Nonprofit Finance Fund recently partnered with the White House Office of Social Innovation and the Laura and John Arnold Foundation to host a series of regional summits focused on Pay for Success (PFS) financing. PFS is an innovative funding model that helps improve the lives of those in need by driving government resources toward better, more effective programs. Under PFS, government officials identify high-quality programs and strong service providers and tap mission driven investors to cover the upfront costs of those programs. The government then works with an independent evaluator to establish specific program goals. If those predetermined goals are achieved, the government repays those who made the original investment.
Seven PFS projects have been launched to date in the United States, and more than 30 are in the exploration phase. These initiatives are designed to address some of the country’s most pressing social issues, including homelessness, unemployment, child welfare, early education, recidivism, and public health.
The regional PFS Summits were conducted to share information about current projects in an effort to advance the model thoughtfully. More than 400 representatives from federal, state, and local governments, nonprofit service providers, academia, philanthropic foundations, and impact investors attended the summits held in three cities at the forefront of PFS: Bridgeport, Connecticut; Chicago, Illinois; and Salt Lake City, Utah.
Several key themes emerged from this series of summits, and we have listed the top 10 takeaways from our discussions about opportunities, challenges, and next steps in PFS development.
- Federal support catalyzes the development of the PFS field, but state and local activity is where the on-the-ground change occurs in communities across the U.S.
- Definitions of “success” fall across a spectrum. For some governments, capturing cost-savings is required for PFS projects, but others are willing to pay based on the value of improving efficiencies and capturing long-term societal benefit.
- Data is critical. Uneven availability of evidence and performance data on social services and a lack of access and ability to analyze administrative data are barriers, but partnering with evaluators and academia to learn about “what works” can push the field forward.
- PFS can help scale existing rigorously evaluated programs, but is also a vehicle to build the evidence base for promising, innovative approaches.
- With deep ties to neighborhoods and communities in need, service providers are the lynchpin to delivering on outcomes, and they must be at the table. Bolstering the financial, operational, performance management and leadership capacities of nonprofits is critical for adaptation in an outcomes-driven environment, PFS and beyond.
- Philanthropy can play a number of roles to support the nascent field: from convener to field builder to advocate to capacity builder to investor.
- Project templates and document transparency can drive transaction costs down and shorten lengthy timelines for future projects.
- Elected government leaders can champion PFS efforts, but ongoing support and education for agency and career staff is required to affect long-term systems change beyond election cycles.
- Implementation matters: Recognizing that no U.S. project has shown results thus far, it is critical to obtain real-time feedback from existing projects in an effort to improve future iterations of PFS activity.
- PFS is one piece of a broader systems change effort across government and providers to use data-driven, evidence based approaches for our communities’ most challenging social issues.
Momentum Building & What’s Ahead: Following the series of events, Summit organizers wanted to gauge how participants continue to engage in PFS. In an informal survey conducted in January, we polled attendees on what types of action steps are being taken and the response was overwhelming. Many have applied for feasibility and transaction structuring support through the recently announced Social Innovation Fund awardees' open competitions, featured prominently during the Summit series. Other attendees from VT, WI, CO, MI, and beyond are bringing back the knowledge and information gleaned from the summits to hold local mini-summits, panel discussions, and meetings to push forward action among state/local government, providers, and philanthropy. In Pennsylvania, legislation to explore early childhood PFS was introduced. In Salt Lake County, leaders are pursuing a ground-breaking portfolio approach for achieving results in three social issues—maternal/child health, recidivism, and homelessness. Projects to impact our communities across the country continue to develop in CA, DC, IL, CT, MA, NY, SC, and beyond. On a federal level, the President’s proposed FY16 budget includes $364 million to continue to invest and catalyze the PFS field across the country.
As PFS projects are carried out by more governments, it’s important that key stakeholders critically reflect on the tool’s use and implementation. Knowledge-sharing, outreach, and education will help all communities to effectively harness investments and realize their ultimate goal of improving outcomes for people in need.
Nima Krodel is a Director of Advisory Services at Nonprofit Finance Fund