Panel Paper: Pay for Success in Education: Private Investments in Public Preschools

Saturday, November 4, 2017
Picasso (Hyatt Regency Chicago)

*Names in bold indicate Presenter

Judy Temple, University of Minnesota


The last few years have seen a flurry of interest in having private investors finance the expansion of public preschool programs, especially those serving disadvantaged children. Starting with the Pay for Success social impact initiative in Utah, private investors next chose to support expansion of the Chicago Child-Parent Center program beginning in 2015 with an investment of $17 million. Based on research indicating that the Child-Parent Center program has demonstrated effects on reducing special education placement, Goldman Sachs investment bank was convinced that expansion of the CPC program would not only benefit disadvantaged students, but could be used as a financial vehicle to “make money while doing good.” The social impact initiative funded by a Pay-For-Success contract (sometimes referred to as Social Impact Bonds) could potentially return over $20 million to the private investors if success targets in terms of reduced special education and school readiness are reached. The assumption is that expanded high-quality preschool programming can save governments money in terms of special education cost savings, and this cost savings can be used to pay back the private investors.

To generate the second wave of these Pay-for-Success social impact financing initiatives, the U.S. Department of Education recently awarded 7 state or local governments feasibility grants to start making plans to create additional opportunities for private investments in preschool programs. This paper uses the 7 funded feasibility grant proposals as data in an assessment and critique of state and local government plans to seek private funding of public preschools. This paper will discuss the movement away from promising payments to private investors based on realized public cost savings to a trend toward promising payments to private investors for “desirable” education outcomes such as higher test scores. As these social impact initiatives expand across the U.S, relaxing the assumption that realized cost savings will provide the funds needed to pay back investors is problematic. I discuss the additional issues involved in terms of appropriation and political risks and the suggestion is made that these changes (to pay for desirable outcomes rather than for outcomes that generate cost savings) ultimately will end up limiting the attractiveness of these social impact initiatives. This paper also is highly consistent with the conference theme on the importance of better measurement for better public sector decisions.