Op-ed: Utah schools deserve better than pseudo-science of ‘Pay for Success’

Source: Luke Garrott, Salt Lake City Council member, Salt Lake Tribune, November 11, 2015

… It does to Salt Lake County Mayor Ben McAdams, whose “Pay for Success” program got skewered by The New York Times last week (“Did Goldman Make the Grade?”). You don’t have to be a Ph.D. to know that a rigged game brings predictable results. In the case of Salt Lake County’s program, at least two measures were completely off. They applied the wrong test (nationally the Peabody Picture Vocabulary Test is not used, especially by itself, to determine whether a child needs special ed) and administered it in the wrong language (the Spanish-speaking pre-schoolers were given the test in English). … And it’s good business for the investors, who get paid back, with interest, by Salt Lake County, United Way and, if the program continues, the state of Utah. Bravo, Salt Lake County, for investing in pre-K education. Boo and hiss, for defending a pseudo-scientific methodology that enables private capital to bilk public budgets and make money off public school kids.


“Pay for Success” Gaining Traction as ECE Funding Option, But Should It Be?
Source: Aaron Loewenberg, New America Ed Central, November 6, 2015

… The results of the partnership between Goldman Sachs and Utah were initially hailed as a pioneering effort, but recent questions have been raised about the program that cast it more as a cautionary tale. Several early education experts recently reviewed the specifics of the program and identified irregularities in the ways in which success is measured. Specifically, the experts point to a lack of evidence concerning the number of children who would have required special education services without the preschool program. It turns out that the success of the program may be overstated due to a lack of accurate means to measure success. … Critics claim that social impact bonds put private profit ahead of the public good. Specifically, Mark Rosenman, professor emeritus at the Union Institute & University, argues that too much use of social impact bonds could lead to cuts in public investment if government becomes too reliant on private financing. Rosenman criticizes investment groups such as Goldman Sachs that invest in social impact bonds while simultaneously working to avoid paying the taxes that typically fund public programs.

Success Metrics Questioned in School Program Funded by Goldman
Source: Nathaniel Popper, New York Times, November 3, 2015

Yet since the Utah results were disclosed, questions have emerged about whether the program achieved the success that was claimed. Nine early-education experts who reviewed the program for The New York Times quickly identified a number of irregularities in how the program’s success was measured, which seem to have led Goldman and the state to significantly overstate the effect that the investment had achieved in helping young children avoid special education. … The big problem, researchers say, is that even well-funded preschool programs — and the Utah program was not well funded — have been found to reduce the number of students needing special education by, at most, 50 percent. Most programs yield a reduction of closer to 10 or 20 percent. The program’s unusual success — and the payments to Goldman that were in direct proportion to that success — were based on what researchers say was a faulty assumption that many of the children in the program would have needed special education without the preschool, despite there being little evidence or previous research to indicate that this was the case.

Goldman Sachs paid to expand pre-K in Utah. It worked.
Source: Libby Nelson, Vox, October 19, 2015

The loan allowed Utah to expand the program to 595 more 3- and 4-year-olds last year, about half of the waiting list. All of them were from low-income families, and 110 were expected to need special education in elementary school. But this year, when students were tested in kindergarten, only one of them did. That saved the state $281,550, according to the United Way. Investors will get a payment of $267,473, with additional payouts to follow if the students continue not to need special education in grade school.

Goldman nets payout as social impact bond project in Utah meets targets
Source: Olivia Oran, Reuters, October 7, 2015

Goldman Sachs Group Inc and its investment partner will be paid $267,000 for helping to fund a philanthropic program that reduced the number of children needing special education services after preschool. The milestone marks a turnaround for so-called social impact bonds, which are issued by local governments in partnership with charities and private investors to fund philanthropic projects. Investors receive a return if a project saves public money. The first social bond project earlier this year failed to achieve its goals. … The results, which saved school districts and governments around $281,000 in total, triggered the first investor payment for any pay-for-success program in the United States. Goldman and Pritzker received a total payout of around 95 percent of those savings, or around $267,000.

For Goldman, Success in Social Impact Bond That Aids Schoolchildren
Source: Nathaniel Popper, New York Times, October 7, 2015

Financial results at Goldman Sachs are going to look a little bit better this quarter because of the educational success of 100 or so kindergarten pupils in Utah. … When the students were tested this year — after a year in preschool — and found not to need extra help, the State of Utah paid Goldman most of the money it would have spent on special education for the children. The payment represented the first time a so-called social impact bond paid off for investors in the United States.

The new philanthropy targets preschoolers for social impact bonds
Source: The Australian, March 27, 2014

About 600 three and four-year-olds are attending preschool in Salt Lake County and Park City, Utah, this year thanks to an innovative financing model that is catching the attention of government officials and lawmakers across the country. Under results-based financing, also known as pay-for-success or social impact bonds, private investors or philanthropists provide the initial funding for social programs that are expected to save taxpayer dollars down the road. If the policy goals are met and the savings materialise (according to third-party evaluators), the investors receive their money back with interest. However, the government doesn’t have to pay out more than it saves. In Utah, the investors are Goldman Sachs and Chicago philanthropist JB Pritzker.