New motto for a leaner Washington: Pay for what works
It sounds too good to be true: Rather than pay up front, we would agree to pay the philanthropists and private-sector funders behind a new program only after it succeeds.

Shutterstock.com

  • Title:

    Stretching the School Dollar
  • Paperback Price:

    27.95
  • Paperback ISBN:

    978-1-934742-64-8
  • 368 Paperback pages

Article Highlights

  • @rickhess99 and Robert Gordon of @BrookingsInst explore ways Washington can better fund programs.

    Tweet This

  • A smart Washington might want to try pay-for-success says @rickhess99 and Robert Gordon.

    Tweet This

  • States and cities are leading the charge on pay-for-success, but Congress has a role too.

    Tweet This

President Obama and leading Republicans are all looking for ways to foster economic opportunity and tackle pressing social challenges, even as annual non-defense spending is on track to amount to the smallest share of the economy in a half century. While some of us rejoice and others wince at that trend, we can all agree that this means a smart Washington should be shifting funds away from programs that don’t work and into ones that do.

This is easier said than done, but there are promising ideas out there.  One is “pay for success,” which seeks to put taxpayer money on the line only after programs have gotten results.  That may sound too good to be true—and it could turn out to be. But it’s well worth trying.

The concept behind pay for success is not complicated. Rather than pay for a service up front, the government enters an agreement to pay only after it  delivers specified results. Providers raise money from philanthropic or private-sector funders and a third-party evaluation is arranged.  If the program achieves its intended outcomes, the funders get back their initial investment and a reasonable return.
Five years ago, we had no pay-for-success initiatives in the U.S. Now we have four, including job training for ex-offenders and expanded early childhood programs.

If the program fails, the government pays nothing and the funders are out of luck.  Contracts can be written so that the government pays only when it will realize corresponding budgetary savings downstream.  In such cases, pay-for-success has the potential to finance useful services now without adding to long-term taxpayer costs.

Five years ago, there were no pay-for-success initiatives in the U.S. Today, there are four and counting.  Most offer job training and placements for ex-offenders, hoping to cut incarceration rates over time. An effort in Salt Lake City, supported by the J.B. Pritzker Foundation and Goldman Sachs, would expand early childhood programs with the aim of reducing the number of costly special education placements. If the program works, kids will be better off and the state will save funds. Forty percent of any savings will go to investors, but sixty percent will go into expanded early childhood education.

You can see the potential. Supporters of the President’s plan to dramatically increase early childhood investment, and to pay for it with a new tobacco tax, can continue to fight for that approach. Critics can continue to argue that it’s a wasteful white elephant. While the two sides (and the two of us) fight that one out, pay-for-success is something we should all be able agree on.  The approach can make it possible to expand early childhood programs while producing new evidence about how to run them effectively.

If the programs don’t work, taxpayers won’t get stuck with the tab.

States and cities are leading the charge on pay-for-success, and that’s as it should be. They get most of the savings from good crime prevention and pre-kindergarten programs.

That said, there’s a modest but potentially important federal role as well. The anti-recidivism pay-for-success efforts got their start with federal innovation funds (at the Department of Labor, in this case), even though this meant Congress allocated fewer resources for the usual block grants.

Absent a dedicated funding source, doing pay-for-success for early childhood education would require trims elsewhere—say, in business development programs that duplicate what the private sector already does. But that’d be worth it: Unlike too much of what government does, pay-for-success has the potential to make a measurable difference, for both beneficiaries and state budgets.

There’s a unique federal role in supporting pay-for-success programs that yield mainly federal savings. The obvious example starts even before pre-kindergarten—in the home visiting programs for at-risk pregnant moms which, evidence shows, can lead to healthier, smarter babies.  Right now, Medicaid doesn’t support such success-based payments, but either the Administration or Congress should change that.  If Medicaid pays only to the extent that a home visiting program can show savings, there shouldn’t be any federal cost at all.

Congress might even create an all-purpose Pay for Success Fund, along the lines that Conservative prime minister David Cameron created in Britain or that President Obama has proposed. In today’s world, any funds would have to be paid for by offsetting budget cuts. But such a deal would let the President put new funds into early childhood; let Republicans support successful social programs with private support; and make taxpayers pay only after the program delivered results.

There are surely other paths worth pursuing, too. But this much we know: a smart Washington might want to try pay for success.

Robert Gordon is a visiting scholar at the Brookings Institution. Frederick M. Hess is the director of education-policy studies at the American Enterprise Institute.

Also Visit
AEIdeas Blog The American Magazine
About the Author

 

Frederick M.
Hess
  • An educator, political scientist and author, Frederick M. Hess studies K-12 and higher education issues. His books include "Cage-Busting Leadership," "Breakthrough Leadership in the Digital Age," "The Same Thing Over and Over," "Education Unbound," "Common Sense School Reform," "Revolution at the Margins," and "Spinning Wheels." He is also the author of the popular Education Week blog, "Rick Hess Straight Up." Hess's work has appeared in scholarly and popular outlets such as Teachers College Record, Harvard Education Review, Social Science Quarterly, Urban Affairs Review, American Politics Quarterly, The Chronicle of Higher Education, Phi Delta Kappan, Educational Leadership, U.S. News & World Report, National Affairs, the Washington Post, the New York Times, The Wall Street Journal, the Atlantic and National Review. He has edited widely cited volumes on the Common Core, the role of for-profits in education, education philanthropy, school costs and productivity, the impact of education research, and No Child Left Behind.  Hess serves as executive editor of Education Next, as lead faculty member for the Rice Education Entrepreneurship Program, and on the review boards for the Broad Prize in Urban Education and the Broad Prize for Public Charter Schools. He also serves on the boards of directors of the National Association of Charter School Authorizers and 4.0 SCHOOLS. A former high school social studies teacher, he teaches or has taught at the University of Virginia, the University of Pennsylvania, Georgetown University, Rice University and Harvard University. He holds an M.A. and Ph.D. in Government, as well as an M.Ed. in Teaching and Curriculum, from Harvard University.


    Follow AEI Education Policy on Twitter


    Follow Frederick M. Hess on Twitter.

  • Email: rhess@aei.org
  • Assistant Info

    Name: Sarah DuPre
    Phone: 202-862-7160
    Email: Sarah.DuPre@aei.org

What's new on AEI

image The money in banking: Comparing salaries of bank and bank regulatory employees
image What Obama should say about China in Japan
image A key to college success: Involved dads
image China takes the fight to space
AEI on Facebook
Events Calendar
  • 21
    MON
  • 22
    TUE
  • 23
    WED
  • 24
    THU
  • 25
    FRI
Wednesday, April 23, 2014 | 12:00 p.m. – 1:30 p.m.
Graduation day: How dads’ involvement impacts higher education success

Join a diverse group of panelists — including sociologists, education experts, and students — for a discussion of how public policy and culture can help families lay a firmer foundation for their children’s educational success, and of how the effects of paternal involvement vary by socioeconomic background.

Event Registration is Closed
Thursday, April 24, 2014 | 12:00 p.m. – 1:30 p.m.
Getting it right: A better strategy to defeat al Qaeda

This event will coincide with the release of a new report by AEI’s Mary Habeck, which analyzes why current national security policy is failing to stop the advancement of al Qaeda and its affiliates and what the US can do to develop a successful strategy to defeat this enemy.

Friday, April 25, 2014 | 9:15 a.m. – 1:15 p.m.
Obamacare’s rocky start and uncertain future

During this event, experts with many different views on the ACA will offer their predictions for the future.   

No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.