It’s one of the most complicated experiments in the nonprofit sector: Private investors pay for social services and are reimbursed — with a profit — if the social program meets its goals. Known as “pay for success,” or “social impact bonds,” it’s meant to be a creative way to fund nonprofit programs and save the government money.
Boston is home to a pay-for-success pioneer: Social Finance, cofounded by Tracy Palandjian (right), a former consultant at Parthenon Group, Wellington Management Co., and McKinsey & Co. When the nonprofit organization was launched in 2011, Palandjian was its only employee — “it was lonely for quite a bit in the beginning!” she jokes — but it has now grown to about 30 people.
And Social Finance just hired two state government insiders: Navjeet Bal, former governor Deval Patrick’s revenue commissioner, is now its vice president and general counsel, and Alex Zaroulis, Patrick’s former communications director at the Executive Office for Administration and Finance, is director of communications.
“Adding more government capacity to our team has been a very intentional strategy,” Palandjian said, “because our hope is that pay for success could become a mainstream tool in the larger public finance tool box for government folks.”
There are three pay for success projects in Massachusetts. One, brokered by Third Sector Capital Partners, connects the Chelsea nonprofit Roca with Goldman Sachs to reduce recidivism among juvenile offenders. Another teams up the Massachusetts Housing Shelter Alliance and investors including Santander Bank to decrease chronic homelessness. The third, brokered by Social Finance, involves efforts by Jewish Vocational Services to improve adult basic education and vocational training.— SACHA PFEIFFER