In 2013, Salt Lake County launched a “social impact bond” to expand free preschool opportunities for at-risk kids in the Granite School District. The three-year, $7 million bond is being funded entirely by Goldman Sachs and J.B. Pritzker as an investment, not an act of charity. The county has agreed to repay these two companies in full plus interest provided agreed-upon outcomes are achieved.
Private companies take all the risk up front in funding the programs, and Salt Lake County gets all the benefits if the program is successful. In the case of the preschool bond, success is measured by whether or not kids enter special education, which costs $2,600 per year, as opposed to preschool, which only costs $2,000 per year. The county can therefore repay its investors largely out of the savings generated by the program. If it’s not successful, the taxpayers are held harmless and the investors take the loss.
This “Pay for Success” model is an ingenious approach, and it’s one that is catching on nationwide.
Salt Lake County’s preschool initiative was one of three initial social impact bonds across the country, but 10 additional bonds are actively being considered, with the potential for many more, including additional bonds. Pleased with its initial success with its preschool efforts, the county recently issued a request for information for even larger social impact bonds to be launched in the coming year. Possible areas of emphasis include homelessness, recidivism, mental health and juvenile services. In each case, programs will be matched with private investors that will agree to clear benchmarks to determine whether the county will repay the bonds.
By doing this, the county isn’t just funding more government programs. It’s paying directly for specified outcomes. If those outcomes aren’t produced, the government simply doesn’t pay.
“People are tired of the debate between the people who say we need more programs and others say we need less,” Salt Lake County Mayor Ben McAdams told republic3-0.com in an interview about the pay for success approach. “Where we all agree is that we need to look for ways for government to spend money more efficiently and more effectively.”
He’s right. This could very well be the way to achieve that. Mayor McAdams envisions a future “where you could have a marketable investment that could attract private sector dollars for solving complex government problems in a more efficient way.” Should that prove to be the case, everyone would reap the rewards. This approach is still too new to draw definitive conclusions about its effectiveness, but it represents a kind of innovation not even seen in government.
If nothing else, it’s certainly worth a try.