A new day dawns for government deficits. Andrew Harnik/AP

The GOP-led Congress just paved the way for a novel public-private partnership model. But it's not the usual Trump-era legislation.

Last week, when Congress lifted spending caps put in place during the Obama administration with a budget extension bill, lawmakers also carved out space for a new federal initiative. An act within an act buried on page 534 of the bill, the Social Impact Partnerships to Pay for Results Act launches a federal campaign to promote health, jobs, family, and savings across social programs.

So what, exactly, is a social impact partnership? The new law imagines federally fueled, locally driven, public-private partnerships that cut costs for the government. The social goals are practical, from reducing the number of kids in foster care to reducing the number of low-income families receiving means-tested benefits.

The means for achieving those social outcomes belong to a new 21st-century strain of thought about philanthropy called impact investment. The U.S. just hopped on the bandwagon.

What social impact partnerships will look like on the ground will vary from place to place. Maybe wildly so. The act introduces a pool of federal support for local initiatives that promote certain social outcomes at a lower cost than the government is already paying. The result could be a new market for best practices in local government—although it may mean more private companies and faith-based organizations getting involved in basic social services.

“We have a history of not turning first to government to solve some of our thorniest social and public health challenges, but instead turning to our neighbors,” said Republican Senator Todd Young, one of the bill’s lead architects, on the floor of the Senate last week. “Turning to our local communities. Perhaps our local not-for-profit groups are our community heroes. And we discover that oftentimes they are better situated to address these thorny challenges than our government programs.”

The structure of the program sets it up for controversy from the get-go. The bill establishes a new Federal Interagency Council on Social Impact Partnerships, whose chair will be the director of the Office of Management and Budget—meaning Mick Mulvaney, who is also (arguably) the director of the Consumer Financial Protection Bureau, which is (or was) supposed to regulate financial institutions and root out predatory practices. Instead, under Mulvaney, the bureau has been busy doing things like relaxing regulations on payday lenders. While Mulvaney won’t always be there, his efforts to undermine the bureau open up his new council role to scrutiny. (Mulvaney doesn’t do low key.)

At the same time, Young has been pushing bipartisan legislation on social impact partnerships for 6 years, since he was in the House. He succeeded with a bipartisan bill sponsored by Senators Michael Bennet and Cory Booker with the GOP’s Susan Collins. The Obama administration made requests for similar initiatives in budget proposals after 2012. In other words, it’s not exactly a Trump project.

And the interagency model has worked (or is working) for other concerns. The U.S. Interagency Council on Homelessness serves as the model for a new state interagency council launched by Wisconsin on Monday. That bears consideration, even apart from USICH’s own work: State and local governments shoulder the brunt of the fight against homelessness, so federal strategies that make their work more effective and cooperative are incredibly helpful.

Republican Senators Lindsey Graham (left) and Todd Young. (Jacquelyn Martin/AP)

Social impact partnerships, or social impact bonds, are a form of public–private partnership. In a typical P3, private investors may finance, build, operate, and maintain an infrastructure project, like a building or a bridge. Social impact bonds instead put that private capital toward a social program, with the government paying returns if certain outcomes are met.

Cuyahoga County, Ohio, for example, launched a social impact bond in December 2014 to reduce the number of days that children spend in foster care. This $4 million program, called Partnering for Family Success, is a partnership between the county and a Cleveland-based provider called FrontLine Service to help parents find and establish safe, stable housing in order to be reunited with their kids. Children sometimes wind up in foster care for no other reason than that their parents cannot afford suitable housing.

The Cuyahoga program was the first county-level social impact bond in the country. There are only about a dozen of these social partnerships nationwide, including an $8.7 million social impact partnership in Denver to reduce chronic homelessness and a state program in Massachusetts to reduce recidivism by giving high-risk young men skills training and counseling.

Enterprise Community Partners, a partner in both the Denver and Cleveland-area social impact bonds, supports the legislation that passed last week. As an Enterprise paper explains, when the federal government has skin in the game, more savings can be built into the partnership. For example, reducing chronic homelessness in Denver means savings for the Medicaid dollars that the federal government spends on healthcare.

“Since the federal government is not a partner in the SIB contract, those Medicaid savings are not captured in the current financial model, and the federal government is not contributing any money to help pay back investors if the program is successful,” writes John Griffith, former national director for state and local policy at Enterprise.

Building in federal support means solving the so-called “wrong pocket” phenomenon, where one government or department pays to solve a problem but another jurisdiction reaps all the benefits. Sometimes a city will take on all the risk associated with treating a problem, while the state or federal government sees the actual savings. “This is particularly true for any program that serves a population that receives significant federal support, such as aging adults, disabled individuals, or veterans,” Griffith writes.

Determining which social impact partnerships should get federal support is the new organization’s biggest mandate. The Interagency Council for Social Impact Partnerships will include representatives from 10 cabinet-level departments, from Veterans Affairs to Housing and Urban Development to the Social Security Administration. In addition to the subject-matter experts, a separate Commission on Social Impact Partnerships—a fellowship of nine members appointed by the President and leaders from the House and Senate—will lend financial expertise to the selection process.

Think of the council and commission as a jury: State and local governments submit proposals, and the council doles out awards (from an initial appropriation of $100 million). The partnerships need to demonstrate some provable outcome—reducing asthma rates, for example, or increasing the proportion of children who live in two-parent families. The new social impact partnership funds will amount to less than or equal to the amount of money the federal government will save over 10 years as a result of this service.

Thinking bigger picture, social impact partnerships present some issues for communities. As Meagan Day explains for Jacobin, the patchwork nature of America’s social safety net is a nightmare for bureaucrats and families alike. Prioritizing funds for fragmented agencies is hard enough without adding private companies at the local level. Social impact partnerships may lead to local successes and innovation—but at the risk of further Balkanization. Success or failure, these partnerships may push the locus of services even further out, perhaps in keeping with a decentralized outlook on government.

Public-private partnerships in general have a long track record in Europe and other advanced nations. But in the U.S., where there are many more levels of government approval for things like infrastructure, P3s are only just getting started. Impact investment, or “pay for success” programs, are even more novel. Impact investment looks like a new way to pull the private sector into public services, but to maximize social good, not just return on investment—at least on paper.

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