell said that if the program generates the expected savings, investors should be paid back, along with some interest on their investment (though this likely will be below market rates).

Collaboration is critical to making this program work. Mr. McHugh said that it helped that the seven providers working together on the service delivery aspect of the program had already formed a coalition called the Conscience Community Network, as they had already recognized their shared priorities and committed to working together. Mr. McHugh added that this program had helped them develop a stronger partnership with the State, and that there had been a lot of give and take from all parties as the Pay for Success program is developed. The outcomes and results of this program will certainly bear watching, especially as the State plans to look for other areas that could benefit from social impact bond funding.

– Jason Hardy, Member Services


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