Pay for Success
High demand for public resources often leaves service providers struggling to deliver a broad range of health, education, and social services that truly make positive change. At the same time, public and private funders require evidence to show that investing in such services achieves intended benefits and outcomes. AIR is applying the Pay for Success model to address these challenges in communities around the country. The model brings together investors with local, state, and federal government agencies to fund and improve services. For example, a local company or community investor might fund programs to reduce homelessness or strengthen literacy among young children.
Connecting upfront funding to specific program outcomes requires independent evaluators to determine whether the outcomes have been met. If these services deliver their intended results (e.g., reducing homelessness, improved student literacy), the government then reimburses investors for the cost of the service, along with a modest return on their investment (typically 1-2% of the overall investment). In this design, the investors bear the initial cost of services and take the risk of not being reimbursed, should the service not produce the intended outcomes, as measured by the evaluators. Typically, an intermediary organization may provide technical assistance to the service agencies, strengthening their capacities to deliver evidence-based programs and strategies to achieve outcomes.
Why would investors take that risk? Because improving these near-term outcomes (for example, greater literacy in pre- Kindergarten through 3rd grade) may achieve important effects on the broader social and public sectors (e.g., increased earnings, greater consumer buying power, and decreased reliance on government safety nets).
Currently, there are more than 60 Pay for Success projects at various stages of operation worldwide with 17 of these being implemented in the United States since 2012.
Highlights of AIR’s Work
Readiness and Capacity-Building Toolkit for Pay for Success Investments
A major challenge in the growth of the Pay for Success model is effective assessment of provider capacity. For the Kresge Foundation, AIR is creating an organizational readiness toolkit, informed by a synthesis of current Pay for Success literature and implementation science as well as interviews with leading intermediary organizations and their community partners. The toolkit has the potential to expand the array of government and nonprofit organizations leading Pay for Success projects and to provide data to guide the investment decisions of public and private stakeholders.
National Capital Region Pay for Success Demonstration Project for Permanent Supportive Housing
For the U.S. Department of Housing and Urban Development and the U.S. Department of Justice, AIR is testing a Pay for Success model in Maryland to support people experiencing chronic homelessness in Montgomery and Prince George’s Counties. This population is frequently involved in the criminal justice and health care systems. Between 20-40 percent of the annual correctional population is homeless and has an arrest record for nonviolent nuisance crimes. Many have mental illness and/or substance abuse problems and return from incarceration only to live on the streets, often cycling back into the justice system.
This project will determine if a Pay for Success-financed permanent supportive housing can achieve taxpayer savings and/or improve cost-effectiveness by decreasing government spending on corrections systems, homeless services, Medicaid, and crisis services.
English Language Acquisition Feasibility Study
AIR is conducting the feasibility phase of a Pay for Success project for the U.S. Department of Education to improve English language acquisition for Spanish-speaking children in PK-3rd grade. These students may need additional support to read at grade level by the third grade—a milestone predictive of future educational and occupational success. Yet, schools and communities do not often have the resources to provide those supports. A rapid evidence assessment of the research literature will identify effective interventions and two districts will be invited to participate in the Pay for Success feasibility study, based on their prior use of these approaches. The feasibility study will examine their capacity and suitability for using a Pay for Success funding strategy to support the selected programs. AIR is conducting the feasibility study and Manhattan Strategy Group is the independent evaluator.