States seek private financial help to fix social problems

A growing number of states and local governments are looking to an unconventional financing method to fix big social problems.

Officials in Connecticut, South Carolina and Colorado on Tuesday announced new public/private arrangements to fund so-called “pay for success” projects. These initiatives aim to help families struggling with drug addiction, improve health outcomes for poor mothers and their children, and reduce chronic homelessness.

The concept is often referred to as “social impact bonds.” It involves a government entity teaming up with a private intermediary that develops the project, identifies effective programs and raises the capital from philanthropic-minded investors.

If the program produces specific results, the government pays back the investment with interest. But if the project doesn’t meet those results, the taxpayers typically are not on the hook financially.

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