Questions from the field: Using conditional cash transfers in pay for success (Urban Institute)

By Rebecca TeKolste, Urban Institute, Project Associate

Q: A program such as conditional cash transfers could offer some means to build wealth for at-risk communities. Is there any discussion around conditional cash transfers in PFS projects?

A question from the field that came in through our Support Center got us thinking about an area of pay for success (PFS) that has not yet been explored: conditional cash transfers (CCTs), a program with roots in the developing world in which direct payments are made to low-resource families who comply with particular behavioral norms that evidence suggests will have a positive impact on the community, such as vaccinating their children.

So far two CCTs have launched in the United States, though not as PFS projects: one in New York City, which concluded in August 2010, and a refinement of the original model in both Memphis, TN and the Bronx, NY that is still underway. The programs target high-poverty communities and allot cash payments for outcomes in program domains including children’s education, family health care, and parents’ work and training.

The first step in answering the question above is to evaluate the feasibility of CCTs as a PFS intervention. This type of assessment should take into account four key factors: the problem the intervention is aimed at solving, the evidence that the program is effective, public willingness to pay for the outcome of the intervention, and potential quantifiable savings to government as a result of the intervention.

In the case of CCTs, building wealth in low-resource communities is a possible target outcome, as the question mentions. Other outcomes for this intervention might include increases in health or educational outcomes (such as decreased pneumonia or increased third grade reading level). 

Once the project has established the outcome they hope to promote, they must select the intervention that will most effectively help them achieve that outcome. Understanding the existing evidence—ideally through strong evaluations such as randomized controlled trials—can help predict outcomes that might be expected from the intervention. Confidence resulting from strong evaluation history can help reduce risk to investors and make a PFS project more feasible. The MDRC evaluation of the first New York City CCT had mixed results, showing more effectiveness on reducing current poverty and receipt of preventative dental care than on improving school outcomes for elementary and high school students, which was the stated goal of the program.

Another important step is to ask whether there is public willingness to pay for this outcome as a public good, if there are other outcomes that could demonstrate the success of the program as easily or more easily and that have more public support, and whether there are cashable savings for government programs that might result from this intervention.

The Bronx and Memphis CCTs were funded at least in part by philanthropies; any funding that the government provided for these deals required at least a match from a philanthropic donor. This funding history makes identifying savings to government more challenging. A good assessment would identify any existing government-funded services that might be reduced if the government implemented a cash transfer that supplanted the need for those services. These savings to existing services could offset the additional cost of implementing a new intervention.

Ideally, a PFS project will have strong evidence that the intervention will lead to the target outcomes, public support, and potentially cashable savings that accrue to government. While no PFS project currently finances CCTs, these initial thoughts could help practitioners consider how PFS might work for a CCT intervention.

As an organization, the Urban Institute does not take positions on issues. Scholars are independent and empowered to share their evidence-based views and recommendations shaped by research.