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Pay for Success and the Savings Trap

Jake Segal

From the Social Finance Institute

The Social Finance Institute, Results-Based Funding

Framing Pay for Success as a way to deliver cashable savings is both an over-simplification and a fundamental misreading of how the public sector works. When governments operate effectively, communities are more stable and economically prosperous. In this Governing article, Jake Segal explores how investors and governments can alter their definition of value,  emphasizing government efficiency by focusing on the cost of getting good outcomes.

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Instead of focusing on the cost of services, we need to start focusing on the cost of getting good outcomes. Take the cost of high school. If our state spends $10,000 per student per year and graduates half of the class, we're paying $80,000 per graduate. If by spending another $1,250 per student per year we can boost graduation rates to 90 percent, we won't "save" any money, but we'll get a lot more bang for taxpayer's buck by paying only $50,000 per graduate.

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Financing Outcomes Through Social Impact Bonds
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Financing Outcomes Through Social Impact Bonds

This chapter of What Matters: Investing in Results to Build Strong, Vibrant Communities was written by Social Finance CEO Tracy Palandjian.

Tracy Palandjian