An Evolving Dialogue: As Outcomes-Based Projects Meet Milestones, What’s Next? (Nonprofit Finance Fund)

by Nonprofit Finance Fund (Fri, 10/16/2015 - 00:00)

In 2013, the State of Utah launched the United States’ second Pay for Success (PFS) project, the Utah High Quality Preschool Pay for Success Program. This project uses private capital to provide high quality pre-kindergarten instruction for up to 4,100 low-income students over a five-year period. Last week, this project achieved a notable milestone when the United Way of Salt Lake, the project intermediary, announced positive interim results, thus triggering investor repayment. This marks the first U.S. PFS project to repay investors based on achievement of pre-determined success outcomes.  

The results that triggered the interim success payments are striking and impressive. For the first cohort of students served, 110 out of 595 were assessed at the beginning of preschool as likely to require special education services in grade school. Only one out of the 110 students used special education services in kindergarten. These students, along with subsequent cohorts of students served under this arrangement, will be monitored through 6thgrade to determine the longer-term impacts of preschool on special education needs and academic performance.  

On their own, however, the results are not a conclusive pronouncement of the program’s overall success, nor do they suggest that the PFS model offers a sustainable solution to contracting and financing for preventive or early-intervention services. Rather, these early, promising results create a jumping-off point for many rich conversations that have as their point of departure two basic, and related questions: what are the goals of using Pay for Success? And what happens after a Pay for Success project ends?

First, what are the goals of using Pay for Success?

Early conversations about Pay for Success heralded the financing mechanism as a way of scaling proven interventions, shifting risk from the public to the private sector, and attracting new sources of capital to financing social services. As more projects launch and bear results, we have the chance to assess whether or not these goals of scale, risk sharing, and capital growth have been met—and whether or not they are still, in fact, the primary goals of Pay for Success.

For example, how much risk are investors bearing in projects where evidence-based practices are being scaled? Is their return commensurate for taking the risks associated with scaling in places where governments may have limited capacity or appetite to scale programs independently? Or, are PFS approaches more suitable for testing innovative or promising interventions?

As a case in point, earlier this year, New York City announced the results from the NYC ABLE Project for Incarcerated Youth, which delivered a therapeutic intervention that had proven effective in other settings but was never used in a jail or with the project’s target population. The project did not achieve any significant reduction in recidivism. As a result, the program ended, no outcome payments were made, and the project’s investor sustained a loss. Should innovative, untested projects continue to look to PFS models for support? If so, should investors be compensated for their greater risk tolerance in these projects?

Second, what happens after a Pay for Success project ends?

The end of a multiyear PFS project may seem far off when stakeholders are deep in the project development phase, but we think it is time for more robust conversation around what happens next—not just for projects that demonstrate positive impact, but also for those where the outcomes were not as good.

If PFS projects demonstrate success, does the government sponsor have a responsibility to reinvest their subsequent savings in scaling the services further? How can government continue to grow the impact of programs funded with PFS approaches, beyond the life of the project? How will policymakers and funders integrate findings from the rigorous evaluations in early PFS projects? Can PFS help scale evidence into policy changes in the local, state, and federal government funding of social service programs? What benefits or lessons can PFS projects offer to high-need communities and social service providers that are not participating in these projects?

On the flip side, what happens when the results are not as promising or positive? Can we gain a better understanding of why a program or intervention was not as successful as projected? How can we learn from these cases to develop alternatives that have higher potential of success, and what are the mechanisms through which these lessons are disseminated?

These questions do not have easy, singular, or definitive answers. The responses will vary based on who is being asked, and the local context they are operating in. But we think they are questions worth raising as momentum continues to build around Pay for Success and, more broadly, using outcomes and evidence to shape public and private funding decisions.

Finally, these interim results provide an opportunity to reflect on some of the positive outcomes that can result when government, service providers, and investors come together around a shared goal. For example, Pay for Success structures provide governments and service providers a common framework for measuring impact, and also create continuous feedback loops using regular project reports and interim results that allow for course-correcting action to better achieve intended results for program recipients. This type of close collaboration takes time and commitment from all parties, but could ultimately create important alignment around shared goals that persists beyond the life of any one Pay for Success project.