Salt Lake County will be deciding in the next few weeks whether to embrace a promising policy experiment that uses the logic of the free market and the rigor of modern data to solve social problems.
Known as “Pay for Success,” the approach allows government to test innovations at low risk to the taxpayers. Government works with private public-spirited investors to outline a plan for change and measurable targets. If the investors buy in, they put up the money. A nonprofit or government agency does the work, and a third-party agency determines whether the targets have been met. If so, the investors get paid.
The role of private investors ensures that both outcomes and the levers used to get to them are clear. If the experiment proves effective, it can be carried forward by government agencies, now knowing that the taxpayers will be getting a good bang for the buck.
PFS is now being used in Salt Lake’s Granite School District to help reduce the need for special education services by getting quality preschool instruction to at-risk low-income children.
The United Way of Salt Lake spearheaded the preschool project, which launched in 2013. Goldman Sachs put up just over $5 million, partnering with a smaller investor, and the Granite School District taught the resulting preschool classes.
Two years later, the results are impressive. In its first year, the project paid for 595 low-income students to attend preschool. Of those, 110 were, based on testing, deemed likely to need special education in kindergarten, but only one of those ended up needing it. The schools saved $281,500 on expected special education costs, and most of that will be returned to the investors. The children will be monitored through sixth grade, and the investors will be repaid gradually if the preschool impact continues.
Salt Lake County Mayor Ben McAdams now wants to use PFS to help those at risk of chronic homelessness. If it works, the experiment will, of course, improve the lives of those served. But it will also save taxpayers money by reducing the need for expensive medical, emergency shelter and criminal justice services.
The details are still being worked out, but the first hurdle occurs tonight, Dec. 8, when the county hosts a public hearing and then votes on whether to reinvest taxes currently being used to pay off a jail bond.
That 20-year jail bond repayment ends in April. The mayor has proposed the taxes currently being used to pay it off should be used for preventive services that will reduce pressure on county emergency services, and reduce the need for new spending.
If the county does reinvest those funds, the next question is whether to set aside some of those funds for the Pay for Success experiment. The county would need to put roughly $15 million in an escrow to pay investors if targets are met.
But if objectives are properly crafted, the county faces little financial risk. If the targets are not met, the money is still there. If the targets are met, the county will save money on emergency shelter, medical care and law enforcement and court costs. And in the process, we'll learn more about what works and what doesn't.
While the PFS model is still in its infancy, it promises to bring valuable rigor and market-style accountability to social service innovation. Salt Lake and Utah are increasingly viewed by outside observers as leading policy innovators. This would be another positive step in that direction.