Ventura County, Calif. wants to reduce jail recidivism rates and improve public safety. Clatsop County, Ore. wants to improve access to high-quality preschool. Fairfax County, Va. wants to scale two-generation models to improve outcomes for parents and youth.
While these counties vary from rural to urban, they have all identified Pay for Success as a potential strategy to achieve their objectives.
The federal government recently announced a $100 million fund at the U.S. Treasury dedicated to supporting state, counties and local governments interested in pursuing Pay for Success.
The Social Impact Partnerships to Pay for Results Act (Results Act) is an opportunity for counties to design a Pay for Success project and get substantial federal support for county programs.
What is Pay for Success?
Governments are using Pay for Success as a new way to fund social programs by tying payment to positive results. Pay for Success projects have various financing and contracting structures but share the same core principles: using data and measurement to inform decisions; building new incentive structures based on defined outcomes (and not just outputs, such as the number of people served); and where appropriate, injecting private capital to scale social programs.
Workshop recording: Is your county ready for Pay for Success?
These are not new concepts for county governments — in fact, Pay for Success optimizes strategies that counties have been using for years: focusing on performance-based contracting and providing transparency about the use of taxpayer funds.
Social Impact Bonds are one example of a Pay for Success structure. Social Impact Bonds — not bonds, actually, but “obligations” — use a performance-based contract to bring together impact investors, nonprofits and governments to tackle a particular social challenge.
Governments work with an intermediary organization such as Social Finance to identify the problem they are trying to solve, the target population to be served, the services to be provided, the outcomes to be achieved and the prices that government is willing to pay to improve outcomes. (Social Finance is a 501 (3) nonprofit organization dedicated to mobilizing capital to drive social progress.)
The intermediary then raises capital from impact investors to expand the targeted services. If, following an independent evaluation, the program achieves the predetermined outcomes, then government makes payments which repay investors.
Whether they are focused on helping impoverished mothers achieve healthy births, supporting immigrants and refugees, or retrofitting homes, Social Impact Bonds align project partners for the achievement of measurable outcomes.
So what does it look like for a county to participate in a Social Impact Bond? Ventura County is one example.
The link between recidivism and community supervision is a challenge for Ventura and a policy priority for the state: Across California, approximately one of every 100 adults is on probation and more than two-thirds of probationers return to prison within three years. Recidivism and community supervision generate significant costs for the State of California and Ventura County; in 2014, California counties spent $1.5 billion on probation services.
Ventura was spurred to develop a Pay for Success project by an opportunity from the state: The California Legislature passed Assembly Bill 1837, authorizing the state’s Board of State and Community Corrections (BSCC) to administer $5 million in grant money to counties for Pay for Success. Counties were required to match the BSCC grant money and had to use these funds to pay for outcomes.
Importantly, the BSCC allowed up to 10 percent of its grant money to be used towards the county’s administrative costs — an acknowledgement of the development costs the counties bear. Ventura County was one of three counties which received funding in 2016.
The Ventura County Executive Office partnered with the Ventura County Probation Agency, Interface Children & Family Services and Social Finance to launch the Ventura County Project to Support Reentry.
Interface Children & Family Services, a local nonprofit, will serve 400 individuals over four years, with a customized suite of services focused on understanding and responding to each client’s individual needs for successful reentry. Its services are supported by private capital from the Blue Shield of California Foundation, Nonprofit Finance Fund, Reinvestment Fund and the Whitney Museum of American Art.
The project’s impact on recidivism is measured by an independent evaluator; the county will only repay the project’s funders if there is a decrease in the number of arrests for new crimes. The project launched in November 2017.
The Pay for Success field
There are now 22 Pay for Success projects delivering services across the United States, and more than 120 projects globally. In the United States, these projects have mobilized more than $200 million in private capital to address issues ranging from criminal justice to homelessness.
Pay for Success has enjoyed strong bipartisan support. The federal government has included Pay for Success in important legislation, including the Workforce Innovation and Opportunity Act and the Every Student Succeeds Act, and seven federal agencies have directly supported local PFS projects.
Dozens of states, counties, and cities — blue, red, and purple — have commissioned projects or passed enabling legislation. Pay for Success projects are an opportunity to expand high-quality services to those who need them while ensuring the transparency and accountability of services via strong measurement tied to payment for outcomes achieved and not just services delivered.
In February 2018, the federal Results Act appropriated $100 million to support the launch of state and local Pay for Success initiatives over a 10-year period.
These projects will be designed and shaped by local governments and can address a range of priority issue areas, including child welfare, family stability, education, health, employment, recidivism, and veterans.
The Treasury Department will run a national competition in early 2019 to select projects for funding. This is an opportunity for county governments to leverage federal funding to tangibly advance their policy objectives, deliver measurable results for individuals and communities in need and incorporate outcomes-driven practices into funding and contracting decisions.
What to do next
The Results Act authorizes the U.S. Treasury to use the allocated $100 million for three main purposes: 1) up to $75 million to match state and local government outcome payments; 2) up to $15 million to support project evaluation costs; and 3) up to $10 million for feasibility studies.
The legislation outlines 20 priority outcomes across a spectrum of issue areas and target populations, including workforce development, health, education, criminal justice, children and family outcomes (e.g., maternal and child health and child welfare), and veterans’ employment and well-being. Notably, 50 percent of the SIPPRA funding designated for outcome payments must be used for initiatives that directly benefit children.
The legislation requires the Treasury to release a Request for Proposal in February 2019, with the first round of awards being announced no later than six months after the Request for Proposal’s due date. For each funding stream, the legislation requires applicants to provide specific information, such as rigorous evidence in support of the proposed intervention, projected costs and savings, outcome metrics, proposed payment terms, and evaluation design.
Social Finance is eager to support counties as they develop projects and apply for funding.
- Provide educational resources for governments learning about the Results Act and support counties as they explore potential projects in their community, and
- Provide intensive technical assistance to select counties to help design a shovel-ready Pay for Success project, and apply to the Results Act for federal funding.