Oregon considers social impact bonds

Rep. Earl Blumenauer, a Portland Democrat, is among those who support the use of social impact bonds in Oregon.

Rep. Earl Blumenauer, a Portland Democrat, is among those who support the use of social impact bonds in Oregon. 

Some of Oregon’s most influential financiers, elected officials and lawyers are studying whether a new type of bond could address some of the state’s most pressing social problems.

In the United Kingdom, New York City and Boston, the bonds — known as social impact bonds — are being test-driven on issues ranging from homelessness to inmate recidivism.

“This is something that I’m absolutely convinced ... can dramatically cut down long-term health care costs, collection costs and education costs, while we enhance the ability of government to deliver services,” said U.S. Rep. Earl Blumenauer, a Portland Democrat.

Social impact bonds work like this: an investment bank calculates how much a social problem, such as recidivism, costs a state. The bank issues a bond and raises money from investors. It uses the cash to address the problem. In this case, if recidivism drops, the state splits the savings with the bond investors. If the rate doesn’t drop, investors lose their money.

Nationally, social impact bonds were in the news this week after the giant investment bank Goldman Sachs backed New York City’s first social impact bond. New York state, Massachusetts, Connecticut, Cuyahoga County in Ohio and Los Angeles city and county are also considering social impact bond proposals. The Obama administration is also interested.

Oregon efforts are preliminary but gaining momentum. Oregonians working on the concept include Dave Chen, former chair of the Oregon Innovation Council and one of the state’s most well connected and successful financiers who is focused on sustainable investing innovations. Like others, Chen said social impact bonds are a way to increase government accountability and transparency.

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