“Pay for success has brought state and local governments into the impact-investing world. It brought in people who run homeless shelters and do job training: ‘If I’m good at what I do, I can access the capital markets.’”
On Monday, the city launched a new Pay for Success Project. The English for Advancement program will provide language training and job placement for limited English speakers in Lowell seeking to advance their careers.
Financial innovation is key to impact investing and several organizations have made Austin a base to launch new financial approaches to social issues. For example, Social Finance opened an Austin office a few years ago to explore pay-for-success structures around issues like workforce development and homelessness.
In theory, SIBs are win-win: improved social outcomes save governments money while paying investors for their capital. Moreover, they encourage all sides to pursue interventions that are proven and likely to work, as opposed to interventions that someone hopes will work.
The legislation in the bipartisan budget bill authorizes the US Treasury to award competitive funding to states and local governments for pay-for-success projects and feasibility studies across a range of issues.
So far, private investors have funded 108 projects aimed at saving governments money with innovative projects serving everyone from homeless youths in Australia to parents in need in Germany to blind people in Cameroon.
The U.S. accounts for fewer than 20 percent of the 108 projects that have launched worldwide, but it accounts for about half of the total funding committed to PFS ventures, according to new numbers released by Social Finance, one of the lead organizations overseeing several American PFS projects.