By Elizabeth Lower-Basch

In the FY 2015 budget proposal, President Obama continues to signal his Administration’s interest in and support for “pay-for-success” models, also known as Social Impact Bonds or SIBs. In this approach, private investors provide up-front funding for preventive services and are paid by government agencies only if and when the programs achieve desired outcomes. In particular, the president’s budget asks for approval to use a portion of funding under programs such as the Workforce Innovation Fund, the Second Chance Act, and the Social Innovation Fund for pay-for-success demonstrations, as authorized in the combined spending bill for FY 2014. 

As in last year’s budget, the president also calls for $300 million to create a Pay for Success Incentive Fund at the Treasury Department to support state and local initiatives, particularly those that may result in federal savings. This proposal was not funded in FY 2014.

In addition to federal support of pay-for-success approaches, there is an increasing interest in this model at the state and local levels. CLASP has just released a paper, Social Impact Bonds: Overview and Considerations, to help policymakers, practitioners, funders and advocates understand this model and have a framework to assess  whether a SIB would be a good way to expand funding for a particular intervention or population in a given state or community. This paper is based on CLASP’s review of the literature on SIBs, as well as on our extensive knowledge of and experience with performance measurement systems, performance-based contracting, and strategies to link public policy and implementation with research evidence for programs serving low-income and other disadvantaged populations.

CLASP applauds the growing interest in improving outcomes in a range of areas where governments provide services. SIBs and other pay-for-success mechanisms could potentially add value as a means of expanding investment in high-quality prevention-oriented services, focusing on outcomes, and improving the evidence base for what works. However, these initiatives are still in their very early stages, and the hypothesized benefits have not yet been demonstrated. We hope that this paper will be of help to those considering SIBs in supporting their efforts to think strategically about whether SIBs are a good fit for their goals.