Improving Federal Policy for America’s Children

In 2018, the Social Impact Partnerships to Pay for Results Act (SIPPRA) became law as a provision in the Bipartisan Budget Act of 2018 (P.L.115-123). The legislation created a $100 million fund, managed by the Department of the Treasury, “to improve the lives of families and individuals in need in the United States by funding social programs that achieve real results.” Unfortunately, numerous headwinds have limited the program’s impact. SIPPRA’s greatest shortcoming is its failure to spur effective projects focused on children, despite having a legislative mandate to award 50% of funding to programs that directly benefit children. As Treasury prepares to release their second round of SIPPRA funding, they have an opportunity to rethink the implementation of the program and unlock its potential to create long-term prosperity for our nation’s children.

The Opportunity To Invest in Children

In the United States, millions of children live in conditions that limit their opportunities to thrive. Twelve million children live in poverty, 12 million live in households that face high housing burdens, four million lack health insurance, and one in seven high school students do not graduate on time. Children of color, in the LGBTQ+ community, and who live in rural areas often face even greater challenges. In addition, the Covid-19 pandemic has placed even more stress on children and families.

However, a wide array of programs and interventions can produce long-term outcome improvements for children. For example, an approach called cognitive behavioral therapy, a psycho-social intervention, can reduce future criminal justice system interactions, K-12 grade repetitions, special education use, health care use, and even mortality. Functional Family Therapy for youth post-release from incarceration, an intervention that enhances protective factors and reduces risk factors in the family, often leads to improvements in criminal justice, labor market, and educational outcomes.

Evidence-based programs such as these can produce positive benefits for children, youth, families, and society at large. However, as a nation, we continue to underinvest in these approaches—reaching only a fraction of the children and families who could benefit—and rarely ensure they produce intended outcomes.

The Social Impact Partnerships to Pay for Results Act

Across the world, 37 countries have launched a total of 225 outcome-based payment initiatives, also known as Pay for Success, Social Impact Bonds, or Impact Bonds. In the United States, state and local governments have launched dozens of projects over the past decade focused on a wide range of social issues, including criminal justice, early childhood education, maternal and child health, workforce, homelessness, and child welfare.

SIPPRA sought to expand the federal government’s use of outcome-based payments, an innovative approach in which the government pays for a program only if it meets predetermined outcome metrics. Through SIPPRA, the federal government can pay for outcomes across 21 domains, including childbirth, employment, education, child abuse and neglect, foster care, incarceration, homelessness, and mental, emotional, and behavioral health, and even outcomes specifically related to improving the employment and well-being of returning United States military members. By expanding outcomes-based funding at the federal level, SIPPRA has the potential to:

• Shift limited public funding toward social programs that can achieve demonstrable, measurable results
• Establish the use of impact investing and public-private partnerships to leverage cross-organization synergies and scale social interventions
• Incentivize coordinated strategies that cross traditional policy and agency siloes
• Cut through compliance and logistical hurdles of traditional funding approaches

The Way Forward: SIPPRA for America’s Next Generation

Despite receiving numerous applications for funding, SIPPRA has only made a handful of awards. Among other concerns, applicants cited Treasury’s conservative definition of how SIPPRA should value each outcome, the substantial communication required with Treasury and other federal agencies to agree on their proposed valuations for each outcome, and the pressure to impose strict evaluation requirements, such as randomized controlled trials (RCTs). Many potential applicants decided not to apply due to these and other concerns. This has put numerous promising initiatives in limbo and is limiting opportunities to scale effective solutions for communities. Treasury should use its existing authority under SIPPRA to expand investments, especially for children, by implementing four key strategic changes.

1. Utilize Present Value

The SIPPRA legislation states that outcome-based payments must be “less than or equal to the value of the outcome to the Federal Government over a period not to exceed 10 years.” Treasury currently interprets this to only include benefits that accrue strictly within this period. However, existing federal guidance from the Office of Management and Budget directs agencies to “cover a period long enough to encompass all the important benefits and costs.”

