Measuring social financing’s effectiveness is worth the effort

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We all believe that the quality of our lives is tied to financial stability. As a result, there is little call for traditional social programs in our wealthiest towns.

These services are offered where poverty, unemployment and academic achievement are problematic. In essence, these programs seek to “recreate” the benefits of stable financial environments — whether early childhood, reentry or workforce programs.

When many “social” programs are successful, taxpayers benefit because the delivery of preventive services avoids costs and supports the creation of new taxpayers. The savings justify the investment. We are essentially “financing” the future savings and revenue with the initial investment.

This is the core concept of “social financing.” Investing taxpayer money for a specific human or social result so taxpayers benefit financially in the long term.  When financial independence is achieved through taxpayer investment, the positive financial return can be extraordinary.

If you are familiar with the term “social financing,” you have likely heard of social impact bonds, pay-for-success and other phrases that use “social” in conjunction with the word “finance.” Some of these labels – not all – describe potential private investment in social services.

Forget the labels. Financial stability improves communities and saves taxpayers money. The concept of “social finance” is the process of intentionally designing strategies to support long-term economic independence and measuring the impact when these strategies are successful. The concept is profoundly in the best interest of taxpayers.

When a community thrives financially, everyone benefits. The savings resonate through every facet of life: healthy children, stable families, educational achievement, low taxes, a good business climate and less crime. There is a reason property taxes are high in our cities and low in our wealthiest towns.

The initial complaint about “social financing” was a cry of privatization because philanthropic “investors” would fund a proven intervention and distribute savings between funders and government. Proponents and detractors missed the forest as they clung to a tree. The conversation changed when politicians asked “Can’t government do this?” The concept has evolved ever since because the real savings will not come from one “transaction,” but in viewing public investments differently.

Can government focus on prevention versus expensive “reactive services?” Yes, but redirecting limited resources in a manner that makes the usage of existing services less likely – even disfavored – is a self-help remedy that needs a serious push from taxpayers. The social finance approach changes incentives to focuses on results, versus how much was spent.  How we make this switch can be a deeply democratic process based upon data and real financial information.

There are huge challenges to funding “solutions.” What are realistic time frames? How do we coordinate services to achieve a result? How do we measure results? There is no silver bullet for complex social issues. More than one election cycle will be required.

Determining the long-term financial return – or cost — on any public investment takes work.  However, the task will help us understand why our state’s operating structure cannot avoid deficits. Poverty is expensive. Less revenues and more social service need is a zero sum game. Only so much of our budget can go to Medicaid and other programs. The effort to identify social services that work is a long-term effort.

Fortunately, the benefits outweigh the challenges.

Taxpayers will soon ask “Was the investment successful? What was the goal of the investment? Can we achieve a better result with less money?” This is much better than determining whether we are committed to an issue by saying “Look how much we spent this year.”

Let’s use juvenile justice as one example.

Evidence says incarcerating a juvenile makes future incarceration likely – and costly. The “marginal cost” of incarceration at the Juvenile Training Facility in Middletown is $267,000. Divert a child to a positive economic endeavor (school or work) and he will pay taxes in due course. Repeat the practice and we save millions through cost avoidance and revenue generation. Crime is low in neighborhoods where people are working, so you will be safer. As our workforce ages, we desperately need younger workers more than inmates. This helps business. The benefits resonate.

The above is an example of investing for a positive social result. This is social financing. It includes components of juvenile justice, education, workforce, public safety and even economic development.

Evaluating taxpayer investment promotes an informed electorate and substantive political conversations. The analysis is deep in data and less prone to the hyperbole of today’s political language. If the electorate demands better financial results, it will eventually happen.

People doing better and contributing to the financial health of our state is a difficult concept to fight.

Brian O’Shaughnessy of New Haven is a principal in the firm Community Impact Strategies Ltd.  

 

 

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