Association for Public Policy Analysis & Management

Roundtable: Pay for Success

(Public and Non-Profit Management and Finance)

A growing number of cities and states are now using an innovative, relatively risk-free approach to fund these programs. Pay for Success (PFS) financing allows governments to maximize the services provided to those in need, while ensuring taxpayer dollars are allocated in the smartest, most efficient way. Under the PFS model, governments identify programs with the potential to solve high-priority social problems, and private investors cover the cost of those programs up front. The government only pays the bill if an independent evaluator determines that the program has achieved its goals and produced a cost savings. This evidence-based approach helps to reorient government spending by directing resources to programs that are proven to actually make a difference. PFS allows governments to rigorously evaluate interventions to determine what works. They can then replicate and scale those that have a significant impact. For example, the first county-led PFS project in Cuyahoga County, Ohio, which encompasses the city of Cleveland, is designed to help mothers who are homeless and have children in foster care. Multiple social services agencies are partners in this new initiative. Each mother enrolled in the program works with a single case worker who is dedicated to helping her find housing, access counseling, and obtain other services in an effort to achieve stability. If the program results in a reduction in the number of days children spend in foster care and produces a cost savings for the county, it may not only improve the lives of those in the Cleveland area but could also serve as a model for other communities. Without PFS, the county would not have the resources to pilot this innovative program and provide intensive support. Today, funding is often approved despite the fact that governments have not taken a serious look at programs to determine whether they are truly producing the intended outcomes and are achieving results in the most cost-effective manner. This rigorous evaluation process is critical. Businesses regularly conduct an analysis of their operations to maximize success. Although not all private-sector principles translate to the public sector, this emphasis on evidence is one of the reasons that people of differing political views support PFS. They believe taxpayers deserve to know their money is being spent wisely on programs that are improving the community and helping their neighbors in a time of need. PFS has the potential to transform the way governments provide services. More importantly, it can help solve some of the most pressing challenges in our society.