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Open Letter to Los Angeles Mayor Villaraigosa Regarding Social Bonds for Education

Presidio Capital Markets | Wednesday December 5th, 2012 | 0 Comments

This open letter is a project of the 2012 Presidio Graduate School’s Capital Markets class.  To read more letters, visit the project page here.

LA City Hall (from lacity.org)

Dear Mayor Villaraigosa:

We are writing to ask you to support an innovative initiative to better fund K-12 schools within the Los Angeles Unified School District (LAUSD). During your administration, the number of LAUSD schools meeting California’s Academic Performance goal has doubled. There has been a 100 percent increase in the number of charter schools, and nearly 100 low performing schools have undergone innovative transformations, with leadership dedicated to improving student learning.  Clearly, education is important to you.

An impact bond is a financing tool that schools can benefit from with the support of government agencies and funders to achieve specific, measurable, and achievable goals that are agreed upon by all stakeholders. Social innovation financing allows the government to partner with service providers, private foundations or other investors willing to provide the upfront costs and assume performance risk while assuring that taxpayers will not pay unless the programs demonstrate success in achieving the desired outcomes.

As you are well aware, our public education system is underfunded.  The lack of funding and difficulty in targeting funds has had a severe impact on our schools, especially those in low income regions. We are concerned with the societal problems and costs that are associated with high school dropouts. For any given California high school cohort, 19 percent of the students will drop out sometime during their four years. Hispanics drop out at a rate of 26 percent and African Americans at a rate of 33 percent. Based on a 2008 study, high school dropouts are more likely to be unemployed and earn an average of $14,226 less per year than their peers with degrees. This represents an annual personal income tax loss to California of just under $1 billion.

Additionally, high school dropouts report more health-related problems, requiring more state health resources. Nearly half of all high school dropouts are in enrolled in Medicaid, costing California approximately $1 billion annually.

Furthermore, high school dropouts are twice as likely to commit a crime as their peers with degrees. Since 2008, California has paid $1.1 billion annually in expenses related to juvenile crime. However, it is estimated that the economic loss ties to these crimes cost the economy $8.9 billion annually.

These are just some of the costs associated with failing to graduate our Los Angeles students. Isn’t it interesting that taxpayers refuse to pay more for schools, but passively support such economic dysfunction? Reducing dropout rates seems to lend itself nicely to more innovative funding approaches like social impact bonds. The cost and impact data is available, and the future of Los Angeles’ ability to compete on a national and international scale should be our priority.

The initial purpose of this social impact bond is to decrease the high school dropout rate in Los Angeles school district. However, the farther reaching social impacts include increasing the number of students graduating and pursuing higher education, reducing crime and incarceration costs, increasing California’s income tax base and improving the quality of life and competitiveness of future generations of Angelinos.

We think that further investigation of the use of social impact bonds to benefit Los Angeles’ schools may be the key to unlocking badly needed sources of funding while also raising expectations and accountability. It has the potential to benefit the community at large by providing our district schools with a better educational system framework that will promote improved high school graduation rates.

We appreciate you taking this into consideration and look forward to meeting with you to discuss this further.

Thank you for your support.

Sincerely,

Javier Cabra, Kristin Killey, Martin Kuepker, and Kristin Mancini

MBA Candidates of the Presidio Graduate School


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