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State may try social impact bonds

Around the Region

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January 19, 2012|By Erin Ailworth

The Patrick administration is taking the first steps toward a new way to finance social services by offering investors the chance to earn profits on programs that they establish.

The state’s Executive Office of Administration and Finance yesterday called on social entrepreneurs to submit proposals for performance-based programs to stem chronic homelessness and to support youth who leave juvenile correction and probation systems in Massachusetts as they get older.

The approach, known as “pay for success’’ or “social impact bonds,’’ is based on the idea that if investors fund social programs that succeed in addressing an issue and generating savings for the state, then the government would use a portion of that money to pay investors back.

“We’re only going to pay if they work,’’ said the state’s administration and finance secretary, Jay Gonzalez. His office also hopes to tap some of the $100 million that President Obama has proposed spending on such initiatives.

Gonzalez said the state’s interest in pay-for-success programs and social impact bonds stems from the “new fiscal reality’’ and the Patrick administration’s resulting interest in finding ways to offer social services while working to save taxpayers money. Likely investors include philanthropists and foundations.

If the first round of programs succeeds, the state said, it would consider expanding its efforts to address other social ills.