A San Francisco foundation today announced that it is providing $2.5-million to help “pay for success” projects gain a philanthropic foothold in California as similar efforts advance in Massachusetts, Utah, and New York.
In pay-for-success projects, donors, foundations, or other investors provide money for social programs that are expected to produce results that in the long run will save money for government agencies. If the programs achieve specific results, the government repays investors with a profit generated from those savings. If not, the government pays nothing.
The concept is being explored in more than a dozen states, but only a few programs are now under way. That’s largely because governments are often slow to change their procedures and it’s been hard to attract private investors and find nonprofits that can both deliver innovative services and track results, said Antony Bugg-Levine, chief executive of Nonprofit Finance Fund, which will run the effort in California paid for by the James Irvine Foundation.
Justice and Education
Just on the heels of the Irvine Foundation’s announcement, the Massachusetts State government said that on Wednesday it plans to announce details and new supporters of a pay-for-success plan to help juvenile criminal offenders from getting arrested again. The program has already received nearly $40-million in grants from the state and the federal Department of Labor’s work-force innovation fund. [Update on January 29: See this article from Reuters on the announcement.]
Two other prominent efforts are under way in New York:
• Goldman Sachs has agreed to provide $9.6-million to finance a pay-for-success project that works at the Rikers Island Prison Complex to reduce the number of young people who return to criminal activities. Bloomberg Philanthropies provided a $7.2-million grant to guarantee most of the Goldman Sachs loan.
• The New York State government in December financed a project with $13.5-million from private investment funds to support the Center for Employment Opportunities’ program to employ men leaving New York prisons. State and federal governments will make payments to investors if the center meets specific benchmarks.
While most of the efforts so far have focused on helping people who have landed in prison, at least one high-profit project involved education.
In Utah last summer, Goldman Sachs and the investor J.B. Pritzker invested $7-million to expand a Salt Lake preschool program for at-risk children that should provide the state with savings by lowering the number of students who turn to public special-education services.
More Testing
In California, the Irvine Foundation’s grant will help pay for the Nonprofit Finance Fund to provide expertise to nonprofits that want develop pay-for-success projects.
Doing so will help “prove or disprove if pay-for-success is a scalable solution,” said Don Howard, executive vice president of Irvine. “This is a proof-of-concept phase.”
“This is about helping smart leaders test out promising solutions at a moment in time that if they succeed there is a chance for breakthrough results.”