By Richard Valdmanis
BOSTON Jan 29 Massachusetts said on Wednesday
it will fight youth crime in the state by using the nation's
largest "social impact bond" - an alternative way to fund
government programs that taps private investors like banks.
The $18 million bond is backed by Goldman Sachs, The Kresge
Foundation and others. It comes as several U.S. states and
cities explore using the funding tool, pioneered in the United
Kingdom in 2010 and designed to eliminate wasteful public
spending during a time of tight government budgets.
"This is groundbreaking," said George Overholser, chief
executive officer of Third Sector Capital Partners, which
organized the project. "Under this program, we have gotten
private people to take on the risk of non-performance instead of
A social impact bond is nothing like a traditional bond. It
uses initial money from private backers to fund a specific
project. The government only pays into the program if it
produces measurable results. If the program fails, the initial
backers risk losing their investments. Social impact bonds are
sometimes called "Pay For Success" initiatives.
In this case, investors have provided $18 million to expand
the work of non-profit youth intervention group Roca in parts of
Massachusetts, including Boston - which is experiencing a surge
in gun violence - and Springfield.
Goldman Sachs provided half of the funding, according to
Overholser, and the bank will receive annual interest of 5
percent if the project meets its target. Other backers would
receive 2 percent annual interest.
The project is meant to allow Roca to engage nearly 1,000
young men who are either on probation or exiting the juvenile
justice system in the hopes of reducing repeat criminal
violations and prison terms.
The project's target is to cut incarceration days among that
group by 40 percent. At that level, Massachusetts would be
required to pay $22 million over the seven-year life of the
project, roughly equal to the money it would save through the
decrease in incarceration days.
"By working with our partners at Roca, the Pay for Success
initiative will allow us to marry smart financial solutions with
programs proven successful in helping high-risk youth become
employed, stay employed, and break the cycle of violence,"
Governor Deval Patrick said in a press release.
Roca's programming aims to reduce recidivism and increase
employment through intensive street outreach and targeted life
skills, education and employment programming.
In December, New York state announced a $13.5 million social
impact bond to finance training and employment of ex-prisoners,
making it the first state in the country to use the funding