Government should only pay for successful programs, right??

Recently Salt Lake County has been in the news nationwide for championing Pay for Success models as a means to provide services, but only pay when the service programs actually work to achieve designated outcomes. Here's more info on this Pay for Success model:

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.

Salt Lake County began testing the use of these funds (also known as Social Impact Bonds) in 2013 when we solicited $7 million in private funding from Goldman Sachs and J.B. Pritzker to give to The United Way (the administrator). This program allows 600 at-risk children to benefit from early intervention designed to keep them from staying in special education though out their education.  Special education is extremely expensive and it is estimated for every $1 of investment the taxpayer saves $14 when these students participate at grade-level. By third grade these students will be tested again to determine if they are still at-risk or are participating at grade level. For every student that stays out of special education the private investor will receive their money back, plus 5% interest. If a child doesn't make it out of special education then the taxpayer doesn't lose anything. We see a direct correlation between students in special ed and those who graduate from high school. There is then a correlation between students who don't graduate and those who end up in jail - one of the county's largest expenses.

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.