Paying for Success
For too long, the U.S. Government has funded programs based upon metrics that tell us how many people we are serving, but little about how we are improving their lives. As part of this Administration’s commitment to using taxpayer dollars effectively, we are employing innovative new strategies to help ensure that the essential services of government produce their intended outcomes. Now more than ever, federal programs must be measurably effective and designed to do more with fewer resources. Adapting strategies currently being implemented as far away as the United Kingdom and Australia and as close as the State of Maryland, Pay for Success is an innovative way of partnering with philanthropic and private sector investors to create incentives for service providers to deliver better outcomes at lower cost—producing the highest return on taxpayer investments.The concept is simple: pay providers after they have demonstrated success, not based on the promise of success, as is done now.
Pay for Success Bonds Engage Philanthropic and Private Sector Investors to Deliver Better Outcomes. Pay for Success bonds leverage philanthropic and other private investors to provide services for a target population that measurably improve the lives of individuals while also spending taxpayer dollars wisely. With these bonds, the government works with a financing organization where private investors provide up-front funding to help achieve a specific result for a target population to measurably improve individuals’ lives. The government only pays if the agreed-upon goal is achieved. This allows the government to better partner with and leverage the resources of philanthropic and other investors to help drive evidence-based innovation and invest in what works.
Pay for Success Bonds Can Help Achieve Better Outcomes in Many Program Areas. The Budget allows for up to $100 million to fund Pay for Success initiatives across seven program areas including workforce development, education, juvenile justice and care of children with disabilities. These funds are part of innovation funds within the Department of Education, the Social Security Administration, the Department of Justice, the Department of Labor and the Corporation for National and Community Service. In each of these areas, there are substantial opportunities to rethink how we provide services that focus on improving lives and achieving clear results.
Pay for Success Bonds Support Better Outcomes for Federal, State, and Local Governments. Under a Pay for Success bond, the financing organization and the Federal, state or local government enter into a contract that specifies the population to be served, the outcomes to be achieved, the measurement methodology to be used, and the schedule of payments to be made. The financing organization works with philanthropic and other investors to invest in innovative, data-driven service providers that can achieve results. Importantly, the government can specify outcomes for the entire covered population including those that are most vulnerable and those at most risk. This approach can have significant benefits for participating 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; and
- yield significant future savings to the Government if successful.
Pay for Success Bonds Minimize Risk to the Government. Because the government pays only for demonstrated results, philanthropic and other investors agree to bear the primary financial risk until the outcomes are achieved. This will increase the government’s return on investment in social programs that often have a weak track record of success.
Special Funding Provisions Will Allow Existing Programs to Support Pay for Success Bonds. Traditionally, appropriations bills make funds for grant programs available for only one or two years, before their real impact on outcomes can be measured. The Budget includes appropriations language that makes funds used for Pay for Success Bonds available to support long-term performance agreements. It also allows any unused funds that have been obligated for Pay for Success Bonds to be reused for other high priority activities in the future if the Government ends up paying a lesser amount where outcomes are not fully achieved.
What Programs Are Likely Candidates for Pay for Success Bond Financing? There are numerous examples of prevention strategies with strong evidence of impact that, if successfully replicated and scaled, could reduce future demand for government funding. These include:
multi-systemic therapies that 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 that accelerate and maintain academic gains;
elder care services that reduce the number of elderly who are inappropriately placed in costly nursing homes; and
transition services for youth with disabilities that enable young people to enter postsecondary education and obtain employment.