Washington Considers Private Investment Bonds To Address Social Problems

Jan 28, 2014

Someday in the not-too-distant future, social service programs here in the Northwest could get funding from Wall Street.

The idea is gaining traction across the nation. Goldman Sachs already funds preschool slots in Utah and a youth intervention program in New York.

A proposal to pilot “pay-for-success” bonds in Washington got a hearing Monday before a legislative committee.

Wall Street and Rikers Island, home of New York City’s jail, are worlds apart. But in 2012, Goldman Sachs invested nearly $10 million in a program to reduce the number of teenage offenders who leave Rikers only to reoffend and return to jail.

The deal is: if recidivism drops by at least 10 percent, Goldman recoups its investment. Do better than that, and Goldman reaps a profit. Fail and the investors lose money.

It’s too early to gauge results. But now, Washington state Rep. Hans Zeiger wants to see if so-called social investment bonds could pay off here.

“It’s an innovative way that you can engage the private sector in solving big public problems, typically with a preventative aspect to them such as homelessness prevention, recidivism reduction, disease prevention,” said Zeiger, R-Puyallup.

Zeiger has introduced a bipartisan proposal to pilot pay-for-performance bonds in Washington starting in 2016. The idea has also been floated in Oregon.

Supporters of social investment bonds say private dollars could help fill the gap when the state is struggling to fund human service programs.