Responses to common questions are set out below:
A social benefit bond (SBB) is a financial instrument that pays a return based on the achievement of agreed social outcomes. Under a SBB, investors fund the delivery of services targeted at improving a particular social outcome. Achievement of this outcome should reduce the need for, and therefore government spending on, acute services. Part of the resultant public sector savings are then used to repay investors’ principal and make additional reward payments (the return on investment), the level of which is dependent on the degree of outcome improvement achieved.
The NSW SBB trial is the first in Australia and one of the first anywhere in the world.
In the United Kingdom, where the model is referred to as a social impact bond, the first trial was launched at Peterborough Prison in 2010. It was developed by Social Finance UK in conjunction with the UK Ministry of Justice. There are now 14 bonds in development or operation in the UK, with several more in the pipeline.
In the United States, a Bond to reduce re-incarceration of adolescents in New York was launched in 2012. Goldman Sachs invested $9.6 million in the Bond which is supported by a guarantee of $7.2 million provided by Bloomberg Philanthropies.
President Obama has made $100 million provision in the 2012 Budget Plan for up to seven “Pay for Success Bonds”, and a number of US states have begun their own development work.
There has also been interest in SBB models elsewhere in Australia; including a discussion of the model at hearings of the Senate Economics References Committee Inquiry into Finance for the Not-for-Profit Sector as well as a research paper, Understanding Social Impact Partnerships, into their application in Western Australia. The South Australian Government also released a discussion paper "Building a Stronger Society".
The Government believes that SBBs offer numerous potential benefits, and this is why the model is being trialed. The benefits include:
A focus on outcomes rather than outputs: Under traditional purchaser-provider arrangements, Government payments typically attach to units or blocks of service rather than the outcome the Government is seeking to achieve. In contrast, SBBs provide a direct financial incentive to focus on and improve the outcome in question. This change benefits both the Government and providers: the Government gets better outcomes, while providers are relieved of burdensome reporting to Government about service inputs and outputs, and instead are free to focus on delivering the outcome in a way that best suits their own approach and preferences.
Additional resources towards early intervention: Releasing Government funds for prevention and early intervention can be difficult when resources are oriented towards acute and crisis services. SBBs allow an expansion of investment in early intervention through the use of upfront private funding. If successful, this reduces later demand for acute services and frees up Government funds, part of which can then be used to repay investors.
Innovation: Payment for results, rather than delivery of a prescribed service, frees service providers and investors to explore different ways of achieving better results. Providers have the flexibility to change service delivery approaches or experiment with a number of approaches at the same time. Investors have an incentive to work with providers to drive performance; for example, by encouraging providers to abandon approaches that are not achieving results and supporting them to find and implement new approaches.
Improving the evidence base: SBBs will be more attractive to investors if they are backed by evidence that indicates that the proposed interventions will be successful. Further, the link between payments and results necessitates the robust measurement of outcomes. These features increase locally relevant evidence and data for future policy makers. By improving measurement in these areas, the Government believes that other social policy areas will benefit as well.
Accountability and transparency: The focus on clear outcomes measurement in SBBs ensures that there is clarity about what NSW Government funding is achieving, and when.
In comparing different funding options, the Government considers cost effectiveness, not just direct cost; that is, the comparative benefits that can be ‘purchased’ for any particular level of expenditure. SBBs have an advantage over current direct funding models in that public funds are only expended (in the form of principal repayments and reward payments) after the benefits have been achieved.
Another benefit of the SBB funding model is that, by accessing private capital, it facilitates upfront expenditure over and above what is available from public funds at the time the expenditure is needed. If the funded intervention is successful, additional public funds are then freed up to repay the upfront expenditure.
If the pilot SBBs are successful, the Government is hopeful an entirely new field of social finance will open up, and will provide a new source of funding for these much needed programs and outcomes.
The Government is interested in the improved social outcomes and value for money that could be achieved through SBBs. The non-profit sector faces ever increasing demands for services. It is simply not possible for the NSW Government to fully fund every program. Social benefit bonds have an advantage over current direct funding models in that public funds, in the main, are only expended (in the form of principal repayments and reward payments) after the benefits have been achieved and are based on outcomes.
