Use of Social Impact Bonds to Assist Financially Distressed Municipalities

Locke Lord Public Finance lawyers Karen Grande, based in the Firm’s Providence office, co-wrote an article analyzing how the use of social impact bonds (SIBs) could be a tool for state, county and local governments to address municipal financial distress. In the article, the authors discussed how SIBs are innovative financing tools whereby government partners with investors (for-profit and non-profit) who provide up-front working capital to fund evidence-based social programs that benefit underserved populations. SIBs targeted at programs to provide training, skills and education opportunities for the unemployed and underemployed could benefit distressed municipalities by lowering expenditures for public assistance and public safety, assuming increased employment also results in lower incidences of crime. Such targeted programs could include grants for classes at in-state colleges and junior colleges, keeping funds at in-state institutions.

The authors noted that social impact investing is a new type of investing which is still in an evolutionary stage. States considering SIB legislation, as well as the federal government, should consider whether beneficial social impacts will be increased by providing SIBs with an exemption from taxation at both the state and federal level.

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