Five years ago, there were no pay-for-success initiatives in the U.S. Today, there are four and counting. Most offer job training and placements for ex-offenders, hoping to cut incarceration rates over time. An effort in Salt Lake City, supported by the J.B. Pritzker Foundation and Goldman Sachs, would expand early childhood programs with the aim of reducing the number of costly special education placements. If the program works, kids will be better off and the state will save funds. Forty percent of any savings will go to investors, but sixty percent will go into expanded early childhood education.
You can see the potential. Supporters of the President’s plan to dramatically increase early childhood investment, and to pay for it with a new tobacco tax, can continue to fight for that approach. Critics can continue to argue that it’s a wasteful white elephant. While the two sides (and the two of us) fight that one out, pay-for-success is something we should all be able agree on. The approach can make it possible to expand early childhood programs while producing new evidence about how to run them effectively.
If the programs don’t work, taxpayers won’t get stuck with the tab.
States and cities are leading the charge on pay-for-success, and that’s as it should be. They get most of the savings from good crime prevention and pre-kindergarten programs.
That said, there’s a modest but potentially important federal role as well. The anti-recidivism pay-for-success efforts got their start with federal innovation funds (at the Department of Labor, in this case), even though this meant Congress allocated fewer resources for the usual block grants.
Absent a dedicated funding source, doing pay-for-success for early childhood education would require trims elsewhere—say, in business development programs that duplicate what the private sector already does. But that’d be worth it: Unlike too much of what government does, pay-for-success has the potential to make a measurable difference, for both beneficiaries and state budgets.
There’s a unique federal role in supporting pay-for-success programs that yield mainly federal savings. The obvious example starts even before pre-kindergarten—in the home visiting programs for at-risk pregnant moms which, evidence shows, can lead to healthier, smarter babies. Right now, Medicaid doesn’t support such success-based payments, but either the Administration or Congress should change that. If Medicaid pays only to the extent that a home visiting program can show savings, there shouldn’t be any federal cost at all.
Congress might even create an all-purpose Pay for Success Fund, along the lines that Conservative prime minister David Cameron created in Britain or that President Obama has proposed. In today’s world, any funds would have to be paid for by offsetting budget cuts. But such a deal would let the President put new funds into early childhood; let Republicans support successful social programs with private support; and make taxpayers pay only after the program delivered results.
There are surely other paths worth pursuing, too. But this much we know: a smart Washington might want to try pay for success.