2017 Symposium Industry Report: Pay for Success

promote the “double-bottom” line of social good and profit by providing poten- tially lucrative investment opportunities for impact investors looking to bring positive change to communities. The “Value-Added” Model of Social Service Financing Pay for Success is not just a new financing mechanism for governments to fund affordable housing and support services. PFS is a leadership and collaborative tool for public-private partnerships to test innovative solutions with less risk to taxpayers and fiscal budgets. PFS arms governments for success by invit- ing private-sector partners into a promising new market to develop and imple- ment efficient solutions that promote social benefit. Impact investors target evidence-based programs, which are least risky, meaning PFS projects are held accountable to higher standards. PFS also opens the door for philanthropic and charitable organizations to extend their goals and create larger social impact by attracting new capital and involving philanthropic money in a more structured way. Because governments reimburse successful projects, even small private loans and donations can be “recycled” to capitalize larger PFS projects. As George Overholser, CEO and co-founder of Third Sector Capital writes, the PFS fund- ing model “offers a comparatively spectacular proposition to philanthropists.” 86 Matched by private loans and replenished through government success payouts for further use in capitalizing more projects, philanthropic money truly becomes “the gift that keeps on giving.” Even PFS projects that fail to demonstrate monetary savings may prove to be beneficial. Governments prioritize tangible improvements in their citizens’ lives over balancing the books. Thus, the value of the social services provided through Pay for Success contracts goes beyond monetary savings to provide pos- itive benefits to communities and individuals. Furthermore, PFS projects that fail to provide significant results serve as an excellent (and less costly) learning tool for governments, service providers, and philanthropic partners. Unlike inef- ficient government services that continue, PFS projects naturally terminate at the end of a contract, but can be renewed. 87 Challenges Ahead Despite the promising and innovative nature of Pay for Success contracts, several hurdles remain to be overcome. First, due to the relatively new nature of PFS, con- tracts are legally complex and require significant expertise. Second, PFS involves coordinating many parties, which requires efficient communication and strat- egy. Third, correlating social impact to direct budgetary savings may be difficult in some cases, making evaluation and payout harder to calculate. 88 Finally, PFS contracts rely on political will to care about and spend more money on affordable housing, a sentiment that is not always shared from locality to locality.

Pay for Success & Affordable Housing | Stefano Rumi 33

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