As the recent economic recession and subsequent budget woes continue to decimate public grant funding for nonprofit social organizations, the state has turned to a largely unproven financing method designed to shift the burden of funding nonprofits to the private sector.
Last year, Massachusetts became the first state to take formal steps to launch a program known as social innovation financing, which would allow the state to enter into contracts with service providers or third-party intermediaries, who would reach out to the private sector themselves for up-front capital funding for programs, then receive reimbursement from the state.
The program requires that providers demonstrate that their program was successful in the areas of juvenile justice and homelessness through rigorous data collection and meeting performance management standards. If a program fails to achieve a predetermined success goal, the government would pay investors nothing.
The state is still working out the program structure and is reviewing applications for the experimental program, which so far has only been tested in the United Kingdom. Among the communities eager to be part of this initiative is Lawrence, where violent crime increased by 44 percent between 2010 and 2011, and where the majority of shootings and stabbings involved people under 25, said Art McCabe, the city’s community development director.
“It would be immense, because it would give us the opportunity to take the expense burden off of the state and have private sector money to satisfy a state need without burdening the state financially,” said McCabe, who is also project director of the Safe and Successful Youth Initiative, a one-time $10 million program funded through the state’s Health and Human Services office to help reduce youth homicides and violent crimes in the state.
Lawrence was awarded an $800,000 grant through that program last year, which allowed McCabe to partner with Lowell nonprofit United Teen Equality Center to introduce its nationally recognized workforce program to Lawrence. UTEC’s program provides “wraparound” services, including job training and GED courses, to Lowell’s most at-risk 16- to 24-year-olds for at least three years.
Lawrence’s grant money was used to hire and train street workers -- who do everything from reaching out to troubled young people on the streets, to organizing peace summits with rival gang leaders -- and case managers, who begin the wraparound process. So far, 25 young Lawrence residents out of about 130 identified as eligible have enrolled. Up to 15 of the most troubled will also be provided services, such as anger management, at UTEC headquarters in Lowell.
But the grant money is only good for one year and is only enough to serve 60 to 80 young people, McCabe said.
Social innovation financing would not only allow the program to continue, but it would give UTEC the opportunity to expand more of its services and even open a satellite job location in Lawrence, said executive director Gregg Croteau.
After President Obama announced an earmark of $100 million in the current budget to fund a “pay for success” initiative modeled after the method being tested in England, the nonprofit Social Finance Inc., a sister organization of the UK’s Social Finance Ltd., which recruits investors for social programs, opened an office in Boston. Organizers began the process of identifying social programs focused on homelessness and youth violence, as well as potential private and philanthropic investors who would be willing to participate in the funding experiment, said Tracy Palandjian, CEO and cofounder of the stateside organization.
UTEC is among the organizations Social Finance selected, specifically because of its success reducing juvenile recidivism rates.
The pay-for-success mechanism in this case could be through a social impact bond, where Social Finance would enter into a contract with the state with an agreed-upon goal of reducing juvenile recidivism by a specific percentage in a certain amount of years. Social Finance would then get philanthropic foundations and high net worth investors on board, and give the up-front capital to UTEC to expand its workforce program in Lowell and Lawrence.
If UTEC’s efforts reduce juvenile recidivism by the agreed upon rate, the state would potentially be able to tap into the cost savings it would have yielded from incarcerating fewer repeat offenders to pay some investors back.
“It’s not grant money; it’s investment money,” Palandjian said. “Grant money is the negative 100 percent model: You give it away and you never see it. Here, people are looking for a return . . . With impact investments you have the intention of seeking social returns, as well as fiscal returns.”
UTEC’s wraparound services for one young person cost $10,000 a year, compared with the $46,000 annual average baseline cost the state pays to incarcerate one young person, Croteau said, adding that specialized costs for incarcerated juveniles, including health care, education, and mental health services, could add up to $100,000 a year per person. About 15 percent of young people who participate in UTEC’s services become repeat offenders within one year of exiting the juvenile detention system, while the state averages 30 percent, he said.
Social innovation financing would allow UTEC organizers to increase the number of young people they serve in Lawrence to around 50, as well as open a job training facility there. The start-up cost for the first year of expansion in Lawrence is estimated to be $800,000 to $1 million, Croteau said.
Essex County Juvenile Court Judge Mark Newman, who was influential in connecting Lawrence to UTEC, said Lawrence is the perfect community for UTEC’s street worker approach, particularly because it also reaches young people older than 17 who have “aged out” of the state care protection system, and who are most at risk of becoming career criminals.
For 20-year-old Eduard Martinez, who is among the few Lawrence residents getting help at UTEC in Lowell, the outreach program has been the one thing that has kept him from returning to a lifestyle that saw him on probation at 15, juvenile detention at 16, and a school dropout at 17. He is now working toward his GED and getting culinary job training.
“UTEC, they’re like something different than what I’ve experienced,” he said. “I’m a different type of person, more motivated, more like I can do more things now.”