A Guide to Evaluating Pay for Success Programs and Social Impact Bonds
There’s no free lunch. Yet across the country, advocates of Pay for Success (PFS), or Social Impact Bonds (SIBs), serve up this alternative private financing model as a cost-free, risk-free silver bullet to support critical, yet underfunded, public services. As local and state governments rush to pass enabling legislation and strike deals with investors, a closer examination of these schemes is warranted.
A Guide to Evaluating Pay for Success Programs and Social Impact Bonds aims to help advocates identify the critical issues surrounding PFS contracts and their impact on vulnerable individuals and the public. We describe these issues and include a list of key questions advocates can raise to help ensure that decision makers make choices that advance the public good.
What is Pay for Success?
PFS brings venture capital to the provision of public services. Investors, such as Goldman Sachs or Bank of America, provide up-front funds for critical preventive services with the expectation of receiving a return on their investment. The theory is that the private investment dollars can fill a funding gap when government doesn’t have adequate financial resources to spend on prevention activities.
Under a PFS arrangement, the government repays the loan with interest if pre-determined social outcome targets are met. The theory presumes that even after paying the investors and service providers, the state ultimately reaps financial savings through foregone budget dollars spent to address future more costly, but now avoided, social problems. But PFS looks better on paper than in reality. A closer look at how they operate raises issues that warrant careful consideration for decision-makers looking to undertake a PFS.
Some Important Questions to Ask
- What is the price and performance advantage of the PFS model over traditional financing and performance methods?
- If PFS is being considered to scale up a program with a proven, evidence based record of success, why is the PFS structure being used in lieu of traditional public funding?
- Do the investors, consultants, intermediaries, service providers or government officials have any conflicts of interest?
- Are the outcomes appropriate for the program intervention?
A Guide to Evaluating Pay for Success Programs and Social Impact Bonds is coauthored by In the Public Interest, AFSCME, Minnesota Council of Nonprofits, Keystone Research Center, Oregon Center for Public Policy, Economic Opportunity Institute, Center for Effective Government, and the ReFund America Project at the Roosevelt Institute
We’d love to hear from you. Send us an email: info@inthepublicinterest.org.
What Are Social Impact Bonds and Why They Are a Very Bad Idea | Diane Ravitch's blog http://bit.ly/1Ud88Id
