In August 2013, key stakeholders in a collective impact partnership in Utah entered into one of America’s first pay-for-success (PFS) contracts, otherwise known as a social impact bond (SIB). The plan called for United Way of Salt Lake to work with area partners, including StriveTogether (a national network of cross-sector community partnerships focused on improving public education), to expand high quality preschool opportunities in high-need communities, and for Goldman Sachs and J.B. Pritzker to provide $7 million in up-front funding to pay for the program. If the children who had been identified as potentially eligible for government-funded special education (beginning in kindergarten and often lasting through high school) were able to avoid tapping those services, then, ultimately, the state of Utah would pay investors their principal plus a financial return. (Because state legislation had not been passed in 2013, for the first cohort of children the investors are paid by United Way of Salt Lake and Salt Lake County).
We are proud to say that the initiative has been a resounding success. Of the 595 low-income three- and four-year-old children who attended the SIB-financed preschool programs in the 2013-14 school year, 110 of the four-year-olds had been previously identified as likely to use special education in grade school. Of those 110 students, however, only one went on to use special education services in kindergarten. With fewer children requiring special education services and remedial services, school districts and government entities saved $281,550 in a single year, based on a state resource special education add-on of $2,607 per child.
Significantly, these results triggered the first payment to investors for any SIB in the United States. (There are eight completed US SIBs. In one, the intervention did not meet its targets and therefore did not pay its investors, and the others are still underway.) Just as important, because of the early success of the program the State of Utah has decided to expand it to additional children.
United Way of Salt Lake approached the PFS transaction with no prior experience, but had the collective impact infrastructure to bring the deal together—and we have learned a great deal through the process. It is our hope that others, reading about our success, will be inspired to develop and use their own collective impact partnerships to pursue their own SIB initiatives. The potential is great.
It Started with a Study
In 2010, United Way of Salt Lake, Voices for Utah Children (a child advocacy group), Granite School District, and Goldman Sachs came together in the Salt Lake region to study the long-term effects of high-quality preschool. Through a longitudinal study authored by Voices for Utah Children, they learned that high-quality preschool programs provided sustained improved outcomes for children.
The study’s timing was fortuitous because even as it was getting underway, United Way of Salt Lake senior managers and board members (comprised of 52 business leaders) had begun moving away from the organization’s 111-year-old model—focused on raising and distributing funds—and embracing a new approach based on collective impact. (For a more detailed look at the role that business played in Salt Lake’s collective impact initiative read “The Role of Business in Collective Impact.”)
The collective-impact infrastructure United Way of Salt Lake had been building made Salt Lake fertile ground for PFS financing. Rigorous collective impact partnerships, like the kind supported by StriveTogether in Salt Lake, involve a diverse mix of educators, businesses, philanthropies, nonprofits, and government agencies working together to align resources and strategies. They put a set of core outcomes at the center of their work, set time bound goals, and track progress consistently. Programmatic data is shared across partners, and used to identify successes and areas for improvement, targeting the right interventions to the right groups of students at the right times. Each of these features is a precondition for successful SIBs.
A SIB enables and requires partners to be more disciplined about using data to identify what works and find cost savings. So today, those providers are able to serve more children who previously would not have been able to access high-quality programs. With backbone support provided by the United Way of Salt Lake, the partners have also been able to identify new resources, so even more children have been able to attend and benefit from fortified preschool programming.
“Our kids enter Kindergarten above their age-mate peers,” says Brenda van Gorder, director of Preschool Services at Granite School District. “They are so ready for kindergarten. They are there at the top of their classes. And we watch that trend continue on through first grade, second grade, third grade. These kids are the leaders in their schools. They’re talking about going to college. They know that the things that they want to be have to have college degrees. They talk about getting master's degrees. When we educate our youngest children and connect them to school we are building community and when we do that—the sky's the limit.”
Seeding a Successful Lifelong Journey
Under state legislation passed in 2014, (HB96), the state of Utah decided to expand the original SIB-financed program to include a total of 3,500 at-risk children over the five-year period. The state has assumed the role of repayment organization for the second, third, fourth, and fifth year of the project and has established a School Readiness Board, comprised of appointees from the State Department of Workforce Services, Utah State Office of Education, Utah State Charter School Board, business leaders, community leaders, and other stakeholders. The board is responsible for entering into SIB financing contracts with private investors, on behalf of the state. In 2014 and 2015, it entered the state into contracts with United Way of Salt Lake, Goldman Sachs, and J.B. Pritzker to provide repayment funding for the project for cohorts two through five.
Utah has demonstrated that public dollars invested in a collective impact approach gets results for kids, at scale, cost-effectively. And the potential throughout the state to use similar creative financing for other outcomes (such as early-grade reading, high school graduation, and college completion) has increased significantly. After the SIB loan is paid back, collective impact partners will work to ensure that the opportunity gap for low-income students continues to close. Our hope is to continue to use the SIB financial model to increase impact along a child’s learning journey.
By engaging partners, using data to be more intentional, and using creative financing tools to focus public and private dollars on programs that work, we know it is possible to see children succeed not only in early childhood, but every step of the way toward a meaningful and productive career. We encourage others to explore the possibilities and potential of PFS financing—and to continue to build the collective impact infrastructure that helps facilitate such high-impact strategies. We’re certainly going to continue to do so.
Jeff Edmondson is managing director of StriveTogether.
Bill Crim is president and CEO of United Way Salt Lake.
Allen Grossman is a senior fellow at Harvard Business School.