With a new Administration and the 115th Congress in place, America Forward remains committed to championing innovative, effective, and efficient solutions to our most pressing social problems. Through our Coalition of more than 70 social innovation organizations, America Forward will continue to advance our collective priorities in the areas of education, workforce development, early learning, poverty alleviation, public health, Pay for Success, social innovation, national service, and criminal justice reform. Today, Jake Segal, Director of Advisory Services at Social Finance, highlights the importance of Pay for Success in the social sector.
In the last five years, half a dozen federal agencies have dedicated nearly $100 million in funding to support outcomes-based financing. In particular, this has been led by the Social Innovation Fund which has committed $30 million to building the Pay for Success field, as well as $300 million for effective evidence-based social programs.
PAY FOR SUCCESS (PFS)
Pay for Success (PFS) is about measurably improving the lives of people most in need by driving resources toward better, more effective programs.
PFS is a public-private partnership that expands funding for high-quality social services through a performance-based contract. PFS projects enable federal, state, and municipal governments to partner with high-performing service providers by tapping private investments to cover the up-front costs of programs. If, following a third-party evaluation, the program is successful in reaching pre-determined outcomes, the government pays a small return on the investment. If the program does not achieve its target results, government pays nothing.
In this way, PFS ensures that taxpayer dollars are being spent only on programs that actually work – expanding access to quality services for those who need them the most.
This is part of a deeper transformation in how governments do business. Government agencies are looking to more carefully measure outcomes, and increasingly, they are tying funding to the results. Dozens of states, counties, and cities are developing Pay for Success projects, and many more have developed other performance-based contracting tools.
Philanthropy—which came early to the game and drove renewed emphasis on “what works”—has doubled down on “Big Bets,” perhaps exemplified best by last year’s announcement of a billion-dollar philanthropic collaborationmaking large-scale grants to evidence-based nonprofits.
These are important developments for the social sector. But for many nonprofits—who too often lack access to the data or capabilities necessary to measure their performance, and can at times struggle to fully convey their fiscal and social value to funders—these changes create challenges as well as opportunities.
How can nonprofits adapt to the new funding environment?
Our experience suggests that the tools of Pay for Success can be adapted to help nonprofits build their capacity.
Social Finance worked with four grantees of the W. K. Kellogg Foundation—America Forward Coalition organizations AVANCE, and the Family Independence Initiative (FII), as well as the Center for Urban Families (CFUF) and HIPPY USA—to explore how to prepare for the shift toward outcomes-oriented funding. In the process, we learned how nonprofits, funders, and government partners can help facilitate the transition to a system that increasingly allocates funding based on impact, and compiled them in New Tools to Amplify Impact: A Pay for Success Guide to Building Nonprofit Capacity.
AVANCE’s chapter in Dallas worked diligently with the Dallas Independent School District to ensure that the program’s graduates are flagged in its student records—laying the groundwork for a recent internal district evaluation, which found positive impact of AVANCE’s programs on attendance and school achievement.
The lesson is clear. Nonprofits should make it a priority to forge deep, two-way partnerships with government agencies that hold administrative data. Building trust with public-sector partners is much like building trust with the community, and nearly as important; these relationships—whether with local school districts, county departments, state agencies, elected officials, or quasi-governmental research centers—are vital for conducting research on program effectiveness.
The Family Independence Initiative has built a cloud-based, real-time data management platform that helps participants track their financial and personal progress. The tool is both an intervention in its own right, and a critical piece of the program’s performance measurement system—allowing FII to refine its program and to quantify its results for external stakeholders.
Investment in nonprofit technology like FII’s is unfortunately too rare. To reliably produce great outcomes for their participants, nonprofits need more than just programmatic funding. Funders should dedicate more resources to measurement, technology, performance management, and research—helping nonprofits to use their data productively, troubleshoot challenges, and adapt their models to optimize their impact.
In Arkansas, where HIPPY USA serves more than 5,000 families, the organization partnered with the Arkansas Research Center (ARC), a nationally renowned state longitudinal data system which gathers data on every student in any Arkansas public school. ARC worked with HIPPY to, for the first time in their history, create a flag in ARC’s data to identify students that had been through a HIPPY program. This relationship will allow HIPPY to track the performance of student academic outcomes, including kindergarten readiness, standardized test scores, and special education utilization.
If the public sector is committed to implementing service programs via nonprofits, data sharing is a necessity. Nonprofits need better access to administrative data, not just to measure their impact after the fact, but also for ongoing course corrections.
Looking to the Future
The social sector is changing. As it does, the relationships between nonprofits, funders, and governments must change, too. Nonprofits and their funders should continue the thoughtful work of nonprofit strategy and business planning that blossomed at the turn of the century. And they should extend these tools—linking statements of intended impact to performance payments; working with agencies to define success, collect administrative data, and develop sustainability plans; and more fully linking programmatic data to long-term outcomes build a potent case to the public sector for greater investment.
Click here to learn more about the work Social Finance is doing to advance Pay for Success and click here to listen to a recent webinar hosted by the Social Finance, the W.K. Kellogg Foundation, and America Forward entitled “New Tools to Amplify Impact: A Pay for Success Guide to Building Nonprofit Capacity.”