This piece was written by Jitinder Kohli and Douglas J. Besharov for the Centre for American Progress on February 2, 2012.
This year will mark the first time so-called “pay-for-success” bonds gain a foothold in the United States, courtesy of President Barack Obama, Massachusetts Gov. Deval Patrick, and New York City Mayor Michael Bloomberg. It’s been a short time coming, which is good news for supporters of this new way of financing social services that matches money with specific social-policy goals.
It was only in last year’s federal budget that President Obama announced that his administration endorsed the idea of pay-for-success bonds. The administration at the time said it believed the concept had significant promise—and asked Congress for up to $100 million to help states and cities implement the idea. Then last week the administration announced that the Departments of Labor and Justice would both support pay-for-success pilots through the Workforce Innovation Fund and Second Chance Act grants.
Massachusetts Gov. Patrick is now following in the president’s footsteps, having just launched a request for proposals for pay-for-success projects in his state. And Mayor Bloomberg is also developing a pay-for-success project for young people discharged from prison.
Pay-for-success bonds, also called social impact bonds, are an innovative financing arrangement for social services that the Center for American Progress first wrote about in 2010. In essence, the government defines a social outcome that it wants to see accomplished, such as a reduction in the recidivism rate for a group of discharged prisoners, and promises to pay a sum of money to an external organization when the outcome is achieved. If the idea takes off, it will ensure that more government funding is directed toward approaches that are effective at achieving real outcomes.
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