Patrick announces $3.5 million to reduce chronic homelessness

Governor Deval Patrick launched a new effort Monday to reduce the state’s chronically homeless population funded by $3.5 million from private investors, the state’s second “pay for success” program. The goal of the program is to stabilize the lives of up to 800 longtime homeless individuals — nearly half the state’s chronically homeless population — by providing them with permanent housing while at the same time reducing the amount of taxpayer money that would otherwise have been spent on shelter, Medicaid, and other emergency services for these individuals.

The state will only repay the money, plus a modest return — up to $6 million in total — if the project is deemed a success by an independent evaluator. In this case, success means housing individuals for at least a year. If only half the tenants stay for a year or more, the investors will suffer a loss. If 85 percent stay the year, investors get a 3.33 percent return. If all the tenants make it a year or more, investors will get the maximum return of 5.33 percent.

The project will be led by the newly formed Massachusetts Alliance for Supportive Housing, a collective that will work with providers to secure 500 units of housing, as well as job training and medical care for tenants. The funders are the Corporation for Supportive Housing, a national housing nonprofit based in New York providing $500,000; Santander Bank, giving $1.25 million; and United Way of Massachusetts Bay and Merrimack Valley, investing $1.75 million.

“We struggle to make investments in promising new interventions that can help people improve their lives,” said Glen Shor, the state’s secretary of administration and finance. “Pay for success is a new way for government to do business.”

The program will start early next year with 50 units of housing, and gradually scale up to 500 over two years. The state has dedicated rental vouchers to help maintain many of the 500 housing units for the chronically homeless beyond the six-year initiative.

In 2012, Massachusetts became the first state to announce that it would use this social financing system, also known as social impact bonds, which was pioneered in the United Kingdom. In January, the state launched a $27 million juvenile justice initiative funded by the investment firm Goldman Sachs and other foundations to help the Chelsea nonprofit Roca to reduce the rate at which young offenders return to jail. The first evaluation will be held in two years.

The state funds pay-for-success contracts through a $50 million Social Innovation Financing Trust Fund. The housing initiative is the state’s second such program. In August, the Patrick administration announced a third: a $15 million program to help Jewish Vocational Services serve some of the 16,000 adults on the wait list for vocationally-oriented English-language classes.