Annals of Privatization: Social Impact Bonds and Public Schools

Chicago’s infrastructure trust gets off to a quiet start, while New York City launches an experiment with social-impact bonds, a similar concept recently imported from England.

Cook County Building

 

Rahm Emanuel’s infrastructure trust officially kicked off today, but not much happened; Greg Hinz has the details, such as they are:

The city hopes to pass the risk of those projects — i.e., cost overruns — along to the private investors from taxpayers, perhaps by making some of the investment equity rather than borrowing. But those details are not yet available, and, as Mr. Bell noted, “The devil will be in the details.”

So of course Mayor Bloomberg was like, I’ll show you technocratic neoliberalism:

New York City, embracing an experimental mechanism for financing social services that has excited and worried government reformers around the world, will allow Goldman Sachs to invest nearly $10 million in a jail program, with the pledge that the financial services giant would profit if the program succeeded in significantly reducing recidivism rates.

It’s called a social-impact bond, and the principle is the same as the infrastructure trust: investors pump money into a government program that’s supposed to lead to savings elsewhere, and then get profits if money is, in fact, saved. In the case of the infrastructure trust, it’s paid into efficiency renovations and paid back in utility savings; in the case of New York’s social-impact bond, it’s paid into social services and paid back from the savings in incarceration. And like a lot of public-private partnerships, it comes, originally, from England. (For all the carping about Danny Boyle’s Dance of the Socialized Doctors during the Olympics opening ceremony, England is much farther along in the privatization of other government functions, a legacy of the Thatcher years, not to mention many other European countries; the perceived dichotomy between free-market America and socialized Europe is pretty silly.)

But social-impact bonds are nonetheless very new. New York’s is practically a copy of one rolled out in 2010 in Peterborough, not far from London, meant to reduce recidivism of short-sentence offenders (petty criminals, basically) through intensive social-services mediation:

At Christmas, Popeye got the keys to an apartment, and he has proven to be a meticulous housekeeper. He had help learning how to live in an apartment — how to connect utilities and manage his bills. His caseworkers helped him to get an ID card and bank account, and register with a doctor so he could use Britain’s National Health Service. They went with him to appointments and took him shopping (he had been banned from most local stores for his antisocial behavior). He got psychological counseling. He was encouraged to become a volunteer. He is starting cooking classes.

Popeye is a 59-year-old who has been arrested 166 times. It reminds me of Grant Pick’s vivid Chicago Reader piece on a habitual offender who constantly fell between the cracks between law enforcement, the justice system, public health, and social services:

Jeremy Unruh, an assistant state’s attorney who has handled cases against Fly, calls the way vagrants like Fly continually move between the courts, jail, and the street “aggravated mopery.” He thinks the problem exists because of a change in public policy in the 1970s that forced mental hospitals to release their less-impaired patients into the community. “The institutions had to release all borderline people,” he says. “Kent would have been one of them. He doesn’t really belong in jail, but he doesn’t belong in the general public either.”

[snip]

Police officers don’t believe they can do much to change the lives of disruptive vagrants such as Fly. “We arrest them for disorderly conduct or begging, and we lock them up,"says Gary Szparkowski, the lieutenant who now directs the tactical unit in the First District. “Then they’re gone. We don’t see them because they’re in the courts, and in time they’re back. It’s a revolving door, and there’s nothing much we can do about it.”

Judges don’t think they can do much either. “There are a couple of things that don’t happen when you put on a robe—your IQ doesn’t go up, and you don’t have ultimate power,” says Judge Luckman. “You have to do things strictly within the law. My concern—my obligation—is to protect the citizens of the state. What can we do with him [Fly]? A judge is limited to whatever the penal statutes of the state say.”

At the time, the best option for people like Fly was Thresholds: “The project is offering extra assistance and counseling to 45 released offenders who have problems such as schizophrenia and bipolar disorder, most of whom are homeless. The program is expensive—$450,000 a year—but it has cut jail recidivism and rehospitalization rates of participants who’ve been involved for a year by more than 80 percent.” It’s still around, but it suffered a $4.5 million cut in 2011.

The program in Peterborough is too new to have data on recidivism, but the idea is the same: with strapped governments pulling back—in Illinois, the weight has fallen heavily on social services—it’s increasingly difficult to get capital for new programs. Banks have it—a lot of it—but if it works, it comes at a price.

And in more local privatization news:

In the venture capital world, transactions in the K-12 education sector soared to a record $389 million last year, up from $13 million in 2005. That includes major investments from some of the most respected venture capitalists in Silicon Valley, according to GSV Advisors, an investment firm in Chicago that specializes in education.

The goal: an education revolution in which public schools outsource to private vendors such critical tasks as teaching math, educating disabled students, even writing report cards, said Michael Moe, the founder of GSV.

 

Photograph: vxla (CC by 2.0)

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