Four Key Steps for Effective Pay-for-Success City Programs
On any given night in Santa Clara County, California, thousands of people experience homelessness. Homelessness is expensive for Santa Clara, costing emergency room visits, mental health services, substance abuse treatment and criminal justice resources — not to mention its human toll.
In an attempt to alleviate both human and economic costs, Santa Clara has provided community-based clinical services and permanent supportive housing to 150-200 chronically homeless individuals as part of Project Welcome Home.
Multiple funders have provided capital for the project, and the county will only pay them back if independent evaluators determine participants have achieved agreed-upon outcomes. This method of linking public payment to outcomes is called pay for success financing.
Pay for Success (PFS) is an innovative outcomes-based funding model that sources the up-front capital for launching or scaling a new social program from a private or philanthropic funder. If the program achieves certain agreed-upon outcomes, the funder’s investment is repaid by a government agency. If not, the funder takes the loss.
So, is the risk worth the reward?
When the model first emerged several years ago, its newness was the focus of conversations among city, county, state and federal officials seeking a path forward for innovation in a budget-constrained environment. At the Urban Institute, part of our role as a knowledge intermediary has been to ground the exciting conversations about the potential of PFS in the practical, evidence-driven next steps that interested communities need to take.
In our work with cities, counties, states and nonprofit service providers, we’ve discovered that PFS can indeed be transformative – even if a city or county does not ultimately end up launching a pay for success project. Here are four key factors for a successful PFS program:
1. Bring partners together around a problem to solve.
By their very nature, pay for success projects are collaborative. They also grow from a desire to solve a specific problem. If your city is struggling to address chronic homelessness, or poor maternal health outcomes, or high rates of recidivism among young people aging out of the juvenile justice system, many partners need to be at the table to holistically address the challenge: community organizations, government agencies, local foundations, advocacy groups, universities, hospitals and more.
Pay for success is a forcing mechanism for this type of collaboration. It cannot be done by one office in one agency – every single one of those organizations has a potential role to play. By offering a new approach – and the ability to shift risk –strong, local leadership can use this model to get the right people in the room to talk about solutions.
2. Identify existing silos or gaps.
A big part of Urban’s training and technical assistance work with jurisdictions considering pay for success is examining how they currently address a problem: how data is collected and shared; how offices and organizations serving the same populations communicate with one another; how activities and outcomes are tracked; and how the system may, or may not, be ready for evaluation.
As the partners examine their existing system, more often than not they identify ways that, for example, data could be shared more efficiently among government agencies and service providers. Whether a pay for success project emerges or not, this knowledge is valuable currency to seed future systems change that lead to improved outcomes for city residents and an improved ability to measure those outcomes in the future.
3. Bypass traditional logjams.
Because the pay for success model is new and its implementation can vary from community to community, it often gets interested partners thinking outside the box. As a model that engages new partners and funding sources, PFS can help cities and other jurisdictions consider paths to avoid bureaucratic or political pitfalls that may have beleaguered other attempts at innovation.
If a project doesn’t ultimately launch, the partners can use the lessons learned from the planning process to fill identified gaps and build on existing collaborations.
4. Utilize helpful resources for city leaders.
By considering pay for success as a potential solution to a pressing problem, cities can open up opportunities to address longstanding challenges to better serving their constituents. If your city is considering pay for success, we invite you to connect with our experts or apply to receive our training and technical assistance.