Pay for Success: A New Results-Oriented Federal Commitment for Underserved Americans

The concept is simple:  by working together in new ways, we can achieve measurable results for vulnerable Americans and, in the longer term, make measurable progress on persisting social problems. “Pay for Success” offers a new way for government to ensure effective programs reach traditionally and currently underserved communities. The hope is that Pay for Success will help us find better ways to get Americans the supports and services they need – whether it is access to housing, workforce development, college completion or support for youth aging out of foster care.

Pay for Success is being tested in the United Kingdom and Australia, and already we see the potential of this new form of grant-making to help governments target limited dollars available on those social programs that achieve positive, measurable impact.  In particular it offers a financing solution for preventive services, which are often the first services to get cut in hard budget times even though they lead to reduced costs and better outcomes in the long-term.  For example, research shows that the years leading up to kindergarten are among the most significant in shaping a child’s foundation for learning and school success, which can also translate into real cost savings. Indeed, these findings suggest that for every $1 invested in high-quality early childhood education, we save $7 from the costs of associated programs, like special education, teen pregnancy and juvenile delinquency. Nevertheless, when budgets get tight, these and other preventive services for vulnerable populations are among the first to get cut. At a time when all levels of government are facing cutbacks, Pay for Success offers a new approach to invest in the critical services for vulnerable populations that need more – not less – support. 

On October 21, 2011, over 90 leaders from state and local governments, federal agencies, philanthropies, and other stakeholder organizations gathered at the White House to explore opportunities for program pilots. As outlined in the just-released White House and Nonprofit Finance Fund report on the convening, Pay for Success: Investing in What Works, state and local governments indicated significant interest in developing Pay for Success projects, particularly in the areas of criminal justice, homelessness, education, and workforce development. At the convening, we declared our Administration’s intention to support state and local governments through Pay for Success by supporting pilot projects in 2012.

Today, in keeping with that October 21^st commitment, we are pleased to announce that the Department of Justice and the Department of Labor will support Pay for Success pilots through 2012 funding competitions. The Department of Justice plans to give priority funding consideration in 2012 Second Chance Act grant solicitations to highly qualified applicants who incorporate a Pay for Success model in their program design. The Department of Labor will also launch Pay for Success funding opportunities through the Workforce Innovation Fund by early spring, making up to $20 million available for programs that focus on employment and training outcomes. Federal agencies will be releasing more information on these, and potentially other, opportunities in the coming weeks and months.

As the Federal government gears up for these 2012 opportunities, Massachusetts and New York already have projects underway, and we hope to learn from their efforts to continue to improve the effectiveness and efficiency of programs across the country. More than ever, it is critical that we work together to deliver services in new and better ways that maximize resources and shared investments, leverage assets, and break down silos to achieve better and more sustainable outcomes for Americans. 

For questions regarding Pay for Success and the 2012 pilot programs, please contact Mary Ellen Wiggins at the Office of Management & Budget.