The voices of Urban Institute's researchers and staff
October 13, 2015

Considering the future of Pay for Success at the federal, state, and local levels

Set those calendar reminders because this is going to be good.

Tomorrow, the Urban Institute will welcome Shaun Donovan, the director of the White House Office of Management and Budget (OMB), to discuss Pay for Success and the quest to promote evidence-based policymaking at the federal level. We’ll also talk about how to expand that conversation at the state and local levels in a panel discussion featuring Antony Bugg-Levine, CEO of the Nonprofit Finance Fund; Sonal Shah, executive director of the Beeck Center at Georgetown University; Ben McAdams, the mayor of Salt Lake County; and Tomi Hiers, executive director of Baltimore’s Promise.

Bad news: the event is sold out. Really good news: you will be able to stream the meeting as a webcast.

The focus of the conversation will be Pay for Success, an innovative financing mechanism that shifts financial risk from a traditional funder–usually government–to a new investor, who provides up-front capital to scale an evidence-based social program to improve outcomes for a vulnerable population. If an independent evaluation shows the program achieved agreed-upon outcomes, then the investment is repaid with interest by the traditional funder. If not, the investor takes the loss.

Although the PFS approach is still young, it has the potential to improve delivery of social services to vulnerable populations by prioritizing the use of evidence, specifying and measuring outcomes, and using resources more strategically.

The Urban Institute, with a grant from the Laura and John Arnold Foundation, has joined broader efforts to improve stakeholders’ understanding of PFS and to support the creation of better PFS projects at the state and local levels through our Pay for Success Initiative. The initiative will support transactions through rigorous research and evaluation design, develop toolkits and templates for the field, provide training and technical assistance, and share lessons learned.

Role of the federal government

At tomorrow’s event, one of the topics will be the federal government’s role in supporting the exploration of this mechanism and in promoting high-quality projects.

So far, federal investments in PFS have included a $24 million grant from the Department of Labor (DoL), to support outcome payments for New York’s and Massachusetts’ recidivism PFS projects. The president also proposed a $300 million “incentive fund” within the Department of the Treasury to help state and local governments implement PFS projects, building on an idea from the UK’s Outcomes Finance Fund.

In addition, the GAO report released last month made several recommendations to improve federal involvement, including the creation of a formal collaborative mechanism that would allow agencies to work together to identify and implement opportunities with PFS.

PFS at the state and local levels

While the role of the federal government is critical, the locus of PFS activity is at the state and local levels. Our panelists will discuss how PFS is playing out on the ground. Mayor McAdams of Salt Lake County has championed the potential of PFS, helping with the creation of PFS project for a pre-school program. Just last week, positive first results from that project were released, with the program exceeding expectations and the investors receiving an initial success payment–the first PFS success payment in the United States.

Our other panelists provide valuable insight into PFS from other perspectives. Bugg-Levine has helped position the Nonprofit Finance Fund at the forefront of the PFS field, both as a funder and as a knowledge resource. Shah has worked in the federal, private, nonprofit, and academic spaces and leverages insights from these experiences to help communities better use innovation to achieve social impact. Hiers’s experience leading Baltimore’s Promise, a collaboration between public and private stakeholders that finds and promotes effective policy solutions to improve children’s lives, gives her a distinct perspective into both the benefits and challenges of applying new approaches in serving underserved populations.

As interest in PFS continues to grow, so does the need for support for evidence-backed approaches and the dissemination of good practice in PFS project development and implementation. Tomorrow’s discussion will be one step in this direction.  

The entrance to the Senate is seen on Capitol Hill in Washington, Monday, Sept. 23, 2013. (AP Photo/J. Scott Applewhite)

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