A recent article in Forbes asked whether value capture could be used to fund intensive case management and other supports as a way to speed up initiatives to end chronic homelessness. See: Addressing Chronic Homelessness Using Value Capture
How does value capture work?
The mechanics of value capture are similar to a loan or a mortgage. Money is provided up front by investors, who agree to specific repayment terms. Like a loan, the terms include when the money will be paid back (the term), the frequency of payments during the term and the amount of return on investment. These agreements are also called “social impact bonds” 1.
In the era of small government, social impact bonds have attracted attention. Private investors agree to finance social services for a price. The alternative is to raise taxes and pay for them from the public purse. Governments prefer to avoid raising taxes and are attracted by the idea that they can get something for less. Or can they?
In the Forbes article, the author is suggesting that investors contribute now for more social service case managers. With more case managers, people who have been homeless for a long time would be assisted to move to permanent housing more quickly than they are now.
In the future, when the multiple case managers have done their magic and there are fewer people on the streets, it will cost less to provide the services that the people who are living on the streets are using now (e.g. policing and hospital emergency visits).
This may sound familiar. It is exactly the argument that has been used to obtain public funding for Housing First programs, which use intensive case management to assist people who are chronically homeless to move to permanent housing. In this context it’s called as “value for money.”
Now, let’s go the next step, and bring “value capture” into the picture, by bringing in private investors to pay for more case management, instead of increasing the amount of public funding. The investors are promised payback of principal as well as a return on their investment.
Where do these payback payments come from?
In theory, it should be from the services that experience the savings that pay back the initial investment and the interest. In practice, this varies. Government as a whole may do the paying (rather than the departments that have lower costs). And it may be another group entirely. For example, the lottery system in England, which uses its proceeds for “public good,” has agreed to pay back principal and interest to investors who purchased social impact bonds.
This sounds like a complicated, even expensive, package to put together. Is it worth it?
Do social impact bonds make social services work better?
While social impact bonds have their fans, there are many who question them. For example, how does social impact bond financing affect the way services are delivered? As well, is there any evidence that private investors are more willing than governments to invest in new ideas, as proponents claim?
Jesse Hajer, who teaches in the faculty of Economics and Labour Studies at the University of Manitoba, surveyed the field in 2019. The available reviews identified that social impact bond financing does affect the way services are delivered, for example by setting unrealistic performance targets, which service providers are then pressured to achieve. As for investing in new ideas, Hajer noted that most of the examples available for review were for services that had an established track record. Read more the Canadian Centre for Policy Alternatives: Social Impact Bonds: A Costly Innovation
And in 2020, John Loxley, who also taught at the University of Manitoba, completed a review of social impact bond investments in several child welfare programs. The programs aimed at preventing children from being taken in to care2.
These were all innovative programs, undertaken on a trial basis. He concluded that the trials were effective, and should be expanded. He also found that the trials, which all used private financing, were overpriced when compared with the cost of direct government spending to test the innovations. You can read the full study at Canadian Centre For Policy Alternatives: Social Impact Bonds and the Financing of Child Welfare Revisited
Winding up
Back to the Forbes article that started all this. More people would leave the streets if there were more case managers. The evidence for this approach is well established.
Using social impact bonds to pay for the case management up front is not guaranteed to provide a cost savings. Experience from investing in other social impact bonds suggests it will cost more and will likely affect the way the program is delivered.
Footnotes
- What sort of legal animal they might be is discussed in a 2013 article in Law and Contemporary Problems: Not Your Older Brother’s Bonds: The Use And Regulation Of Social-Impact Bonds In The United States
- Child welfare might seem to be unrelated to chronic homelessness, but participation in the child welfare system is highly correlated with experiencing homelessness as an adult.