The traditional view that profit is for private gain is being challenged by the emerging field of social investment, which is based on the principle that profit can also be aligned with public gain. SBBs provide a way to direct private capital towards public benefit, and only provide private returns after that public benefit is achieved.
The many benefits for the NSW Government are the same as those for NSW taxpayers. These include:
Current government grants and contribution schemes generally provide funding based on the inputs and outputs of social programs. As a result, they are largely commissioned on the basis of cost rather than on the value that they provide. Grants and contribution schemes generally provide one-off or recurring cash payments to cover program costs.
A Social Benefit Bond is generally based on funding outcomes such as a reduction in reoffending or a reduction in children in out-of-home care. They generally leverage off private capital sources or cross-sector partnerships by aligning the interests of multiple stakeholders in achieving positive social outcomes. This encourages innovation and flexibility to provide services to better achieve outcomes. The need to measure outcomes increases accountability and adds to the evidence base which aids the delivery of other evidenced based policies.
An SBB is intended to create savings for the government while improving social outcomes. Part of these savings will provide repayments to investors commensurate with the outcomes achieved.
The NSW Waratah Bond Programme offers low risk, stable income to investors. Money raised through the issuance of Waratah Bonds is used to fund investment in NSW infrastructure and other public sector activities.
The robust performance measures of a SBB provide a true mechanism for governments to pay only for results achieved and to save taxpayer money. They also increase the number of preventive interventions facilitated by the government and offer a mechanism to scale up proven preventive programs without requiring government agencies to take on the upfront funding. Additionally, SBBs provide incentives to make cost effective decisions to maximise outcomes. Given this, it is unlikely that a change in Government would result in the termination of any SBBs.
On 27 March 2013, the former NSW Treasurer, Mike Baird and the former NSW Minister for Family and Community Services, Pru Goward announced the NSW Government had signed Australia’s first Social Benefit Bond contract. The Newpin SBB will fund UnitingCare Burnside’s New Parent and Infant Network (Newpin) program that works intensively with struggling families to keep them safely together. On 4 June 2013 Social Ventures Australia announced they had successfully raised the required $7 million to finance the Bond, one month before the scheduled close.
Most recently, on 19 August 2014, Treasurer Andrew Constance and Minister for Family and Community Services Gabrielle Upton, announced the Newpin SBB had delivered a 7.5 per cent return to investors in its first year, while improving supports for parents of children in, or at risk of entering, out-of-home care. The $7 million in working capital from investors allowed UnitingCare Burnside to run intensive courses for parents, and to successfully restore 28 children to their families from out-of-home care in the first year of the arrangement.
On 13 June 2013, the NSW Government signed the contract for the second SBB pilot - for a Resilient Families Service (RFS) provided by The Benevolent Society. The aim of the RFS is to strengthen family functioning and relationships, and ensure children’s safety and wellbeing in order to prevent children entering into out-of-home-care. The $10 million Bond was implemented in October 2013 and it is anticipated that the service will assist up to 400 families over the five year term.
The Newpin SBB will focus on restoring children to families and preventing children from entering out-of-home care. The Benevolent Society SBB will also work with vulnerable families and their children to keep them safely together. Children in out-of-home care often have poorer outcomes than their peers. These SBBs are part of a broad range of reforms to improve services and lives for children and young people in out-of-home care.
Social Benefit Bonds are an exciting new way of building innovative partnerships with the non-government sector and investors to deliver measurable and outcomes-based services. They provide new, additional funding that helps raise money for important earlier intervention and intensive services that otherwise might not receive funding due to limited Government resources.
For further details on how Social Benefit Bonds differ from traditional government grants or contribution schemes and why the NSW Government is involved in these instruments please refer to the FAQ above.
Social Benefit Bonds are a new financial model, with many interrelated components to be understood. The government’s commitment to social benefit extends to learning, sharing knowledge and developing the capacity of all organisations involved in launching the bonds. The process has been thorough, and ensures that the Newpin SBB and The Benevolent Society SBB are robust, transparent and financially well structured.
The development of future SBBs will benefit from the knowledge built and care taken in developing these pilot SBBs.
