‘Pay for success’ program in Mass. gets boost

$11.7m grant to help at-risk youth

The state’s experiment in funding social programs based on their results received a boost Monday when the federal government awarded Massachusetts an $11.7 million grant.

The grant will help expand a program designed to help young offenders who are aging out of the state’s juvenile justice and probation system to ensure that they are prepared to join the workforce and don’t return to prison.

Under the financing plan, called “pay for success” or “social impact bonds,” an organization and its investors spend their money upfront. If their program is successful and saves the state money by, for example, keeping juvenile offenders from returning to prison, the government would use a portion of the savings to pay the organization, usually more than it would get under traditional government contracts.

If the program fails to perform as promised, it gets no payments.

State officials are working with foundations and private investors to finalize a pay-for-success contract with Roca Inc., a Chelsea-based nonprofit organization that will provide the services to troubled teens. Later this fall, Roca will start working with the at-risk youth, state officials said.

Massachusetts is one of the first states to explore a social innovation financing plan and the federal grant is “a ringing endorsement,” said Glen Shor, the state’s secretary of administration and finance.

The state has set aside $27 million to finance the nine-year Roca contract, which would cover services for 750 troubled young people. The federal grant will allow Roca to serve an additional 400 at-risk youth.

Roca will be paid on a sliding scale, with payments depending on increases in employment for participating youth and reductions in prison stays. For example, a 6 percent recidivism reduction triggers a payment, but state officials are hoping that the program reduces prison stays for youth by 40 percent.

State officials would not comment on the amount of the repayments because the contract is still under negotiation.

Shor said he hopes this financing structure encourages innovative approaches to solving some of the state’s most stubborn social problems. The state is also using the pay for success model to fund programs that address chronic homelessness.

“State government typically struggles year to year to find the money in the annual budget to pay for something new or innovative,” Shor said. “This is a way to break out of the paradigm.”