The US government is again in the pay-for-success business. Slipped into the continuing resolution passed by Congress and signed by President Trump last week is $100 million for states and localities to use in programs that deliver higher rates of youth employment and high school graduation, and lower rates of asthma, diabetes, homelessness and recidivism among juvenile offenders. Last May, Congress defunded the Social Innovation Fund, an Obama-era effort launched in 2009 to support pay-for-success programs.
Also known as social-impact bonds, pay-for-success contracts (or pay-for-results, as they’re called in the new legislation) turn traditional government social services procurement practices on their head. Rather than pay upfront for services, local or state governments promise to use savings from avoided costs to repay private investors only if certain milestones are reached and outcomes delivered. A total of 20 social impact bonds have been launched in the US, attracting more than $200 million. In South Carolina, for example, a 2015 social impact bond raised $30 million from private investors to help 3,200 first-time, low-income mothers have healthy pregnancies. “We are seeing an exciting level of innovation in state and county governments to experiment with arrangements that enable social service providers to get paid for solving social problems rather than filling out paperwork,” the Nonprofit Finance Fund’s Antony Bugg-Levine told ImpactAlpha.