The Promise of Pay for Success
By Katharine B. Stevens
OP-ED
February 17, 2016
The provision of social services in the U.S. is an expensive mess. In 2014, federal, state, and local governments together spent about $500 billion on welfare, $568 billion on Medicaid and over $950 billion on education: a total of over $2 trillion in a single year. Yet we have little evidence that those dollars are having an impact.
Seventeen-year-olds' reading and math achievement scores have remained flat for 40 years despite a 90 percent increase in public spending per student over that period. The U.S. poverty rate has barely changed since the 1970s, and if you're raised poor you're just as likely to stay poor as you were a half century ago. The bottom line is that decades of efforts and trillions of dollars in social spending have produced little improvement in the economic and social well-being of America's neediest citizens.
We're leaving too many people behind, and for $2 trillion a year, we deserve better results. Enter Pay for Success. This new approach to social spending, sometimes referred to as Social Impact Bonds, is an innovative funding tool that drives government resources toward effective, results-based social programs to address our nation's toughest social challenges. In a Pay for Success contract, private investors provide upfront cash to fund a social service program that aims to achieve specific outcomes for at-risk and marginalized members of society. If the program successfully achieves those outcomes, based on a transparent, agreed-on metrics, the government pays investors back. If the project is not successful, investors lose their money, and the public pays nothing.
Pay for Success is very new in the U.S.; the first project was launched in 2012 and, to date, just eight projects are in operation around the country. But dozens more are in the pipeline in homelessness, employment, recidivism, infant health, early education and foster care, among other areas. And excitement around the Pay for Success approach is growing quickly.
This week, at an AEI event cosponsored with Save the Children, a group of leading Pay for Success experts joined us to explore its promise and potential. Reps. Todd Young, R-Ind., and John Delaney, D-Md., gave opening remarks discussing bipartisan legislation they've introduced to advance systemic change in how government spends and directs resources to help America's neediest citizens. In closing remarks, Mark Shriver spoke on behalf of Save the Children, emphasizing the value of Pay for Success in expanding access to high-quality early learning for disadvantaged children. (You can watch the event here).
As these leaders emphasized, Pay for Success aims to bring new transparency and accountability to government spending, directing funding to what works and away from what doesn't. It promotes cross-sector partnerships, bringing government, non-profit service providers, and philanthropic and private investors together to tackle tough social problems by scaling up effective, proven solutions. It focuses on preventing problems in the first place, rather than paying for expensive fixes when it's too late. And finally, it shifts the focus of government services from intentions to outcomes: judging social programs not by funding levels but on the results they produce for people in need.
"Too often, Washington focuses on inputs instead of outcomes," Rep. Young explained. "We spend too much time talking about how much or how little to spend on social safety net programs, and not enough time talking about whether or not we're improving lives … It's time we shift the focus to achieving desired outcomes, evaluating our social programs more carefully, and only paying for what works."
Pay for Success can't solve every social challenge alone. But it holds considerable promise as a bipartisan approach to build more effective, efficient and responsive government programs, transforming lives and saving taxpayer dollars at the same time.
See Also
Event ~ February 2, 2016
Op-Ed ~ July 14, 2015
Blog ~ August 3, 2015