4 Steps to Get Cities Ready for $100M in Pay-for-Success Funding
SIPPRA passed and the first federal request of proposals open to all cities and states is expected in February 2019. Here's 4 steps practitioners recommend governments take to get their P3s ready.
The Social Impact Partnerships to Pay for Results Act (SIPPRA) legislation that passed as part of the Bipartisan Budget Act of 2018 appropriates $100 million to a Treasury-controlled fund. For the first time, investors in cities pay-for-success programs can be repaid by the federal government for outcomes, according to the Island Press Urban Resilience Project.
Social impact partnerships are public-private partnerships (P3s) that harness philanthropic and other private sector investments to scale up evidence-based social programs. According to a SIPPRA primer on Maine Senator Susan Collins website, the approved legislation officially adapts the United Kingdom’s Social Impact Bond model for broad use at the federal level. Under the new law, state and local governments can respond to the federal government’s request for a proposal to:
- Increase work and earnings of the unemployed
- Reduce welfare dependence
- Prevent child abuse and neglect
- Achieve other positive social outcomes that result in federal savings
The Catch: The Fed Only Pays for Actual Results
Because social impact partnerships are focused on results, government money is only paid out to private-sector investors when desired outcomes are met, and only in accordance with the value assigned to successful outcomes.
Also called as social impact bonds, about 20 pay-for-success projects have been launched in the United States, including the first municipal water 100-year green bond to DC Water for violations of the Clean Water Act and resulting in the DC Clean Rivers Project.
Pay-for-success however requires rigorous measurement of impact, and programs that don't result in outcomes are cancelled, like the moral reasoning group therapy project at Riker's Island Prison, a P3 New York City entered into with investor Goldman Sachs.
The first Pay-for-Success Request for Proposals is expected to be released by February 2019. The Urban Resilience Project suggests state and local governments start preparing to become attractive candidates with the following four steps:
#1 Determine if pay-for-success is an appropriate tool
The tool is used to scale underfunded, critical preventive services in order to improve the outcomes of environment or population, so it's complex.
#2 Focus on Prioritized Issue Areas
SIPPRA names employment and workforce development, high school graduation, unplanned pregnancies, maternal and infant health, chronic disease, foster care, prison recidivism, homelessness, behavioral health and substance use disorders, veteran reintegration, early childhood education, financial stability of low-income families as possible pay-for-success program areas.
Also, 50 percent of funding must benefit children. The Urban Resilience Project recommends resilience planning.
#3 Craft a strong feasibility assessment
SIPPRA requires formal feasibility assessments to be eligible for outcome payments, but federal funds will only support about 10 percent of the assessment costs. "Find a trusted partner" familiar with pay-for-success transactions that can help develop the feasibility assessment you'll need for your application.
Practitioners at the Harvard University's Government Peformance Lab suggested in an article about how to make the most of pay-for-success that the public sector may actually gain more value if it is used to fund programs with a medium-strength evidence base. SIPPRA offers "a great opportunity for promising programs to be rigorously tested for the first time in order to establish their evidence base going forward."
#4 Recognize this is a new government reality
Getting federal funding only when outcomes are achieved is not how state and local governments have worked with federal funding.
Become the internal champion and risk-taker leading these efforts. It could very well be a key part of the future of financing for critical state and local projects," Urban Resilience Project advised.