Federal Pay-for-Success Grant Program Not a Sure Thing

As we reported last month, Congress made the first-ever federal appropriation for a “Pay for Success” (PFS) program, a $7.5 million carve-out of the Second Chance Act. Also known as social impact bonds, the concept with PFS is that a government guarantee reimbursement and even reward for public services that are initially financed by others.

For example: A group of providers and funders put up $10 million and say they have a model to lower juvenile recidivism rates by up 25 percent in county over three years. Under a PFS arrangement, a government might guarantee payback of the $10 million only at a 20 percent improvement, with escalating bonus payments on it at higher benchmarks.

The idea, in a nutshell, is that a government gets a risk-free look at whether something works, and rewards success if it happens.

Typically the up-front funders would be foundations, venture philanthropists, individuals or corporations. In this case, the federal government would be the one taking on the risk – seeding work on a state or local level – with a state or local government guaranteeing the repayment.

Youth Services Insider‘s initial assumption was that this would be straightforward: $7.5 million would go out in one PFS solicitation. But after inquiring about the appropriation with the Bureau of Justice Assistance, we aren’t so sure.

Asked if there would be a single competition for the $7.5 million, Justice Department spokesperson Sheila Jerusalem said of BJA: “They are not ready to share their plan publically at this point in time.”

Hmmm. This made us think that BJA might try and go another route than just conducting a straight-up PFS competition. Another way to handle the $7.5 million might be to make a number of BJA solicitations available for PFS proposals, and distribute at least that amount to such proposals. Downside: there is no guarantee that applicants will actually pursue PFS projects just because it’s a priority class.

YSI has no evidence that this will be the route traveled. But it is worth noting that for fiscal 2013 and fiscal 2014, BJA made Pay-for-Success projects a priority within its funding for reentry programs that serve adult offenders with co-occurring mental health and substance abuse disorders. From this year’s solicitation:

Pay for Success projects represent a new way to potentially achieve positive outcomes with the criminal justice population at a lower cost to governments. …BJA is offering priority consideration for applications proposing to incorporate a Pay for Success model into their offender reentry program.

BJA funded nine local grants and three state-level grants out of the co-occurring disorders competition last year. We have no idea whether any of the locals used a PFS concept, but YSI can confirm that none of the three state level winners (Colorado, Massachusetts, and Washington, D.C.) used PFS.

As far as the $7.5 million Congressional appropriation goes, there appear to be advantages for PFS proponents with either path BJA takes. If there is a single competition, it will guarantee that the agency back at least a few Pay for Success ventures, and those ventures will be crafted by the proposers; they will not be tailored to fit a particular solicitation by the feds.

On the other hand, there is certainly value in seeing PFS projects get priority in multiple funding streams. Congress might never carve out PFS funds again, but the precedent will have been set that PFS concepts have an edge in certain funding Justice Department competitions.

Youth Services Insider is mostly written by Chronicle Editor-in-Chief John Kelly

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John Kelly, Editor in Chief, The Chronicle of Social Change
About John Kelly, Editor in Chief, The Chronicle of Social Change 1212 Articles
John Kelly is editor-in-chief of The Chronicle of Social Change. Reach him at jkelly@chronicleofsocialchange.org.