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Social Impact Bonds: Overview and Considerations

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One of the hottest topics in human services is “pay-for-success” approaches to government contracting. In this era of tight budgets and increased skepticism about the effectiveness of government-funded programs, the idea that the government could pay only for proven results has a broad appeal. And those who have identified prevention-focused models that have the potential to improve long-term outcomes and save the government money are deeply frustrated that they have been unable to attract the funding needed to take these programs to scale. Some advocates for expanded prevention efforts are confident that these programs could thrive under pay for success and see such an approach as a way to break out of the harmful cycle where what limited funds are available must be used to provide services for those who are already in crisis, and there are rarely sufficient funds to pay for prevention.

While performance-based contracting has existed for years in a range of human services areas—including job training and placement, welfare-to-work activities, and child welfare—pay for success, and in particular, the version referred to as a “social impact bond” (SIB) has drawn a great deal of attention at all levels of government in recent years. The Obama Administration has already carved out funding to support pay-for-success models in both workforce and ex-offender programs—and in the 2014 and 2015 budgets, proposed a $300 million fund at the Treasury to support state SIB initiatives as well as specific pay-for-success activities in the areas of job training, education, criminal justice, and housing. While only a couple of SIBs are currently underway in the United States, at least 14 states are currently at various stages of exploring SIBs in domains including criminal justice, health care, and early childhood education.
 
Because of this high level of interest, many policymakers, practitioners, funders and advocates may need to respond to the question of whether a SIB would be a good way to expand funding for a particular intervention or population in a given state or community. This paper provides background information and a framework to help answer this question. It is based on CLASP’s review of the literature on SIBs, as well as on our extensive knowledge of the literature and experience with performance measurement systems, performance-based contracting, and strategies to link public policy and implementation with research evidence for programs serving low-income and other disadvantaged populations.