In 2013, Social Impact Solutions (SIS) formed with a mission of building out Colorado’s emerging Pay-for-Success (PFS), also known as Social Impact Bonds, field. Leveraging the growing interest in impact investing, SIS began working with governmental entities, investors, foundations and social programs to take promising programs to scale with new social finance strategies. In the ensuing years, much progress has been achieved.
In 2016, Colorado’s first PFS deal was closed, providing $8.6 million of new capital to provide permanent supportive housing for 250 chronically homeless adults in Denver. SIS joined two national housing organizations and a Harvard Performance Lab Fellow assigned to the city to design the deal, which includes two service providers, eight investors, and a nationally recognized evaluation firm.
Also in 2016, SIS worked with foundations and the Westminster School District to structure a PFS pilot initiative. This effort will allow 300 children to access full-day preschool and will fund a rigorous study of the outcomes of the intervention. If the study shows positive results, the initiative is designed to scale so that it is available to all eligible four-year-olds in the school district, using private capital to fund a full PFS financing.
Involving the Government
In 2015, SIS was instrumental in an effort with other partners to develop bipartisan legislation to allow the state to participate in PFS transactions, as the outcomes-payer — i.e., buying outcomes for Coloradans. This authorizing legislation, which Governor Hickenlooper signed into law, set up a process for the Governor’s Office of State Planning on Budgeting (OSPB) to solicit and evaluate PFS ideas and a mechanism to allow the state to use realized savings for outcomes payments to investors. This has broadened the range and scale of PFS potential in the state. OSPB has begun to solicit PFS projects.
The federal government has provided technical assistance grants to help build the PFS field in the US. Both the Denver and Westminster deals referenced above were supported with these grants. In fact, efforts in Colorado have won a disproportionate number of these grants, with nine of the approximately 55 national technical assistance grants, as of 2016, coming to PFS projects within the state.
A dedicated group of foundations and other funders has met quarterly for three years to prepare themselves for the evidence-based, outcomes-funding world of the future. Several of these funders became investors in the Denver and Westminster deals. They actively seek other investments and additional ways to advance the PFS field.
While this is impressive progress, much work lies ahead before PFS and other impact investment strategies become widespread financing strategies that materially help grow the most effective social programs. Some of the remaining barriers include:
- Most social programs either have not been structured to track outcomes or have not had the resources to study rigorously the outcomes generated by their efforts. The shortage of evidence-based programs with strong studies to back efficacy has significantly slowed progress in the field.
- There is a shortage of government entities with the knowledge, staff bandwidth and appetite to shift from activity-based funding to outcomes-based funding.
- The development phase for PFS deals remains a costly multi-year process which significantly limits its ability to become a viable financing tool. This is both unsur-prising, as only 15 PFS deals have been done thus far in the US, and an obstacle that must be overcome if PFS is to become a meaningful funding source to take social programs to scale.
…But Momentum Is Building
While these obstacles are real and must be addressed, they do not detract from the remarkable progress to date. Moreover, as we look to the future, there are many positive signs of building momentum. The first PFS deal in Colorado has passed its first anniversary, and while it is too soon to report results, over 100 people have been housed and 160 new housing units are scheduled to come on line at the end of the summer. The Early Childhood Council of Boulder County has completed a PFS feasibility study of a program focused on parent and child (0-3 years) mental health. Invest in Kids is in the midst of a PFS study concerning growing its successful early childhood program called the Incredible Years. The state has made progress implementing the 2015 PFS legislation, receiving more than 60 responses to a call for proposals concerning at-risk youth who are involved in the child welfare or juvenile justice systems.
In the service provider community, interest continues to grow in how to better design programs with a focus on outcomes and how to rigorously evaluate these efforts to see if the desired outcomes are achieved. Illustrating this increased interest in outcomes-based funding was a gathering of over 100 providers for a workshop led by Social Impact Solutions and the evaluation and outcomes research consulting firm, the Results Lab. Also looking to add support in this field is the relatively new Barton Institute for Philanthropy and Social Enterprise at the University of Denver.
The very best social programs with strong outcomes have long struggled to reach their potential due to a lack of a revenue engine that is both scalable and sustainable. Impact investing in general, and pay for success specifically, holds a great deal of potential to address this limitation, and in turn, accelerate the pace of social progress. While PFS is still in its infancy, much progress has been achieved and momentum is building. Colorado is well positioned to build upon its status as a national leader in the field.
The mission of Social Impact Solutions is to grow the field of social impact bonds through partnerships with government entities, investors, foundations and social programs.
Ken Weil is co-founder and Principal of Social Impact Solutions (SIS). Previously Ken served as the regional Executive Director of College Summit. He also chaired the Ritter gubernatorial campaign before serving as the governor’s Deputy Chief of Staff for Policy and Initiatives, developing and implementing the Colorado Promise agenda.
Prior to co-founding SIS, Mary Wickersham served as Senior Director of Policy and Innovation at the Piton Foundation. As Director of Initiatives for the Colorado State Treasurer, Mary developed and implemented the Building Excellent Schools Today (BEST) Act. As Governor Ritter’s Senior Education Policy Advisor, Mary helped develop and implement a range of education programs.