Bill to Promote Social-Impact Bonds Has Support in High Places

Republican Sen. Orrin Hatch of Utah and Democratic Sen. Michael Bennet of Colorado are trying again to advance legislation that would appropriate $300 million for state and local social-impact bonds over 10 years.

Although similar legislation stalled in the previous session of Congress, Mr. Hatch now has more clout to push the bill; he became chairman of the Finance Committee when the Republicans took control of the Senate earlier this year.

Sometimes referred to as pay-for-success contracts, social-impact bonds are designed to help government shift from reimbursing nonprofits for the number of people they serve to paying for measurable results. The idea has gained traction quickly, but some critics argue that the potential benefits have been overstated.

The new form of financing allows private investors to pay for a social program that has performance goals, such as reducing the number of teenage pregnancies. If an independent evaluator certifies that the program has met the goals, the government repays the investors’ principal and, depending on the results, may provide a profit. If the program fails to deliver, investors lose their money.

“These public-private partnerships represent a shift to a model of government where results matter and where we pay for competence,” Mr. Bennet said in a written statement. “Supporting targeted early interventions will help improve outcomes in health care, education, job training, child care, homelessness, and a range of other government services.”

Rep. Todd Young, a Republican from Indiana, introduced a similar bill in the House of Representatives in March. That bill also has bipartisan support, including from Democratic Reps. John Delaney and Chris Van Hollen of Maryland. Mr. Van Hollen is the top Democrat on the House Budget Committee.

Mr. Hatch said in a statement that his bill, titled the Social Impact Partnership Act, would spur innovation and cooperation between the public and private sectors and improve social and public-health programs.

He added: “This bill will keep control in hands of local leaders, reduce the federal bureaucracy, and help improve outcomes for those who use the services and the taxpayers that pay for them.”