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Intersector Briefing: Pay for Success

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization. 

By The Intersector Project
July 25, 2017

Pay-for-success programs—partnerships in which government contracts with private partners who provide upfront capital to high quality service providers to achieve a public goal—offer a promising approach for government across a wide range of areas, from homelessness to recidivism to early childhood education. The first pay-for-success project originated in 2010 in the United Kingdom, and the model was first attempted in the United States in 2012. According to the Nonprofit Finance Fund’s Pay for Success Learning, as of early 2017, more than a dozen pay-for-success projects had launched, one was completed and more than 50 were in development.

The Intersector Project has a natural interest in pay-for-success, and we recently explored the topic by looking at insightful commentary, resources for practitioners and recent examples from the field.

Preschool activity


Is pay-for-success the future of government spending?

This optimistic look at pay for success comes from Pacific Standard and discusses the benefits that arise for parties involved in these initiatives. “For non-profits, pay-for-success funding provides stable, consistent funding over the course of several years, a luxury that many non-profits lack,” the author explains. “Governments, meanwhile, are not only protected from footing the bill for ineffective programs, but are able to learn, from an unbiased third party, whether a program is effective and worthy of further investment.” The author also highlights the bipartisan nature of support for pay for success.

Why “pay for success” financing could cost taxpayers more than they bargained for

This more critical piece comes from In These Times, looking at a pay-for-success initiative in Chicago Public Schools. The author acknowledges that, at its best, pay for success could fund much-needed programs and foster greater government accountability. “But at its worst, pay for success can leave taxpayers paying substantially more than if their governments had just funded programs directly, cement narratives of fiscal austerity, and incentivize misguided social outcomes,” she writes, also expressing concern the use of pay-for-success is likely to increase with a president that seems poised to rely heavily on the private sector to do public work.

Success metrics questioned in school program funded by Goldman

While this New York Times article is from 2015, it highlights the issues that can arise around performance metrics in pay-for-success initiatives. The initiative in question is a pay-for-success program in Salt Lake City, launched in 2013 to provide high-impact and targeted curriculum to preschool-aged children from low-income areas (details on the program partners, design, governance and more here). When the first round of results was released in 2015, questions emerged around validity and whether the program was actually proving as successful as the preliminary data suggested. “The concerns about the program are a reminder of how hard it is to properly structure public-private partnerships like social impact bonds, which depend on easily verifiable and commonly agreed-upon methods of measuring success for goals that can be hard to define, such as student success,” the author writes.

Tools and resources

Pay for Success Learning Hub

This resource from the Nonprofit Finance Fund (NFF) provides comprehensive, up-to-date information about the field of pay for success. The Learning Hub has descriptions of pay-for-success projects from across the country, as well as fact sheets, sample documents, readiness questionnaires, market analyses and news of current funding opportunities and learning events from NFF and many others in the field.

Pay for Success: Living Cities’ Initial Screening Criteria

The Pay for Success Initial Screening Criteria from Living Cities presents a checklist of questions that can be used to assess the following qualities of potential pay-for-success projects: Impact, Innovation, Collaboration, Government Champion and Programmatic Significance.

PFS + ECE: Pay for Success Early Childhood Education Toolkit

This Toolkit from Urban Institute “is designed to guide jurisdictions and their partners through the core elements of a PFS project in early childhood education: the existing evidence for early childhood interventions, the role of data, the measurement and pricing of outcomes, program funding and financing, implementation, and evaluation design. … Together, these briefs can help jurisdictions decide if pay for success is the right approach for them — and if so, how to get started.”

Some recent examples and updates

New fund may lure more investors to pay-for-success model

Hailed as “first of its kind,” a new $10 million fund from Reinvestment Fund hopes to change the way investors are involved in financing pay-for-success projects and, as a result, accelerate the pipeline of these projects. The strategy is to take a portfolio approach, “pooling money into a single fund that will only make pay-for-success investments,” Next City reports. “When Reinvestment Fund finds a deal that it likes, it won’t have to turn around and conduct a search for investors who are interested in a certain geographic area or issue.”

Some recently announced pay-for-success projects include:

Author: The Intersector Project is a non-profit organization that empowers practitioners in the business, government, and non-profit sectors to collaborate to solve problems that cannot be solved by one sector alone. We create accessible, credible, and practically valuable resources that are publicly available in full through our website. Visit us at Intersector.com

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