Pay-for-Success: New Opportunities for Funding Social Impact

guest blog post by Ed Long, Principal, Cross-Sector Innovations

Nonprofits are a critical component of the service delivery system supporting Oklahomans facing complex challenges. Issues such as homelessness, high incarceration rates and poor health outcomes do not have easy solutions; however, there are evidence-based programs that can produce significant, positive outcomes. Funding these interventions can sometimes be a challenge. Government budgets can be strained by existing efforts to meet immediate needs of their citizens, and philanthropic dollars can only go so far and address so many issues.

However, cities and states around the country are turning to a pay-for-success (PFS) funding model, also known as a social impact bond. The concept of paying for outcomes can take a variety of forms. This particular model is a new way of funding social impact in which investors can earn a return if pre-defined outcomes are achieved, government pays nothing if these outcomes are not achieved and service providers have up-front funding to implement and scale evidence-based programs.

In essence, investors provide funding for service providers to develop and launch evidence-based interventions to improve social outcomes and, in turn, save taxpayer dollars by reducing the need for government-funded programs and services further downstream. The investors, service providers and relevant government agencies enter an agreement in which the desired outcomes are established in advance. For the sake of discussion, let’s say the goal is to reduce recidivism by 5 percent over a period of several years. If the service provider (or group of providers) is successful and the 5 percent threshold is achieved, some of the costs avoided on the part of government can be used to pay back the investor and/or reinvest in the intervention. The remainder of the cost avoidance helps reduce the strain on the state budget.

With approximately 66 executed contracts worldwide, the model is somewhat new. However, it has bipartisan political support at the federal and state levels and has attracted top investors and philanthropists across the country. According to the Sorensen Impact Center at the University of Utah, approximately 39 states are either in the process of or have already conducted feasibility studies to determine if this model is a fit for the challenges they’ve identified. PFS is also gaining significant interest in Oklahoma among elected leaders, agency administrators and philanthropists.

As nonprofits seek new ways to fund the important work they do to improve the lives of Oklahomans, PFS may be an option. To learn more about the PFS model, we hope you will register for our upcoming webinar on February 22 from 1:30 p.m. to 2:30 p.m. More information is available at https://www.oklahomacenterfornonprofits.org/event/webinar-pay-success-funding-model.

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