Government supports social programs to help foster better outcomes in people’s lives. We invest in workforce training programs to help people develop the skills they need to find good jobs and support their families; we invest in child welfare to provide stability in the lives of children who may be victims of abuse or neglect; we invest in early learning programs to set kids on a path for educational and life success.
Too often, however, we don’t create the best incentives for nonprofit service providers and for that reason we don’t always see the outcomes we’d like for our public investment. For instance, in the case of workforce training, we often compensate programs for how many people receive training, rather than how many trainees get jobs that pay family wages.
To be sure, we may get good results by funding proxies for success (training) rather than success itself (jobs). But logic and experience tell us that we get better results when we simply pay for the outcomes we want, when we pay for success. Enabling us to do just that is an innovative approach to social service funding appropriately called Pay for Success.
At its base, Pay for Success (PFS) is performance-based contracting for the social sector. Government pays for services if desired outcomes are achieved, but not if targets are missed. Because nonprofits need operating funds to carry out their important work, mission investors typically finance operations, taking on the risk that outcomes will be achieved.
PFS aligns payment for services with the outcomes we want to see. In doing so, PFS rewards better, more effective programs, improving the lives of those in need. Since we only pay for what works, PFS also makes efficient use of tax-payer dollars.
While activity and interest has sky-rocketed, the PFS field is still new, and it is critical to share early lessons for PFS to achieve its full potential. To help advance successful projects, we recently hosted a series of White House Regional Pay for Success Summits in partnership with Nonprofit Finance Fund and the Laura and John Arnold Foundation. The Summits attracted over 400 participants from state and local government, nonprofits and academia, philanthropy and finance. Key themes and lessons can be found here. A core focus of the Summits was a new federal PFS grant program offering resources to help communities develop PFS projects.
Today, in a significant step for the field, the Corporation for National and Community Service announced 27 awards through its Social Innovation Fund PFS grant program. The winners – nonprofit organizations and state and local governments – will receive support from Social Innovation Fund intermediary grantees to find opportunities and develop capacity for PFS initiatives.
The Social Innovation Fund PFS projects support one of three priorities: economic opportunity, healthy futures, or youth development in communities across the country. Examples include:
PFS provides a new tool enabling governments to pay for outcomes, driving better results and making more efficient use of resources. With today’s important step forward, the Obama Administration is deepening its investment outcomes-driven, evidence-backed policies, strengthening communities, and improving lives.
David Wilkinson is the Director of the Office of Social Innovation and Civic Participation.