Pay for Success in Social Programs: What's it Really About? (National Conference of State Legislatures)

By Jessica Hathaway

We all know the drill by now—budgets are tight and lawmakers must thoughtfully consider where to appropriate state funds. So how do we make sure we’re investing in the “right” programs and services?

As discussed at the Pay for Success and Innovative Financing for Human Services Programs session at this year’s Legislative Summit, pay for success is a relatively new financing mechanism that is being discussed as a way to get the most bang for taxpayers’ bucks when it comes to funding social programs.  

In short, pay for success ties payment for social programs to the achievement of measurable results. Given that billions of dollars are spent on human services programs across the states each year, the fact that money goes to programs that work has been a major draw for interested folks.

But, this focus on effective use of funds might just be the start.

As the speakers at the session explored, pay for success funding challenges lawmakers to play a more critical role in program development, too.

 “It’s not just about saving money. It’s about making sure we’re actually getting the outcomes we want,” said Charles Sallee, deputy director of the New Mexico Legislative Finance Committee.

Because funding is targeted for programs that work, most programs will not qualify. Rigid and thorough evaluation is part of the process. This means that all partners must agree on what is expected and programs are developed with the best evidence out there. If the agreed upon results don’t manifest, however, delivery of the program stops.

Jeremy Keele, executive director of the Sorenson Impact Center in Utah, explained that pay for success offers lawmakers “an escape from the compliance mindset to really thinking about whether or not outcomes are being achieved.”

And legislators are taking note.

Twenty four states have introduced or considered pay for success related legislation with 11 of these states and the District of Columbia enacting such bills.

Senator Thomas Alexander (R-S.C.) discussed the South Carolina Nurse-Family Partnership, a program recently expanded and rigorously developed to improve health outcomes for mothers and children in poverty. Alexander said he'd been in the legislature for 22 years and “it’s one of the most encouraging programs that I’ve seen in my career in the General Assembly. ... It’s not the savings. As critical as that is, it’s about the children and these mothers. And that’s the human aspect that will pay for dividends for us as a state and a society.”

But in the political and budgetary reality in most states, what gives? While pay for success is an innovative funding strategy with results as a major goal, legislators must also think critically about sustainability. Namely, capital for these programs typically comes from the private sector at first. But if a program is shown to work, can the state afford to continue to fund the program? In addition, states must be willing to eliminate programs that aren’t achieving expected outcomes—a potentially difficult process.

It’s important for legislators to work away from “spending” and instead focus on “investing” in programs that work and away from programs that can’t show they work, Phil Peterson of KidSucceed LLC, told the audience. “There are not infinite dollars to expend so being thoughtful is crucial. Having the courage to allocate resources away from things that aren’t working as much as it is about allocating them where they do. Programs that are not performing should be cut off if they can’t be tweaked or fixed to be more effective.

“That’s common sense for a private sector way of thinking about things but it’s pretty revolutionary from a government perspective,” Keele said.

In short, Charles Sallee told the session attendees, that when it comes to pay for success, “A long-term vision is necessary.”

Explore more about this session here. While you’re at it, take look at our recent webpage and Legisbrief on Social Impact Bonds, a type of pay for success funding mechanism.

Jessica Hathaway is a policy associate with NCSL’s Family Opportunity Project.