Guest Commentary: Pay-for-success works (Denver Post)

By David Hammond and Bill Jaeger

Colorado is stuck in a frustrating cycle. We know that investments in some types of social services can decrease the need for expensive remedial spending later. Yet, we cannot afford to invest in prevention because we are paying so much for remediation. And underfunding preventive measures now means the need for remediation expenditures will continue to increase while our ability to fund prevention will continue to decrease.

Our inability to provide high-quality preschool for all of Colorado's at-risk children is just one example of how we could benefit families and taxpayers if we could invest more in prevention. A recent study demonstrates that, in North Carolina, participating in high-quality early-learning programs reduces the probability that at-risk children will need special education assistance by up to 40 percent.

Imagine the savings for Colorado local and state school budgets if more children could participate in Colorado's Preschool Program. With an up-front cost of $3,400 per child, an investment in quality preschool substantially reduces the likelihood that a child will need special education services, which cost on average $9,000 annually on top of standard per pupil costs. We currently cannot provide preschool for nearly two-thirds of our at-risk children.

So, how do we escape the cycle of being unable to pay for services that prevent problems because we must pay for services that deal with problems? State governments from New York to Utah have adopted Pay for Success approaches to address challenges ranging from homelessness to criminal recidivism to early childhood development. Pay For Success allows the business, philanthropic and nonprofit sectors to fund preventive services that could generate savings great enough to pay back upfront costs with potentially a modest return — only if the efforts succeed — and still provide savings for taxpayers.

In late March, a bipartisan group of Colorado legislators introduced House Bill 1317, the Pay For Success bill, which would allow businesses, foundations and nonprofits to invest the funds in Colorado that the public sector cannot. The bill, which was assigned to the Business Affairs and Labor Commiteecould bring advantages beyond the ability to tap more funding sources. By expanding the pool of funders, we also expand the pool of ideas. And, while encouraging the government, philanthropic, nonprofit and business sectors to work together to find solutions, Pay For Success would protect taxpayers by shifting the risk that new efforts may not work to the investors.

If an investment is unsuccessful, the taxpayers' obligation — the necessity to fund remedial measures — is no greater than it would have been without the investment.

To induce other sectors to participate, successful investors would potentionally be paid back with a modest profit. Even so, taxpayers still come out ahead. Colorado could both make the investment's risk worthwhile and realize a net economic benefit by defining success at a level that evidence shows will generate significant savings and by using Pay For Success in situations where preventative programs can be especially effective.

After issuing a publicly available request for proposals, the Office of State Planning and Budgeting would contract with a "lead contractor" to:

• Specify prevention-oriented services to be provided, performance targets, and outcomes to be achieved by the lead contractor, directly and/or indirectly through subcontractors, using the lead contractor's or borrowed funds;

• Establish an objective process for an independent evaluator to determine whether the performance targets have been met; and

• Provide for "success payments" using money that otherwise would have funded remedial measures.

Ideally, we could fund preventative measures without Pay For Success. Unfortunately, many Colorado children and families cannot afford to wait until sufficient public funding is available. By using new financing sources to drive down the need for expensive remedial programs, Colorado can build a bridge to the day when we can make the investments we need in Colorado's future.

David Hammond is a member of the executive roundtable for Executives Partnering to Invest in Children. Bill Jaeger is vice president of Early Childhood Initiatives for the Colorado Children's Campaign.