Investors May Fund Social Programs
Massachusetts could be among the first states in the country to raise money for social services by offering investors the chance to earn profits on programs they establish. The approach is known as “social impact bonds’’ or “pay for success.’’ It is based on the idea that if programs backed by investors succeed in reducing, for example, the number of inmates in prison or the homeless population, governments will realize big savings, which they can tap to pay off investors with healthy returns. If the programs fail, the government would owe little or nothing. The administration of Governor Deval Patrick is already sifting through more than two dozen suggestions from nonprofits on how to create such performance-based programs.
An example of those interested include Roca Inc., a Chelsea nonprofit that works with high-risk young adults. It has proposed an intervention program that would work with an estimated 650 young offenders and cost about $11 million over four years. But Roca estimated the program would save $25 million to $38 million in prison costs during that span by reducing the incarceration rate.
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