Massachusetts Pursues Social Innovation Financing to Spur Innovation and Build on Program Success
Performance-based investments will help encourage innovation, tackle social issues
"Social innovation financing is a creative idea based on a simple premise - have government pay for demonstrated success rather than the promise of success," said Secretary of Administration and Finance Jay Gonzalez. "It's an approach concept that we hope will result in new and better ways of providing critical state services, achieving better outcomes, and stretching every taxpayer dollar as far as possible."
Massachusetts is the first state to take formal steps towards a comprehensive social innovation financing program that includes social impact bonds or pay-for-success contracts in response to President Obama's pay-for-success initiative launched earlier this year.
Innovative, or perceived "high risk", programs with the potential for wide success often have trouble securing government funding because demonstrating those successful outcomes can take time. Additionally, state governments that typically have limited resources are, in many cases, hesitant to spend money on new programs that may not succeed. Social innovation financing allows both the government and innovative service providers to jump start promising programs without taking on a significant financial risk.
The Commonwealth is currently pursuing two types of social innovation financing models: pay-for-success contracts and social impact bonds.
Pay-for-success contracts will allow the state to pay service providers after they have demonstrated success, rather than the current process of paying for the promise of success. These contracts will target innovative social service programs that may require sophisticated performance measurement and extended evaluation periods to demonstrate success.
President Barack Obama's FY 2012 budget included a proposal to invest $100 million in "pay for success" projects in seven pilot areas including job training, education, juvenile justice and care of children's disabilities. This funding would be separate from existing department budgets and spent only if the programs work. The Commonwealth expects to be well-positioned to compete for federal funding that becomes available through this program.
Social Impact Bonds
Pay-for-success contracts may be supported through the use of social impact bonds - financing arrangements where third party investors give service providers, typically non-profits, upfront funding and other expertise to support pay-for-success contracts with the government. For example, the United Kingdom is piloting a social impact bond program to reduce criminal recidivism.
The request for information (RFI) posted today is the start of a longer-term process. The RFI will help the state shape a formal, more-detailed procurement for social financing services, which will be issued in the coming months.
The Administration has identified homelessness and public safety as likely policy areas for initial pay for success contracts, but proposals related to other social services will also be considered.
For information on social innovation bonds or pay-for-success contracts please email firstname.lastname@example.org.