Pay for Success is performance-based contracting between government and social service providers, where government only pays providers if target outcomes are achieved as opposed to providing cost reimbursement payments. Under this model, the government commits funds to pay for a specific outcome. Independent investors provide the financial capital to cover the operating costs of achieving the outcome. In return for accepting the risks of funding the project, the investors may expect a return on their investment. Payment of the funds by the government is contingent on the validated achievement of results. The burden of investment risk shifts from government to the investors.
The Pay for Success model solves more than just social problems. It helps governments operate effectively. Historically, governments are inefficient in allocating and investing their resources. Supporters of a budgetary line item will fight to keep the funding even if it is inefficient. Political repercussions may keep this line item on the books indefinitely. This practice limits local government’s ability to solve problems. Funds that could be used for innovative problem-solving are tied up in waste. Salt Lake County reduces financial and political risks to the county by using a pay for success model. This model allows the county to solve problems by focusing on results and outcomes.
A couple months ago the County Council voted again to try the Pay for Success model on a 6-2 vote. They allocated $150,000 to come from the Office of Regional and Economic Development to negotiate contracts and to seek out ways to use private investment, comparable to the preschool program. Focuses will be
on recidivism, homelessness, and other social programs. This is an opportunity for government to partner with the private sector to make sure our county programs are even better.