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‘Pay for Success’: An Idea With Bipartisan Appeal

Two new initiatives show the increasing sophistication of an approach that pays social-services providers only for programs that work.

To its many critics, President Lyndon Johnson's War on Poverty is often described as the classic 1960s social program: a well-intentioned but naive effort that spends billions of dollars year in and year out without making much of a dent in poverty.

But imagine if government only paid social service providers if their efforts actually yielded the desired results. That's the idea behind "pay for success" programs, also known as social impact bonds. Under this concept, businesses and/or philanthropies provide upfront money for programs to address difficult social problems. If they achieve a set of measurable outcomes within an agreed upon time period, the funders get their investments back, plus interest. If not, government pays nothing.

Pay for success programs seem to be attracting a growing number of bipartisan fans since I wrote about them in 2014, and two new programs illustrate how implementation of the concept is becoming more sophisticated.

Last month, Connecticut Gov. Dannel Malloy, a Democrat, announced a four-year initiative to keep children from 500 families out of foster care. Social workers from the Yale Child Study Center will focus on parents with substance abuse problems as part of an intensive effort to keep the children in their homes.

No funder has been named yet for the $12 million initiative, but several have expressed interest. If successful, the state will reimburse the upfront money plus a 5 to 6 percent interest payment. It's a pretty good deal considering that Joette Katz, commissioner of the state's Department of Children and Families, told The Washington Post that Connecticut currently pays about $350 million annually for services to children in foster care and institutions.

In South Carolina, Republican Gov. Nikki Haley recently announced a $30 million, four-year program to send registered nurses who specialize in maternal and child health into the homes of low-income pregnant women to teach them parenting skills and ways to keep their children healthy. The effort is funded by foundations and a corporation.

The Connecticut and South Carolina programs highlight the opportunity pay for success presents for prevention programs that can yield long-term savings but might not get funded through the traditional appropriations process. The South Carolina program also addresses the potentially sticky issue of determining whether a program has achieved the agreed upon outcomes by designating an MIT research group to conduct an evaluation. Such provisions enhance the integrity and perception of pay for success.

As a model that is dependent on what funders are willing to invest in, pay for success isn't the silver bullet for addressing every stubborn and costly human services problem. But particularly during a time when some once again seeing economic clouds looming, they can be a valuable tool for helping our neediest citizens by focusing state and local government resources on the best kinds of programs -- those that actually work.

Principal of Chieppo Strategies and former policy director for Massachusetts’s Executive Office for Administration and Finance
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