Solving Social Problems with Pay-For-Success Contracts

NCPA July 29, 2014

In the last six months, New York, Massachusetts and Illinois have each begun "pay-for-success" programs to combat social problems. Now, California is considering launching a similar initiative in the Golden State. Leonard Gilroy, director of government reform at the Reason Foundation, explains how the program would work.

Senate Bill 593 would utilize private-sector ideas, and funds, to address problems such as homelessness and crime recidivism. It would work like this:

• California would set a specific goal in these areas (such as reducing the homelessness rate by a certain percentage).
• Private investors and groups would fund non-profits that would implement social service programs on behalf of the state.
• If the privately funded groups are successful in meeting California's goals, the state would pay them with "success payments."
• If the groups fail, the state owes them nothing; only private investors, not taxpayers, will have lost money.

Gilroy writes that New York recently launched an initiative to reduce recidivism. The state expects $7.8 million in savings if the program is successful in meeting its targets.

Gilroy says that the program is promising, though he cautions California to be careful in writing these contracts in order to minimize taxpayer risk and to closely monitor the private programs' outcomes.

Source: Leonard Gilroy, "California Seeking to Partner With Private Sector in 'Pay-for-Success' Program," Reason Foundation, July 25, 2014.