Using pay for success to fund early childhood education (Urban Institute)

By Meg MasseyArden Kreeger

The first few years of life are critical for healthy development, but too many children do not receive the early care and experiences that benefit them in the short run and later in life. Evidence tells us that high-quality early childhood education (ECE) programs like preschool can help all children develop into healthy adolescents and adults.

But finding consistent, adequate funding for ECE programs can be challenging for local governments. Although state and local preschool funding has grown significantly in recent years, per-child spending on ECE is still generally low compared with spending on K–12 education programs. We need to do more to expand these educational opportunities to support the next generation’s developmental needs.

That’s where innovative financing mechanisms like pay for success (PFS) can be critical. PFS shifts financial risk from a traditional funder (usually government) to a new investor, who provides up-front capital to expand an evidence-based social program like preschool. The traditional funder only repays the investment if an independent evaluation shows that the program achieved agreed-upon outcomes, like kindergarten readiness.

To help practitioners identify innovative ways to fund high-quality, evidence-based ECE programs, the Urban Institute’s Pay for Success Initiative just released the first part of the PFS Early Childhood Education Toolkit. This series of six papers, produced in collaboration with Urban experts and external partners, offers an in-depth guide to designing and implementing PFS projects with a specific focus on ECE. State and local jurisdictions—and other stakeholders, including social service providers—will find a useful introductory guide to the evidence base for ECE and strategies to address the practical considerations that surround a new approach like PFS.

These new products describe the science of early childhood interventions, explain how to use data to inform decisionmaking, and offer insight on outcome measurement and pricing.

  • The state of the science on early childhood interventions: Understanding the likely results of an intervention is essential to a PFS project. This report summarizes the evidence on the impact of selected ECE programs. We know that preschool and prekindergarten programs have a big impact on children’s healthy growth and development. Although the evidence is more mixed for long-term outcomes, we see a compelling reason to invest more heavily in ECE.
  • How data can inform decisionmaking: Data play an integral role in PFS projects. Knowing the kinds of data needed for a successful project, how to collect them, and how they should be used is complex. Experts from relevant agencies need this information early in the process; it helps communities collaborate more wisely around data and choose service providers with strong data capabilities.
  • Measuring and pricing outcomes: Setting and pricing outcomes are important for every PFS project because they allow PFS partners to quantify the benefits of successful programs. Outcome measurement and pricing are also critical to planning repayments to funders. As the PFS field moves away from cashable savings, strategies for using social and economic benefit to price outcomes in ECE become increasingly useful. Evidence on tangible and intangible economic benefits of an outcome can help stakeholders make these decisions.

We need more funding for ECE programs, and PFS can help us get there. Later this summer, we will release the second half of the PFS Early Childhood Education Toolkit, which includes papers on program funding, program implementation, and evaluation design. Together, these products will provide a road map for practitioners to expand preschool and give kids a stronger start in life.