Reflecting on 10 Years of Pay for Success @ Sorenson
By Dalton Guthrie, Haas MBA 2020
Attending the Sorenson Winter Innovation Summit provided me a unique opportunity to explore a number of topics related to impact investing and social impact at large. This past summer I interned with Third Sector Capital Partners, one of the nonprofits that has led the adoption of Social Impact Bonds and Pay For Success projects in the United States.
At the conference I attended a panel breakout on Pay For Success that reflected on lessons from the past decade and potential for the movement in the next decade.
The panelists and audience members of the Pay For Success discussion acknowledged that this work is hard and tricky. Picking the wrong metric could cost an involved party millions, or even worse could lead to outcomes that actually increase inequity rather than reduce it. Uncertainty around funding or additional data entry requirements can burden an already resource-strapped nonprofit. Government enthusiasm in a project can change with an election. The social sector has often struggled to reproduce statistically significant findings on the efficacy of social service programs. Government systems are often not set up to share data in a way that allows the tracking of outcomes as opposed to activities.
There will never be a silver bullet to solving society’s complex social issues and the excitement and enthusiasm around Pay For Success may have set expectations too high. Early projects ran into operational challenges such as insufficient enrollment to meet contractual obligations. Some projects had insufficient on-ramps built in before evaluation targets began affecting payments. Deals often took longer to put together and were costlier than anticipated. In recent years, many Pay For Success projects have simplified the process by reducing the number of involved parties. A deal is easier to finalize if there is only one investor or philanthropic funder as opposed to many. Some models have even removed certain parties altogether such as Outcomes-Oriented or Results-Driven Contracting that eliminate the need for private funding or Career Impact Bonds that do not involve any government entity.
The movement today seems to focus slightly less on the excitement of bringing new private capital to social services than it did a decade ago, and more on finding creative and appropriate ways to scale the concepts that embodied Pay For Success to local governments and nonprofits across the country. While the enthusiasm for Social Impact Bonds has declined from its peak, there were many people in the room still passionate about spreading key components of Pay For Success such as a focus on outcomes, fostering stakeholder engagement, defining metrics of success and building data systems that can track them, as well as establishing, sharing, and implementing best practices for program effectiveness. Social Impact Bonds can still be the right tool for some situations, but a broader toolkit is necessary.
Federal legislation like the Social Impact Partnership to Pay for Results Act (SIPPRA), which allocated $100 million for feasibility studies and outcomes payments for validated projects, represent a willingness to continue to work through these models. Participants discussed desires for increased funding for outcomes payments at different levels of government, as well as increased funding to study the effectiveness of programs. There also seemed to be consensus that the next phase in this movement will be characterized by increased flexibility and creativity in project design, to ensure each project meets the needs of the involved stakeholders.
The discussion felt like a microcosm of the conference. There were enough practitioners in the room to have real discussions about the potential and drawbacks of certain tools and models. But on the whole, the energy was largely optimistic about continuing to engage and fight for better outcomes for those who are struggling.