A new generation of innovative funding tools is enabling change agents to expand programs that are meeting their community’s needs. Pay for Success (PFS) transactions, or Social Impact Bonds, represent an emerging financing mechanism that is driven by cross-sector partnerships, robust data, and a commitment to outcomes.
PFS utilizes upfront private investment to expand social programs that have proven results. In order to encourage this type of investment in their programs, service providers must be able to use data to show that their proposed intervention measurably improves outcomes for their clients and leads to an avoidance of cost. Additionally, these transactions depend on the collaborative efforts of a diverse set of stakeholders. PFS engages partners from the public, private, and nonprofit sectors in five critical roles: an investor who funds the expansion of the program; a service provider who administers the program; an independent evaluator who measures the effectiveness of the program; a public entity, or other outcome payer, who repays the investment based on the success of the program; and an intermediary who facilitates the partnerships and ensures that the project operates effectively and efficiently.
These transactions mobilize funds from the private sector in a new way and transition the risk to the investors, allowing public agencies to only pay for interventions that produce outcomes. If the intervention does not achieve the predetermined results, then the outcome payer is not required to pay back the investment and can use this money to support other proven programs. Simply put, in these transactions, public entities only pay for what works.
Since the development of the first PFS transaction in the United States in 2013, early transactions have focused on early childhood education, recidivism, and homelessness. As these initial projects started to release results, stakeholders across the country began to apply this model to other areas, including environmental issues. Earlier this year, D.C. Water, in partnership with Goldman Sachs and the Calvert Foundation, announced the nation’s first Environmental Impact Bond to fund the construction of green infrastructure to manage stormwater runoff and improve the District’s water quality. As this project was being considered in our nation’s capital, a local organization, Enviro Social Capital was determining how to utilize innovative financing to fund the implementation and maintenance of large-scale green infrastructure projects in and around the Pittsburgh region.
Fourth Economy Consulting believes deeply in supporting change agents as they develop and implement strategies to improve communities and economies. An element of this support is working with partners to explore creative financing opportunities to spur these efforts. With this commitment at the center, we are working with Enviro Social Capital to develop a feasibility study to gauge the plausibility of using PFS to fund the implementation of green infrastructure in Pittsburgh. More information about the project can be found here.
We are excited to work with Enviro Social Capital on this innovative project. We are also interested in helping other organizations in Pittsburgh and around the country identify innovative ways to finance their efforts. We fully understand that we need to be creative as we address challenges in communities and invite you to help us achieve this goal. Know of efforts in your community that would benefit from creative financing or have suggestions of additional innovative funding mechanisms to explore? We are interested in hearing from you. Contact us here.