Massachusetts can claim a number of firsts in the effort to improve the lives of its citizens: the first public school, the first library, the first transit system. Now the state is pioneering another idea that is surely a sign of the times: “social innovation financing.”
The idea is to fund government programs — for the homeless, say, or troubled youth — not with direct budget appropriations but through third parties that assume the risk if the program doesn’t produce results. The state enters into a contract with an intermediary that matches up philanthropic investors, who provide the money, and social service agencies, who provide the expertise. If the program achieves certain agreed-upon results — and only if it does — the state reimburses the investors, with a small return.