Privatization & Government Reform Newsletter

Massachusetts Announces $27 Million Social Impact Bond Program

$27 million initiative targets youth recidivism

A month after New York launched the nation’s first social impact bond initiative—described in the January 2014 edition of this newsletter—Massachusetts Gov. Deval Patrick announced the launch of the Massachusetts Juvenile Justice Pay for Success Initiative, a seven-year, $27 million program that represents the largest social finance investment in the U.S. thus far.

In the program, nonprofit service provider Roca Inc., will serve over 900 at-risk young men in the probation system or leaving the juvenile justice system in Boston and over a dozen other communities through intensive outreach, life skills and pre-vocational and employment training aimed at reducing recidivism. The success of the interventions will be based on reductions in the number of days young men served by the program spend in jail—the program targets a 40 percent reduction—as well as improvements in their employment and job readiness. The Public Consulting Group will serve as the independent validator to determine whether outcome targets are met.

Third Sector Capital Partners is serving as the project intermediary for this initiative, and it secured $18 million in private financing for the project, including:

  • a $9 million loan from the Goldman Sachs Social Impact Fund;
  • a $1.5 million loan from The Kresge Foundation;
  • a $1.5 million loan from Living Cities; and
  • $6 million in total grants from the Laura and John Arnold Foundation, New Profit, and The Boston Foundation.

If the program meets its target of a 40 percent reduction in days spent in jail, the state would pay out $22 million to its financiers. At that level, Goldman Sachs would recoup its $9 million investment plus an additional 5 percent in annual interest; the Kresge Foundation and Living Cities would recoup their $1.5 million investments and an additional 2 percent in annual interest. If the program exceeds its performance target, investors can receive a return on their investment—capped at $1 million in the case of Goldman Sachs—and the state has set aside a total of $27 million for potential payouts, according to CNBC.

Like New York, the Massachusetts initiative was aided by a $11.7 million pay-for-success grant from the U.S. Department of Labor awarded in September 2013. If the program is successful in meeting its goals, the federal funds will allow the state to extend the project to an additional 391 young men for an additional two years.

“By working with our partners at Roca, the Pay for Success initiative will allow us to marry smart financial solutions with programs proven successful in helping high-risk youth become employed, stay employed, and break the cycle of violence,” Patrick said in a press release.

For more on the emerging topic of social impact bonds, see here, here and here.

Leonard Gilroy is director of government reform at Reason Foundation and is the editor of the Privatization & Government Reform Newsletter, available here. This article was featured in the February 2014 edition of the newsletter.

Leonard Gilroy is Director of Government Reform





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