“Pay for Success Watch,” a regular column in which we will keep subscribers up to date on pay for success (PFS).
PFS projects, which are often referred to as social impact bonds as well, use private capital to address some of the most persistent and complex social issues. In this model, a promising (but often untested) intervention is funded up front with private sector and/or philanthropic capital.
If certain outcomes are met, the government pays back the investors with a bonus. If the project fails, the government does not bear any cost burden.
Illinois Gov. Pat Quinn announced that the state’s first crack at a pay-for-success project would be led by a slate of in-state providers called the Conscience Community Network (CCN) and a financial consulting group with expertise on PFS work.
“The innovative Pay for Success model will generate major investments and improve outcomes for some of our most at-risk youth,” Gov. Quinn said in a statement announcing the winner yesterday, though a local business site had reported CCN as the winner out of five final applicants in late April.
Chicago-based One Hope United will serve as the lead entity on the venture, which focuses on youth in foster care who are adjudicated for delinquent offenses. The idea is to keep them out of detention and residential care, and instead provide them with services aimed at reducing their likelihood to reoffend while improving their placement stability.
The outcomes are not good on aggregate for foster youths who enter adulthood without a permanent caregiver, but research indicates that the societal costs for “crossover youths” is significantly higher than for others who age out.
In a recent study of Los Angeles foster youths, the crossover youths accounted for an average of $35,171 in public service utilization costs, including jail time and welfare benefits. That figure was nearly three times the $12,532 average for other foster youth.
“We didn’t realize crossover youth would have such striking distance,” study co-author Dennis Culhane said to Youth Services Insider in 2011, when the study was released. “We knew it would find they’d be troubled, but didn’t expect this difference of degree to show up.”
A quarter of the crossover youth accounted for three quarters of the public costs associated with the group during young adulthood, which Culhane said at the time made this population ripe for a targeted investment.
“There is huge potential for offsetting costs” by making better preventative investments, Culhane said in 2011. Mental health treatment, he predicted, would “be a major factor.”
The Illinois PFS providers will be using the Crossover Youth Practice Model, developed by the Center for Juvenile Justice Reform at Georgetown University, as a guiding strategy.
Assisting One Hope United will be CCN’s other six members: Lawrence Hall Youth Services, Maryville Academy, OMNI Youth Services, SGA Youth & Family Services, UCAN and Youth Outreach Services.
Third Sector Capital Partners, which has emerged as a major player in PFS projects around the country, has been tapped to “provide financial advisory services to the network.” A Third Sector associate named Tim Pennell recently co-presented on the Illinois project with one of the losing applicants, Children’s Home and Aid. Presumably, the state had it in mind to link whichever local providers won with the firm.
Also assisting with the project will be the Harvard Kennedy School’s Social Impact Bond Technical Assistance Lab, which received support from the Rockefeller Foundation and the Dunham Fund to work with Illinois.
John Kelly is the editor-in-chief of The Chronicle of Social Change.