Pay for Success Model Grows, Offers Lessons

Three years ago, we launched the California Pay for Success Initiative as an experiment. With this time-limited project, we sought creative approaches to funding high-quality social services for society’s most vulnerable individuals, and to discover ways to bring resources to proven programs.

Last week, we hosted a gathering of our partners in the California Pay for Success Initiative to reflect on what we’ve accomplished and learned. (And one of those partners, the Nonprofit Finance Fund, just released a helpful new scorecard about the lessons of Pay for Success.)

Pay for Success is a model designed to improve outcomes, reduce costs, and bring new investors into efforts to improve our communities. In a Pay for Success contract, participants — including private investors, foundations, government entities, and service providers — set targets for success and ways to measure them (e.g., a reduction in homelessness).

Governments pay for the services in part or in full based on outcomes. In some cases, investors provide initial funding and are reimbursed by the government if the outcomes are achieved. (Visit payforsuccess.org for more information on the model.)

Irvine selected Nonprofit Finance Fund, a Community Development Financial Institution that was growing its expertise with the Pay for Success model, to manage the Initiative. This partnership has been key to the Initiative’s success.

Our goal for the Initiative was to build a robust Pay for Success field in California, and to launch two to three Pay for Success deals in the state by the end of 2016. With two Pay for Success projects launched in Santa Clara already, a pilot launched Friday in Alameda County, and others soon in Los Angeles and Ventura, we are on track to do just that.

Last week’s conference gave us the opportunity to take stock of what we have learned over the course of the Initiative. The gathering was a reminder of how far we have come in a very short time.

At the meeting, we acknowledged that Pay for Success is more than just a transaction. Our goal is to make meaningful change for individuals and communities who need a little help to overcome obstacles. We are thrilled to already see benefits of this effort. And beyond the project launches, the Initiative has shifted how providers of critical community services work with their partners in government and philanthropy to solve complex problems.

In every project, you learn something that you couldn’t have predicted. There were a number of potential Pay for Success projects that did not launch, but we found that just the pursuit of Pay for Success projects can help funders, governments, and social service providers focus on outcomes – the number of people who are permanently housed, or who rebuild their lives after being incarcerated, for example.

The City and County of San Francisco explored using Pay for Success to reduce homelessness, but the team was unable to launch a project during the Initiative. However, the feasibility process uncovered challenges with providing services, including an inability to track an individual’s progress over time and the effectiveness of services. As a result, San Francisco committed to investing in much-needed data infrastructure and is transforming its homelessness services by bringing all its programs under one Department of Homelessness. This was an unexpected benefit – but one that will surely serve the people of San Francisco.

We want to share such lessons with the field as Irvine plans for the culmination of our Pay for Success Initiative. Along those lines, the Nonprofit Finance Fund produced an extremely useful analysis of the past three years. The report, called “Pay for Success Scorecard: Lessons from the Vanguard of the Outcomes Movement,” examines progress made toward the goals of the California Pay for Success Initiative. The report shares insights from 25 California Pay for Success stakeholders and offers perspective on how to rethink the way we provide social services in our communities.

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