2017 Symposium Industry Report: Pay for Success

Nonetheless, leaders, investors, and organizations across America are optimistic for the new opportunity PFS poses to create safer neighborhoods and communities. Cost Savings vs. Cost Avoidance Through the current PFS structure, governments rely on a “cost savings” model to determine the success and impact of a project. That means that Pay for Success projects are financially justified by the difference in the amount of money a gov- ernment is currently spending and the amount it spends on the PFS project; the larger this difference, the greater the costs saved and thus the more successful the project. While this system is a novel way of measuring efficiency, it inherently limits the scope of Pay for Success projects only to past problems that are being currently and actively addressed (less than efficiently) by the government. That means that current and impending problems that are not addressed by the gov- ernment, but will have to be in the future, cannot demonstrate “cost savings” because there is no current cost spent and do not qualify for PFS financing. These kinds of projects provide a “cost avoidance” to the government; by pro- actively doing the right thing today, governments can spend less money on pre- ventive solutions tomorrow. While this would not appear as a budgetary savings (because the current budget to solve this problem is $0), it would result in less spending in the future, thus promoting innovation and public sector responsibil- ity. Future PFS contracts should consider “cost avoidance” projects instead of just “cost savings” projects, using complex financial modeling systems to project the anticipated savings to governments over a set period of time. Current PFS Housing Contracts Pay for Success contracts are currently being used in Massachusetts, Denver (CO), Cuyahoga County (OH), Santa Clara County (CA), and Salt Lake County (UT) to finance supportive housing for homeless individuals and at-risk families. The Corporation for Supportive Housing (CSH) is also conducting four feasibility studies to explore implementing PFS contracts in Richmond (VA), Clark County (NV), Philadelphia (PA), and Oklahoma. 89 So far, these innovative projects target the most vulnerable and costly individuals and families who are housing insecure, proposing millions of dollars in savings to local governments from reduced ER hospital visits, overnight jail stays, and constant medical care. Case Study: Denver, CO Supportive Housing Project The Denver Supportive Housing PFS initiative began in February 2016 to target homeless individuals who are frequent and costly users of emergency medical services and cycle through the criminal system for low-level offenses. The Pay for

34 Pay for Success & Affordable Housing | Stefano Rumi

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