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Opposing Social Impact Bonds

WHEREAS:

         Social impact bonds (SIBs), sometimes called “pay for success,” are the latest financing gimmick that supplants community investment in public goods and services with Wall Street money. Lenders, such as private investors, provide the upfront capital to fund projects, which is paid back by the government with interest if the projects are deemed successful. SIBs are more accurately called “social impact borrowing” or “social impact loans,” since they are not bonds in any traditional sense; and

WHEREAS:

         Taxpayers dollars are used to directly underwrite investor profits; and

WHEREAS:

         A common misperception is that SIBs are “costless” to government, and ultimately to taxpayers. That is not true. While perhaps removed from the daily operations of project implementation, the government will still be responsible for contract development and monitoring, reviewing the regulatory environment, and ensuring compliance with federal funding requirements, among other issues. The consulting group, McKinsey states, “SIBS are a more expensive way to finance the scaling up for preventative programs than if the government simply went to service providers and paid them to expand an intervention to more constituents”; and

WHEREAS:

         The rhetoric surrounding SIBs could inadvertently find public services categorized as “winners” and “losers.” The “winners” would be those services that use evidence-based metrics.  The “losers” would be those services whose outcomes cannot be easily measured; and

WHEREAS:

         Private investors want make their money back. Tying high stakes to outcome-based performance measures may motivate investors to game the system to avoid losing money including not serving the neediest populations, focusing on selected outcomes at the expense of other aspects of a program, or rigging the rules; and


 

WHEREAS:

         Heralded as innovative, the only thing innovative about SIBs is their complicated loan structures.  Investors will seek to fund interventions with proven effectiveness. In other words, SIBs will not create innovation, but will deploy best practices that constrain possible solutions to only those that generate high returns in a relatively short-term with easily demonstrable results; and

WHEREAS:

         SIBs represent the continuation of a trend to reduce direct public investment in social services while simultaneously encouraging the “financialization” of basic investments in human development. This shift to favor removing delivery of public services from conventional public providers has an enormous potential to undercut support for government through traditional means.

THEREFORE BE IT RESOLVED:

         That AFSCME and its affiliates affirm their commitment to public delivery of all services and programs that improve communities’ economic security, health, and well-being; and

BE IT FURTHER RESOLVED:

         That AFSCME will provide assistance to affiliates to oppose Social Impact Bonds (SIBs) and to incorporate minimum labor standards in SIBs that are approved; and

BE IT FINALLY RESOLVED:

            That AFSCME and its affiliates will join forces with concerned organizations and community allies to raise red flags about the consequences, risks, and threats to communities and the public sector posed by social impact borrowing and other forms of pay for success models.

 

SUBMITTED BY:
Sue Henricksen, President and Delegate
Terri McCullough, Secretary and Delegate
AFSCME Council 28
Washington

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