Municipalities and social service providers on Long Island are eyeing New York City's launch of a new social service program financed through the sale of private bonds -- the first effort of its kind in the nation -- as a possible model to replicate.
The four-year program will be paid by so-called "social impact bonds" that peg profits to social reforms.
The bonds, first tested in Britain in 2010 and slowly gaining a foothold in the United States, pair private investors with nonprofit groups and governments to finance programs aimed at addressing social issues such as recidivism and homelessness.
"They [the nonprofits] don't have to be worrying and scurrying to find the money to do their work . . . but, ultimately the terms are tied to outcome," said Kristin Giantris, vice president of the New York City based Nonprofit Finance Fund, which hosted a forum at the White House last October to educate state and municipal leaders about the concept.
For the Goldman Sachs investors to recoup their money from the city, two nonprofits working with jailed youth must reduce recidivism rates by 10 percent. If the rates drop more, investors could make a $2.1 million profit; the city would provide the money from savings from no longer having to house the inmates.
Bloomberg's charitable arm, Bloomberg Philanthropies, has committed $7.2 million to guarantee the bonds should the programs not reduce recidivism rates. Giantris said that in other models, such as one just implemented in Massachusetts, the bonds aren't always backed, with the risk falling on the investor.
Craig Fligstein, vice president of development at United Way of Long Island, said he has been meeting with Nassau and Suffolk business leaders and philanthropists for the past year, trying to generate interest in the bonds for local projects.
The bonds are "very much on our radar screen," Fligstein said. "It's a new idea that could end up helping people, but one of the biggest challenges is because it's such a new concept, there's a learning curve in determining how this could work."
Massachusetts, a recipient of a portion of the $20 million in grant money set aside by the Obama administration for pilot "pay for success programs," recently announced that it was approving the sale of bonds to curb youth violence and homeless rates. State officials declined to comment about whether New York has applied for the federal grant.
Nassau Social Services Commissioner John Imhof said his office plans to review the city's use of social impact bonds to determine "how they may be applicable to enhancing social service delivery in Nassau County." But Imhof cautioned that while the bonds appear "on the surface to be a simple and often attractive option, public-private partnerships are also complex and require a deal of exploration and analysis."
Suffolk Social Services Commissioner Gregory J. Blass said he plans on soliciting input from the nonprofit community about the possibility of using the bonds.
"Any privately funded partnership aimed at resolving recidivism for seriously troubled youth is worth pursuing," Blass said.
Still, Fligstein said Long Island may be some time away from being able to launch a bond-backed social service program.
"There's no past precedent," Fligstein said. "It's going to take a maverick of a leader to say 'Let's be the trailblazers here.' "