Traverse City Record-Eagle


September 9, 2013

State will seek investors for public social program

LANSING (AP) — Michigan plans to enlist private investors to finance a public social program, becoming the latest state government to try an experimental “pay-for-success” approach in tackling persistent problems such as homelessness or criminal recidivism.

The state will announce Monday that it is the seventh chosen through a national competition to receive technical assistance from Harvard University for a social impact bond.

Also known as pay-for-success contracts, social impact bonds work like this: Private investors — potentially a bank and a philanthropic foundation — put up money for a program with a specific goal. A contract is signed with a service provider.

If the goal is achieved, the government pays back the investors, with a profit. If not, the government pays nothing.

“We believe it makes government delivery of services more accountable. If it’s successful, we benefit. If for whatever reason the targets aren’t met, taxpayers aren’t on the hook for those dollars,” said Joe Pavona, special adviser for public-private partnerships to Gov. Rick Snyder.

The state will issue a request for information Monday to identify potential projects.

Some possibilities mentioned by Pavona include infant mortality, early childhood development, homelessness and recidivism. But he said the Snyder administration could settle on something else depending on feedback from potential investors and service providers.

The Harvard Kennedy School will send a full-time fellow to Michigan for a year to help launch the initiative, with support from the Rockefeller Foundation and the Laura and John Arnold Foundation. After helping Massachusetts and New York become the first state governments to develop pay-for-success contracts using social impact bonds, Harvard held a competition to award assistance to other governments.

Six winners out of 28 applicants were announced in June. The school added Michigan after finding more funding because it was among a handful of other “really strong” applications, said Jeffrey Liebman, a public policy professor at Harvard who directs the university’s Social Impact Bond Technical Assistance Lab.

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