Governor Deval Patrick's Budget Recommendation - House 2 Fiscal Year 2013

Governor's Budget Recommendation FY 2013

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Social Innovation Financing

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Governor Patrick    FY 2013 Budget Recommendation:
    Issues in Brief

    Deval L. Patrick, Governor
    Timothy P. Murray, Lt. Governor


Social innovation financing is a creative idea based on a simple premise - have government pay for demonstrated success rather than the promise of success.  This approach will result in new and better ways of providing critical state services, achieving better outcomes and stretching every taxpayer dollar as far as possible.

In keeping with the Patrick-Murray Administration's commitment to changing the way government does business, the pay-for-success contracts at the heart of these arrangements should act as a catalyst to accelerate system-wide performance management improvements.  This approach will help us learn which programs work and which don’t, and it will hasten the adoption of new, more effective solutions to improve the way we deliver core programs and services. 

Performance-based investments will help encourage innovation and tackle challenging social issues. 

New and innovative programs have potential for success, but often have trouble securing government funding because it takes time for them to prove their effectiveness.  With limited state resources, governments are hesitant to spend money on new programs that may not succeed.  These challenges are particularly relevant for programs that require an up-front investment in prevention in order to improve outcomes and save money over time.  Examples include preventative interventions to lower incarceration rates among at risk youth, to improve housing stability for the chronically homeless and to increase kindergarten readiness and literacy among low-income children.  Social innovation financing allows the government to partner with innovative service providers to expand promising programs and pay only after we see demonstrated success.

The Patrick-Murray Administration plans to use social innovation financing to tackle two challenging problems:

  • Chronic Homelessness – The administration will seek to partner with social entrepreneurs to provide stable housing for several hundred chronically homeless individuals.  The goal of the initiative will be to improve the well-being of the individuals while simultaneously reducing housing and Medicaid costs.
  • Juvenile Justice – The administration will seek to partner with social entrepreneurs to support youth aging out of the juvenile corrections and probation systems so as to assist them in making successful transitions to adulthood.  The juvenile justice contract will be designed with the specific goal of reducing recidivism and improving education and employment outcomes over a 6-year period for a significant segment of the more than 750 youth who exit the juvenile corrections and probation systems annually. 

The Administration plans to expand this initiative to additional policy domains in the future.  The Administration will explore a number of options for social innovation financing to ensure the best use of taxpayer dollars, including:

  • Pay-for-success contracts will allow the state to pay service providers after they have demonstrated success, rather than the current process of paying for the promise of success.  These contracts will target innovative social service programs in domains where sophisticated, multi-year performance measurement is possible.
  • Pay-for-success contracts may be supported through the use of social impact bonds – financing arrangements where third party investors give service providers, typically non-profits, upfront funding and other expertise to allow them to enter into pay-for-success contracts with the government.  For example, the United Kingdom is piloting a social impact bond program to reduce criminal recidivism.

The Patrick-Murray Administration is filing legislation with the FY 2013 budget to establish funding for social innovation financing and a payment mechanism to support pay for success contracts.  While several other states and cities are actively considering the pay-for-success model, Massachusetts is the first government entity in the United States to issue a competitive procurement to obtain services using this approach. 

Prepared by the Executive Office for Administration and Finance ·
For more information email: (617) 727-2040

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