The $7 million bond will initially fund four centres and pay for the expansion of UnitingCare Burnside’s Newpin program which aims to break the destructive cycle of family relationships that lead to abuse and neglect.
By providing intensive support to improve parenting styles, behaviour and practices, the program helps parents to build positive parent-child relationships. Newpin safely restores children in care to their families and prevents entry into care.
When Newpin achieves agreed social outcomes, such as safely restoring children in care to their families or preventing entry into care, this generates significant social and economic benefits. These benefits mean the Government needs to spend less on acute services and is able to spend taxpayers money helping families in other ways.
The savings delivered by successful outcomes are used to pay back the investors’ up-front funding as well as provide a return to investors.
Newpin has a solid evidence base and a track record of delivering successful family restoration.
The restoration rate of children who enter the program is the key performance indicator which produces the interest rate and the repayment obligations of the bond. The Newpin SBB targets a financial return of 10 to 12 percent per annum. This is dependent on the successful performance of the service and the outcomes it achieves. In its first year the Bond delivered a return of 7.5 per cent as result of UnitingCare Burnside successfully restoring 28 children in out-of-home care to their families and preventing children in 10 at-risk families from entering care.
All family restorations are independently decided by the NSW Children’s Court. Neither UnitingCare Burnside nor investors make these decisions.
The NSW Government Department of Family and Community Services (FaCS) is working with UnitingCare Burnside (the Newpin program provider) and Social Ventures Australia (SVA) to implement the Social Benefit Bond.
UnitingCare Burnside will use the money raised through the bond to run and expand the Newpin program.
SVA is a financial advisor and marketed the bond to investors with the assistance of the Government and UnitingCare Burnside.
SVA and UnitingCare Burnside raised the $7 million for the bond by June 2013. The bond will operate from 1 July 2013 for seven years.
For further details on the Newpin SBB please refer to:
The $10 million bond will operate over a five-year period and will fund intensive work with up to 400 families and their children in the Resilient Families Service (RFS).
The Benevolent Society will work with at-risk families for up to nine months, with an initial six week intensive period where staff build trusting relationships and address immediate crises in a family. Together, staff and families will deal with issues such as stable housing, debt problems, regular income, domestic violence, substance misuse and improved family functioning and relationships. Over the long-term they will work together so that changes will last and families are able to cope with future challenges and use other community services that will address any problems they have.
The Benevolent Society uses a Resilience Practice Framework, which incorporates professional practices and approaches that have been proven to be effective. In addition, the initial phase of the RFS has strong parallels with the successful US model, Homebuilders, which has a solid evidence base. Research into the program has shown that Homebuilders achieved significant improvements for families whose children had previously been in care or who had prior substantiated child protection reports.
The NSW Government Department of Family and Community Services (FaCS) is working with The Benevolent Society (the RFS program provider), the Commonwealth Bank of Australia and Westpac Institutional Bank to implement the Social Benefit Bond.
For further details on The Benevolent Society SBB please refer to:
For more information about The Benevolent Society, visit www.benevolent.org.au
For information about investing, contact Craig Parker, Executive Director, Head of Structured and Asset Finance, Westpac Institutional Bank
02 8254 9116 or email@example.com
Further information on the SBB Trial in NSW will be published via the NSW Treasury website. Recent reports include:
It is envisaged that the financial risk associated with an SBB is borne primarily by investors. The SBB issuer (the organisation providing or overseeing provision of the SBB-funded services) may also choose to take on some financial risk and share in the financial return from a successful SBB. However, the precise structure of each SBB will be determined collaboratively during the development of the SBB.
Target outcomes and corresponding Government payments will be agreed in the Joint Development Phase and included in the agreements that will establish the SBB. Independent evaluators will be commissioned to measure performance against the agreed target outcomes. Dispute resolution arrangements will also be agreed before the start of each pilot.
A significant amount of work is needed to ensure the indicators used are an accurate reflection of the agreed outcome, that they cannot be gamed and do not create perverse incentives. Specific arrangements will depend on the SBB.
The NSW Government has signed contracts for the implementation of two of the pilot SBBs, the details of which are above. Information on any future SBBs will be made available from this website.
Social Finance UK has published a number of useful guides and policy documents, including advice on how to develop an SBB: