POLICY RECOMMENDATIONS Fiscal Health

Policy Recommendation 5: States can assess Pay for Success models to fund health and human services programs.

Utah’s High Quality Preschool Program intends to provide a high impact preschool education for low-income families.3 The program utilizes a Pay for Success model for funding and partners with United Way of Salt Lake. Utah lacks a state-funded preschool education and views this program as a way to mitigate future remedial or special education costs while reducing taxpayer risk if the program is unsuccessful.

Additional Resources

ƒ Urban Institute: Pay for Success Project Assessment Tool — https://pfs.urban.org/library/pfs-guidance-briefs-and-reports/content/ pay-success-project-assessment-tool

ƒ U.S. Department of Education: Pay for Success Feasibility Tool Kit — https://www2.ed.gov/about/inits/ed/pay-for-success/pay-forsuccess-toolkit.pdf

The Fiscal Health Subcommittee approved this recommendation emphasizing that states ought to assess whether the model is viable for them. The unique nature of Pay for Success may limit its applicability to certain states and public issues.

In Pay for Success models, private investors provide funding for a nonprofit organization charged with tackling a public issue (e.g., lowering recidivism or offering preemployment services).1 The private investor is paid back, potentially at a profit, by the government if the project achieves agreed upon results. The objective is to harness “return seeking” capital for social issues while mitigating risk for taxpayers. However, researchers from Harvard Business School point out “… the model is appropriate only for a narrow cohort of nonprofits that meet two related criteria: they must be able to effectively deliver and measure their social impact; and they must be able to translate that impact into financial benefits or cost savings that are traceable to the budgets of one or more institutions or government departments.”

The potential reliance on impact-seeking capital and a possible lack of sustainability beyond the first contract are causes for concern, according to the authors.

State Examples

The Massachusetts Juvenile Justice Pay for Success Initiative was one of the first contracts of its kind in the country.2 The initiative brought together the state, Third Sector Capital Partners and Roca. The goal was to prevent recidivism in previously incarcerated youth. The contract established clear benchmarks for recidivism rates.

Endnotes

1 Rangan, V. K., & Chase, L. A. (2015). The Payoff of Pay-for-Success. Retrieved October 14, 2022, from Stanford Social Innovation Review: https://ssir.org/up_for_debate/article/ the_payoff_of_pay_for_success

2 Elkins, L., & Zeira, Y. (2017, April). A Pay-for-Success Opportunity to Prove Outcomes with the Highest-Risk Young People. Retrieved October 14, 2022, from Roca Inc.: https:// rocainc.org/wp-content/uploads/2017/04/a-pay-for-success-opportunity-to-prove-outcomes-with-the-highest-risk-young-people.pdf

3 Centre for Public Impact. (2016, April 7). Social impact bonds for early childhood education in Utah. Retrieved October 14, 2022, from Centre for Public Impact: https://www. centreforpublicimpact.org/case-study/social-impact-bonds-early-childhood-education-utah/