As Private Financing Emerges For Social Services, The State Is In Talks For A Deal

Sometime in 2013 if all goes well, the governor's policy and budget office will sign a deal with a Boston-based nonprofit agency that will make sure some of Connecticut's ex-prisoners receive the services they need to land back in the workforce.

It will be in the range of $15 million, give or take, not especially large by state contracting standards.

But it will be historic, ushering Connecticut into the forefront of states experimenting with a new form of public finance for social services. The nonprofit group will not be paid, or will be paid far less, unless the released prisoners in its group end up back behind bars in smaller numbers than a control group of the same size.

Until it's able to collect money, maybe five years after the deal is sealed, the group will have to find its own financing and hire its own providers to deliver the services. Talks are underway now between the state Office of Policy and Management and Social Finance, the Boston group.

This "grand experiment," as one of its leaders called it, and the various types of financing schemes behind it, go by several names — social impact bonding, pay-for-performance, and human capital performance bonding. It's creating a lot of buzz in enlightened states such as New York, Massachusetts, Minnesota and now Connecticut, in social services circles.

And for good reason: As we saw last week, Connecticut is slashing social services budgets even for programs that work — and this state is not alone in that. By shifting the risk of failure onto private investors, or in some cases onto large, well established private service provider agencies, social impact bonding rewards programs that work.

On Tuesday, a crowd of service providers, policy advocates, lawmakers and people in this fledgling world of government-private partnerships gathered at the Legislative Office Building in Hartford to talk about how it might work, or not work.

"I'd like you to imagine for a moment that you could fund preventive social services in the same manner that you fund a road, a bridge," Steve Rothschild, who founded a group in Minnesota that devises such deals for workforce development, said in a video hookup from his home state.

Another benefit of these schemes: They force investors, government agencies and service providers to use rigorous metrics to measure success and failure, rather than relying on the same old programs that may or may not actually work.

The wave of the future? In a limited way, probably — for some services such as health and post-prison programs.

A panacea for the ills plaguing the social service system? Not according to the co-founder of Social Finance. "The hype in this country is way ahead of the reality," said Tracy Palandjian, whose nonprofit firm spun off from a British agency.

"These instruments are definitely not appropriate for funding core essential services," Palandjian said. "It is a very early stage, it is a grand experiment that we are working on together, and clearly not a proven concept."

Wow. Sounds like the fine print in a drug ad. Plenty of warnings from everyone, and for good reason. There are potential trip-ups in measuring success, in finding a market value to reward investors while saving taxpayers' money, in making sure providers don't cherry pick clients to meet their numbers, and in accountability.

George Overholser of Third Sector Capital Partners said one of the biggest risks is that everyone in the system wants it to succeed; finding outside, objective evaluators is key, he told Tuesday's forum, sponsored by the Connecticut Association for Human Services, the Capitol Region Council of Governments and others, including, notably, the business services firm BlumShapiro.

Despite the risks, and despite potential criticism from state employee unions that they amount to more outsourcing, these financing plans beat the alternative, which is fewer services for people who need them with each passing year. Gov. Dannel P. Malloy gave his general blessing, saying the economy is not coming back soon enough, and Mike Lawlor, his point man on criminal justice, said the service providers would not be untested outsiders.

It is, Overholser said, a way to use the years-long fiscal crisis for a good end.

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