Pay for Success (PFS) is all over the news these days. PFS is a new and experimental partnership model between government, social service providers, and private investors to tackle chronic social problems. In a nutshell, private capital, both philanthropic and commercial, is deployed to support high-performing social preventative interventions. These private investors assume the risk by financing the services up front, getting repaid only if agreed-upon measurable social impacts are achieved. In exchange for taking the risk, the investors receive a financial return. This means that precious government resources are spent only in the event of proven success and government savings.
While much of the discussion around PFS has focused on the contracting and the financial model itself as the innovation, Living Cities is especially excited about the possibilities that PFS opens up in terms of investing in people and in promising solutions to our nation’s most wicked problems. To prime the pump and test if PFS is a viable channel for investing in human capital, Living Cities, through the Catalyst Fund, invested $1.5 million in the Massachusetts Juvenile Justice PFS transaction. This seven-year, $27 million deal is focused on reducing recidivism and increasing employment for at-risk, formerly incarcerated young men in the Boston, Chelsea and Springfield areas. This is the largest PFS transaction in the world to date.
Pay For Success Investments
$1.5 million The amount of funds that Living Cities invested in the [Massachusetts Juvenile Justice Pay for Success transaction.
Recently, the New York Times ‘Fixes’ column highlighted Roca, the service provider in the Massachusetts PFS initiative. While the column touched upon the details of the transaction, it focused on telling the stories of the youth who are benefitting from Roca’s comprehensive portfolio of programs. We meet Kelord, a young man who went from feeling trapped in a cycle of selling drugs, jail, and chronic unemployment to, at 24, completing his G.E.D., holding a permanent job, and believing in a better future for himself and his family.
PFS enables Living Cities and other investors to make a bet and invest in organizations like Roca. And, Roca makes bets on youth like Kelord—investing in them through a combination of skills training, transitional employment, job placement, motivational sessions that encourage reflection, and a rigorous data system for monitoring all participants’ progress. This, in turn, gives participants the opportunity to bet on themselves. This is where we see the real promise of PFS, whether the issue area is recidivism, early childhood education, foster care or preventative health—it is about how it all comes together to make a material positive impact in people’s lives.
This post originally appeared on April 30, 2014.