In its valuation of outcomes, Treasury should consider the flexibility allowed for under OMB guidance and incorporate the long-term impact that will occur from outcome improvements within the first ten years. Substantial research demonstrates many short- and intermediate-term outcomes for children are highly predictive of longer-term impacts. For example, whether a child is reading at grade level in the third grade is highly predictive of numerous educational and labor force outcomes, including high school graduation, one of SIPPRA’s target outcomes. Adopting this approach would more accurately capture the value of projects and expand opportunities to positively impact the lives of children.

2. Value Social Benefits

One stated purpose of SIPPRA is “to ensure Federal funds are used effectively on social services to produce positive outcomes for both service recipients and taxpayers,” and SIPPRA states that projects “must produce one or more measurable, clearly defined outcomes that result in social benefit and Federal, State, or local savings” (emphasis added). Nevertheless, Treasury has only incorporated federal budgetary cost savings into its valuation of outcome payments and not benefits for service recipients or broader society. This has dramatically limited SIPPRA’s applicability to projects that quickly and substantially lower federal costs, such as Medicaid projects that coordinate care for adults with complex medical and social needs or workforce programs that substantially increase tax revenue for working-age adults.

Treasury should amend its outcome valuation approach to include individual and social benefits, in addition to Federal, State, or local budgetary savings. Treasury could utilize an approach like the Washington State Institute for Public Policy’s benefit-cost models. Doing so would expand the types of projects that could qualify and expand the program’s impact, especially for child-focused initiatives that often produce significant social value over the long term.

3. Provide More Flexibility in Evaluation Requirements

Treasury has largely required applicants to utilize randomized controlled trials (RCTs) to evaluate whether projects meet their expected outcomes. While the gold standard of evaluation is an important tool to establish the effectiveness of a pharmaceutical drug or a novel social program, this seems like an unnecessarily high bar when almost all federal spending currently has no outcomes measurement or evidence requirement. In addition, the SIPPRA legislation explicitly allows applicants to utilize “other reliable, evidence-based research methodologies” to evaluate whether outcomes occur while requiring applicants to describe “rigorous evidence demonstrating that the intervention can be expected to produce the desired outcomes.”

Treasury should embrace the use of non-RCT evaluation designs to move government spending toward more evidence-based approaches but avoid setting an overly stringent evaluation standard few projects can meet. Numerous kinds of quasi-experimental designs would allow the federal government to have significant confidence in the results of SIPPRA projects. Most importantly, this would allow more projects that have the likelihood of improving the well-being of children to move forward.

4. Develop a Rate Card

Finally, one major challenge of SIPPRA is that it requires an applicant, Treasury, and numerous federal agencies to agree on a valuation for each outcome that could trigger a payment. This requires a significant amount of initial work for applicants followed by a lengthy inter-governmental process among federal agencies to verify the figures. In response to similar challenges with outcome-based payments, other countries and states have published a set of pre-established values for specific outcomes, known as a Rate Card. The United Kingdom published 600 cost estimates through its unit cost database after analyzing government reports and academic studies. Connecticut created a Rate Card with several outcomes related to home visiting programs.

Treasury should develop a Rate Card with pre-established valuations for each of the outcome domains outlined in the SIPPRA legislation. Applicants could also utilize these outcome valuations in their applications or provide alternative valuations. This would expand the capacity of under-resourced state and local governments to apply for SIPPRA funding and thereby enhance program equity. By allowing applicants to propose their own approaches to valuation, the program could also maintain flexibility.

Conclusion

In conclusion, these strategies would improve SIPPRA by enabling Treasury to implement the program with more flexibility while achieving its original intent. As SIPPRA advances effective programs, it could inform a broader approach to public budgeting that drives limited public resources to highly effective interventions and approaches. Federal programs could then invest in a more coordinated fashion to improve outcomes and advance long-term health and economic equity for America’s next generation.