Association for Public Policy Analysis & Management

This paper analyzes the implementation of Pay for Success/Social Impact Bond programs for local homelessness programs in the United States. Social Impact Bonds (SIB) are a variant of Pay for Success programs that engage private actors to invest in a social intervention, with a contractual assurance that they will receive payments from the government to the extent that specified social outcomes are demonstrated. In theory, the public agent pays private investors for cost savings or social benefits associated with the social intervention. Contractual pay arrangements vary, however, and some argue that payment based on monetary returns may be too narrow, particularly given the short time frame of some PFS arrangements (Dorn, Milner, and Elridge, 2017). A key feature of PFS contracts is a focus not on financing of outputs (e.g., numbers of beds provided), but of outcomes/impacts (e.g., reduction in homeless population—Cox 2012). Proponents argue that tying pay to contractual performance induces evidence-based strategies and efficient management among public and nonprofit agents. Further, some argue that SIB financing spurs innovation by concentrating risk among investors rather than politically vulnerable public agents. Critics have countered that multi-actor complexity can hamper implementation, and that payment structures can create perverse incentives, such as “creaming,” leading to target inefficiencies and inequities (Fox 2016; Ronicle 2014; Warner 2013). While attention to PFS has grown internationally\, there is insufficient scholarly research that demonstrates the efficiency and effectiveness of such approaches (Fox 2016). Rather, much of the published research explicates the theory; argues the merits, or discusses the risks of social impact bonds without close examination of program structure or operations.

Brennan et al. (2017) identified six PFS housing/homelessness programs with funding upwards of $23 million invested by a range of funders, including the Laura and John Arnold Foundation; the California Endowment; the James Irvine Foundation; and the Nonprofit Finance, plus others with research still underway. The study considers: (1) the extent to which the programs employ evidence-based interventions; (2) the manner in which programmatic partnerships are structured with a particular focus on incentives; and (3) the extent to which programs measure evidence of successful outcomes. Data sources include programmatic “gray literature” (reports and other documentary materials) and interviews with key stakeholders, including members of the PFS partnership and other stakeholders.

Brennan, Cunningham, Gastner, and Taylor. 2017. “Ending Family Homelessness: An Opportunity for Pay for Success Financing.” Urban Institute.

Cox, 2012. “Financing Homelessness Prevention Programs with Social Impact Bonds,” 31 REV. BANKING & FIN. L.

Dorn, Milner, and Eldridge. 2017. “More than Cost Savings: A New Framework for Valuing Potential Pay for Success Projects.” Urban Institute.

Fox. 2016. “Is ‘Pay for Success’ an Efficient Way to Unlock New Capital Investment and Advance Social Goods?” Presented at conference on Activating Markets for Social Change, Sol Price School, USC.

Ronicle, Stanworth, Hickman, and Fox. 2014. “Social Impact Bonds: The State of Play.” Big Lottery Fund.

Warner. 2013. “Private Finance for Public Goods: Social Impact Bonds.” Journal of Economic Policy Reform 16:4, 303-319.