Pay‐for‐Success Development in the United States: Feasible or Failing to Launch?

• DOI: http://doi.org/10.1111/puar.13099
• Author: Carolyn J. Heinrich,Sarah E. Kabourek
• Date: 01 November 2019
• Published date: 01 November 2019

Research Article

Pay-for-Success Development in the United States: Feasible or Failing to Launch? 867

Sarah E. Kabourek is a research

scientist at NORC at the University of

Chicago. She uses quantitative and

qualitative methods to study early childhood

education, public preschool, and issues

related to equity in public education

finance.

E-mail: sarah.e.kabourek@vanderbilt.edu

Abstract: Social impact bonds, known as pay-for-success (PFS) initiatives in the United States, have attracted

attention as a novel strategy for financing and providing preventive services to the most vulnerable populations.

This article provides an exploratory qualitative analysis of the Preschool PFS Feasibility Pilot grant applications

and projects initiated by the U.S. Department of Education to encourage state and local exploration of PFS for

implementing high-quality preschool programs. Drawing on the public administration evidence base that informs PFS

design, the authors examine the feasibility pilots’ features and investigate why grant applicants saw PFS as a promising

strategy for achieving their preschool program goals. The challenges encountered, lessons learned, and perceived

viability of fully executed PFS preschool programs are also discussed. Findings show that few projects are advancing

toward formal PFS arrangements, with many struggling to overcome constrained capacities, structural and political

barriers, and inherent incentives to minimize risk and loss.

Evidence for Practice

• Government actors play a key role in making pay-for-success (PFS) contracts viable and carry the primary

responsibility to ensure that these public-private partnerships are politically accountable to the public.

• Most of the Preschool PFS Feasibility Pilot projects funded by the U.S. Department of Education did not

advance to PFS contract arrangements because of capacity constraints, difficulties in financial modeling and

getting investors and payers on board, and other complexities of negotiating multiyear contracts.

• Even if PFS pilot efforts do not progress to full-scale projects, important capacities are being built (and

should continue to be supported with federal funding) for more effectively serving vulnerable populations

through public-private partnerships and for tracking longer-term outcomes.

• A greater commitment is needed on the part of PFS partners to ensure that impact evaluations undertaken

to assess project returns and determine payments for outcomes are methodologically rigorous and based on

long-term outcomes that cannot be easily “gamed.”

Carolyn J. Heinrich

Vanderbilt University

Carolyn J. Heinrich is Patricia and

Rodes Hart Professor of Public Policy,

Education and Economics in the Peabody

College at Vanderbilt University. Her

research focuses on education, workforce

development, social welfare policy, program

evaluation, and public management. She

also works directly with federal, state, and

local governments and nongovernmental

organizations in her research to improve

policy design and program impacts.

E-mail: carolyn.j.heinrich@vanderbilt.edu

Pay-for-Success Development in the United States:

Feasible or Failing to Launch?

Sarah E. Kabourek

NORC at the University of Chicago

Social impact bonds (SIBs) have attracted outsize

attention as a novel, “nothing to lose” strategy for

addressing some of our most “intractable social

challenges” (Brady 2016; Gustafsson-Wright, Gardiner,

and Putcha 2015). Characterizations of SIBs as a social

investment tool are not uniform in the literature, but

SIBs are typically distinguished by (1) their focus

on preventive-oriented programs that are expected

to have long-term payoffs; (2) performance-based

contractual mechanisms for financing that pay only for

specified program outcomes when attained; and (3) a

configuration of partners that includes the government,

private sector investor(s), an intermediary that manages

the arrangement, an independent evaluator, and the

program implementer(s) (Arena et al. 2016; GAO

2015; Warner 2013). The first official SIB pilot was

initiated in the United Kingdom in 2010, and some

have pointed to the global recession as a catalyst for

the emergence of SIBs (Williams 2018). Indeed,

Roy, McHugh, and Sinclair (2017) described SIBs as

the “archetypal ‘solution looking for a problem,’” in

that as governments were scaling back social welfare

expenditures, SIBs presented an opportunity as a no-

or low-risk instrument for financing and providing

beneficial services to vulnerable populations.

Many SIBs, or pay-for-success (PFS) initiatives as

they are more widely known in the United States, are

still in the early “feasibility” stages of development.

The Social Innovation Fund, a program of the federal

Corporation for National and Community Service

(authorized by the Edward M. Kennedy Serve America

Act in 2009), invests in evidence-based programs and

interventions at state and local levels to find “new ways

to solve old problems that are faster, cost-effective,

data-driven and lead to better results,” some of which

have progressed to PFS projects (see https://www.

nationalservice.gov/programs/social-innovation-fund).

Public Administration Review,

Vol. 79, Iss. 6, pp. 867–879. © 2019 by

The American Society for Public Administration.

DOI: 10.1111/puar.13099.