Paying for success

Source: Jason Axelrod, American City and County, February 6, 2017

Several local and state governments are pioneering a new investment model to finance projects in their areas that uses success as a payment benchmark. Social impact bonds (SIBs) — also known as pay-for-success models — involve public-private partnerships (P3s) in which private entities invest in public projects that are overseen by governments, organized by nonprofit intermediaries, executed by service providers and are ultimately evaluated by independent entities. Such projects generally tackle social issues like homelessness or family welfare, and they aim to reduce government dollars spent on existing measures. Unlike a municipal bond, an SIB has no fixed rate of return for investors. An SIB’s ROI yield depends entirely on the project’s success, based on outcomes defined in the SIB contract. At pre-defined points in the project’s execution, a study of the program’s effectiveness will be carried out, and the government will accordingly pay funders pre-defined amounts based on how certain benchmarks are met. …

… The Denver Social Impact Bond program provides up to five years of supportive housing and Assertive Community Treatment for 250 homeless repeat offenders who cost taxpayers over $7 million per year in legal and health care-related expenses, city documents show. … In 2013, the Connecticut Department of Children and Families (DCF) sought and obtained technical assistance from the Harvard Kennedy Government Improvement Lab in constructing and executing an SIB project to address its greatest unmet service need at the time— parent and caregiver substance use, according to DCF Chief of Staff Elizabeth Duryea. … In 2015, Cuyahoga County, Ohio, became the first U.S. county to institute an SIB-funded program with a similar mission to Connecticut’s SIB-funded project. The county’s Partnering for Family Success Program seeks to reduce the amount of days children spend in foster care, which was one of the more expensive items in the county’s budget. …