Pay for Success in Deval Patrick’s budget

I just got around to posting this, but here is the recent development from Massachusetts regarding a Social Innovation Financing Trust Fund – a facility to pay for social impact bonds.

     Section 35XX. (a) There shall be established and set up upon the books of the commonwealth a trust to be known as the Social Innovation Financing Trust Fund, in this section called the trust, for the purpose of funding contracts to improve outcomes and lower costs for contracted government services, in this section called pay for success contracts, subject to the requirements of subsection (b).
     (b) Notwithstanding any general or special law to the contrary, the secretary of administration and finance, in this section called the secretary, may enter into pay for success contracts. Each contract shall include: (1) a requirement that a substantial portion of the payment be conditioned on the achievement of specific outcomes based on defined performance targets; (2) an objective process by which an independent evaluator will determine whether the performance targets have been achieved; (3) a calculation of the amount and timing of payments that would be earned by the service provider during each year of the agreement if performance targets are achieved as determined by the independent evaluator; (4) a sinking fund requirement under which the secretary shall request an appropriation for each fiscal year that the contract is in effect, in an amount equal to the expected payments that the commonwealth would ultimately be obligated to pay in the future based upon service provided during that fiscal year, if performance targets were achieved; and (5) a determination by the secretary that the contract will result in significant performance improvements and budgetary savings across all impacted agencies if the performance targets are achieved.
     (c) The secretary, in his discretion, may provide that payments in future years under such contracts shall constitute a general obligation of the commonwealth for which the full faith and credit of the commonwealth shall be pledged for the benefit of the provider or providers of the contracted government services, but the total amount of payments under such contracts secured by such a pledge of the full faith and credit of the commonwealth shall not in the aggregate exceed $50,000,000.
     (d) The secretary shall be the trustee of the trust, shall administer the trust and shall ensure that all funds appropriated as described above are deposited in the trust and shall make payments from the trust in accordance with the terms and conditions of the contracts, without further appropriation. The secretary shall provide a status report on all contracts no later than February 1 of each year to the house and senate committees on ways and means.


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