New option for government: paying for performance
At a time when budgets are stretched thin, funding for social programs is available to local governmental entities through a new and innovative program. The new funding comes from a Social Innovation Fund and monetary awards are based on successful accomplishment of pre-determined social outcomes. According to a report from the Social Innovation Research Center, government jurisdictions at all levels nationwide are beginning to compete for this type of funding.
The Austin City Council recently passed a resolution authorizing the city manager to gather information about pay-for-success financing. Council members asked to be advised about the feasibility of using such a program. They also asked for suggestions about possible partners and projects that might be eligible. If they move quickly, Austin could become the first city in Texas with a social impact-funded program.
Social impact funding generally requires some amount of investment from the private sector and eligible projects must address social needs such as homelessness, medical needs, prisoner rehabilitation, childhood programs or mental health services. The projects that result are essentially public-private partnerships (P3s) because they meet most of the criteria for P3 designation.
Social impact, or pay-for-success, programs focus totally on outcomes. Private partners are asked to invest in the financial aspect of a project and if outcome goals are met, investor funds will be repaid by the governmental entity that receives money from the federal program.
In October, the federal Social Innovation Fund announced award of $12 million to eight grant recipients. These eight grants alone are expected to generate up to 100 new pay-for-success contracts. That represents a “significant” increase in the number of projects and performance-based contracts throughout the country.
And, as with the city of Austin, many government entities will consider coordinating their efforts with other government subdivisions and possibly nonprofits. Part of the city of Austin resolution authorizing a feasibility study instructs the city manager to not only explore grant funding opportunities, but also to consider possible partnerships with the county and nonprofits in addressing social impact funding for community projects.
Many public officials say their resources are spread so thin that they can only provide basic services to constituents. Programs that address additional needs, some of which might be preventive in nature and could potentially save millions of taxpayer dollars, have been put on the back burner.
Pay-for-success financing may change that. This financing program has proved successful in a number of cities and states. Taxpayers should applaud the fact that government pays only when the programs meet defined goals, so there is no risk of taxpayer dollars.