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Pay for Success Emerges as New Financing Mechanism to Support Continued Early Learning Investment

Resource June 22, 2016

Pay for Success (PFS) is a financing mechanism that leverages community-based solutions to public sector interests with private investment. Though public investment in early childhood education has undoubtedly increased, the demand is far greater than what has been financed, leaving a marked supply shortage. PFS financing is one way to narrow this gap between supply and demand. This innovative contracting model is gaining bipartisan, legislative traction at the state level which is therefore lead to increased federal interest and support.

Most recently, the bipartisan bill introduced by Rep. Young (R-IN), the Social Impact Partnerships to Pay for Results Act (H.R. 5170), passed in the House of Representatives by a voice vote on Tuesday, June 21st.  The new PFS bill is yet another example of bipartisanship on behalf of improving the lives of our youngest learners.

This legislation that passed the House last night would foster the creation of public-private partnerships at the state and local level that harness philanthropic and other private-sector investments to scale up scientifically-proven programs which are already being implemented.

The law establishes the Federal Interagency Council on Social Impact Partnerships to coordinate the efforts of social impact partnership projects, in addition to creating a public website for project information. The bill also proposes establishing a Commission on Social Impact Partnerships to assist the Treasury and the Federal Interagency Council in reviewing funding applications. Importantly, the bill requires at least 50% of payments for partnership agreements be used for projects that directly benefit children, in addition to a one-year extension of the Temporary Assistance for Needy Families (TANF) program. It’s companion bill in the Senate, the Social Impact Partnership Act (S. 1089), was introduced by Sen. Hatch (R-UT) and cosponsored by Sen. Bennet (D-CO) on April 27, 2015. It is waiting consideration by the Senate Finance Committee.

The White House has been vocal in its support for PFS financing; additionally it has been consistently included in the President’s annual Budget Proposal. On June 10, 2016, the U.S. Department of Education hosted a Pay for Success Convening. During this event Roberto Rodriguez, Deputy Assistant to the President for Education, asserted the White House’s support for PFS as additive, and not intended to replace their commitment to core programs across federal agencies.

The lifecycle of a PFS project differs from the conventional flow of public funds to meet public needs. With PFS, after conducting a feasibility study that demonstrates the capacity for impacting a significant unmet need with an evidence-based intervention, such as early learning programs like home visiting, successful candidates then begin structuring the transaction and implementation of the PFS project.

Key players in PFS projects include: Government (local, state, and federal), private funders (commercial, philanthropy), an intermediary to manage the project, an independent evaluator to measure impact and outcomes, and the service providers delivering the intervention on the ground. Once the PFS project is implemented, the independent evaluator determines if there are successful outcomes. The governmental entity pays the private funders if, and only if, it is determined there are successful outcomes.

Further evidence of building momentum at the federal level is the Evidence-Based Policymaking Commission Act of 2016 (H.R. 1831) which was spearheaded by Speaker Paul Ryan (R-WI) and Senator Patty Murray (D-WA) and which passed into law at the end of March 2016. The law establishes a Commission in the executive branch to conduct a comprehensive study of the data inventory, data infrastructure, and statistical protocols related to federal policy making. The U.S. Department of Health and Human Services and the U.S. Department of Education are two of the agencies that will consult with the commission.

Finally, the Every Student Succeeds Act (ESSA) is another major piece of legislation that incorporates the potential role of PFS to support investing in young children. Signed into law by the President on December 10, 2015, ESSA, the reauthorization of the primary education law, replaces No Child Left Behind and includes funds for PFS initiatives under Part D of Title I (Programs for Neglected, Delinquent and At Risk Children and Youth), Part A of Title IV (Safe and Drug Free Schools), and in Early Childhood coordination funds.

91% of voters, whether Democrat or Republican, agree: learning in the early years is critical for future success. Over the years, cities and states have bolstered their capacity to address this public need. What’s more, 74% of voters want to spend now to get later economic gains from early childhood education. Early learning is a bipartisan issue, and ongoing federal investment is critical as it enables states to lead the way. According to the Education Commission of the States, public investment in pre-K at the state level is close to $7 billion; not included in this amount is the continuum of early learning programs that serve young children from low-income backgrounds, ages birth through five.

Despite the fact that public investment in early learning has continued to grow over the years, there remains a gap between the need for high quality early learning opportunities and the federal government’s capacity to meet that need. PFS financing supplements, does not supplant, the core programs that serve young children from low-income backgrounds across the country. When implemented with a commitment to transparency and accountability, PFS is a viable mechanism to expand and deepen investment in early learning at the local, state and federal levels.


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