Paying for SuccessFor too long, Government has funded programs based upon metrics that tell us how manypeople we’re serving but little about how we are improving their lives. From education toemployment, government programs provide essential services for people in need, and we needinnovative approaches to ensure that public dollars are used to produce the right outcomes. At atime when fiscal responsibility is more important than ever, we also need to provide programswith mechanisms to accomplish better outcomes with fewer resources. Adapting strategiescurrently being implemented as far away as the United Kingdom and Australia and as close asthe State of Maryland, Pay for Success is an innovative way of partnering with philanthropic andother investors to create incentives for service providers to deliver better outcomes at lowercost—producing the highest return on taxpayer investments.Pay for Success Bonds Engage Philanthropic and Private Sector Investors to DeliverBetter Outcomes. In the constrained budget environment, we must assess methods ofservice delivery that do not achieve measurable and positive outcomes. Pay for Success bondsleverage philanthropic and other private investors to provide services for a target population thatmeasurably improve the lives of individuals while also more wisely spending taxpayer dollars.The government would work with a financing organization where private investors provide up-front funding to help achieve a specific result for a target population to measurably improveindividuals’ lives. The government only pays if the agreed-upon goal is achieved. This allowsthe government to better partner with and leverage the resources of philanthropic and otherinvestors to help drive evidence-based innovation and invest in what works.Pay for Success Bonds Can Help Achieve Better Outcomes in Many Program Areas. TheBudget allows for up to $100 million to fund Pay for Success initiatives across seven programareas including workforce development, education, juvenile justice and care of children withdisabilities. These funds are part of innovation funds within the Department of Education, theSocial Security Administration, the Department of Justice, the Department of Labor and theCorporation for National and Community Service. In each of these areas, there are substantialopportunities to rethink how we provide services that focus on improving lives and achievingclear results.Pay for Success Bonds Support Better Outcomes for Federal, State, and LocalGovernments. Under a Pay for Success bond, the financing organization and the Federal, stateor local government enter into a contract that specifies the population to be served, theoutcomes to be achieved, the measurement methodology to be used, and the schedule ofpayments to be made. The financing organization works with philanthropic and other investorsto invest in innovative, data-driven service providers that can achieve results. Importantly, thegovernment can specify outcomes for the entire covered population including those who aremost vulnerable and those at most risk. This approach can have significant benefits forparticipating governments as well as the investors when used to support interventions that: Have a high probability of success based on prior evidence Have measurable outcomes supported with authoritative data and strong evaluation methodologies Are overseen by experienced managers that have flexibility to adjust their approach Yield significant future savings to the government if successful.
Pay for Success Bonds Minimize Risk to the Government. Because government pays onlyfor demonstrated results, philanthropic and other investors agree to bear the primary financialrisk until the outcomes are achieved. This will increase the government’s return on investmentin social programs that often have a weak track record of success.Special Funding Provisions Will Allow Existing Programs to Support Pay for SuccessBonds. Traditionally, appropriations bills make funds for grant programs available for only oneor two years, before their real impact on outcomes can be measured. The budget includesappropriations language that makes funds used for Pay for Success Bonds available to supportlong-term performance agreements. Also, it allows any unused funds that have been obligatedfor Pay for Success Bonds to be reused for other high priority activities in the future, if thegovernment ends up paying a lesser amount where outcomes are not fully achieved.What Programs Are Likely Candidates for Pay for Success Bond Financing? There arenumerous examples of prevention strategies with strong evidence of impact that, if successfullyreplicated and scaled, could reduce future demand for government funding. These include: Multi-systemic therapies to reduce recidivism by offenders. Early childhood interventions that reduce costly long-term special education placements of children whose mild learning disabilities or behavioral problems could be better treated early on Summer academic programs for disadvantaged students to accelerate and maintain academic gains. Elder care services, to reduce the number of elderly who are inappropriately placed in costly nursing homes. Transition services for youth with disabilities, to enable them to enter postsecondary education and obtain employment. 2