In an op-ed posted on The Hill, Congressman John K. Delaney (MD-6) encourages the use of the Pay For Success Model, also known as Social Impact Bonds, a method of using evidence-based, data driven policy making to improve public services while saving tax dollars.
Here’s how it works. We start with identifying a social policy goal which, if achieved, reduces costs to the government. Better government is a goal that both parties share and a number of programs are already under way nationwide. At Riker’s Island Correctional Facility in New York City, the project involves providing targeted education, counseling and training to incarcerated adolescents to reduce recidivism rates. In Fresno, the project implements an in-home management program for low-income children with asthma to reduce the numbers of emergency room visits. In Utah, a school district is expanding a preschool program targeted towards at-risk children to decrease the risk of them being placed in costly special education programs.
Innovative approaches like these help us meet our original policy goals of reduced crime, healthier families, or better educational opportunities, in a way that also reduces costs to the taxpayer. This is truly a double bottom-line benefit.
With Pay for Success, initial financing for the project comes from private investors, not the government, with the stipulation that if the project is not successful, the government doesn’t pay anything. After all, it’s called Pay For Success, not Pay For Failure. If the project is successful, as measured by a mutually agreed-upon third party evaluator, the government pays back the private sector investor plus a modest rate of return. Since success means future savings from the government, the taxpayer wins in both circumstances. Since the private sector is taking the financial risk, they will use private market principles to ensure that interventions are well designed, further increasing chances for success.
Citing the success of Social Impact Bonds in such politically disparate states as Utah and New York, the Congressman promises to build support for the model in Congress as a bi-partisan tool to help people and save money.