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September 3, 2013 > Innovative model uses 'Pay for Success' model

Innovative model uses 'Pay for Success' model

Submitted By Janice Rombeck

The Santa Clara County Board of Supervisors voted unanimously on August 27, 2013, to move forward with a new way of funding critical services that relies on private investment and mandatory performance measures.

The innovative model called Pay for Success, or Social Innovation Financing, would be used for the first time in Santa Clara County, with the goals of saving taxpayer dollars and improving service delivery to targeted populations.

The concept, used in England and in a few area of the United States, targets limited government funding to programs only after they have demonstrated successful outcomes. The initial funding for the program is provided by private investors or foundations.

The idea was introduced to the county by Step Up Silicon Valley, a campaign launched by Catholic Charities USA to lift 1,000 families out of poverty in Santa Clara County in 2013 and cut poverty in the United States in half by 2020.

"Pay for Success has the potential of generating new and innovative partnerships to help our neediest residents," said Santa Clara County Supervisor Dave Cortese. "The model targets our limited resources to programs that prove they are effective."

The supervisors approved allocating $75,000 to help pay for the services of Third Sector Capital Partners, a consultant the county has been working for eight months on the first two phases of the Pay for Success work plan. The Silicon Valley Community Foundation has pledged $75,000, and county administrators are looking for a third partner to reach the $225,000 cost for the work. The Health Trust of Silicon Valley paid for the first two phases of the project.

The next 14-month phase is to set up two pilot projects focused on the areas of mental health and homelessness. But there are many areas that could use the model, including juvenile probation, child welfare, school suspensions and public health.

Here is how Pay for Success could work:

* A foundation or private investor agrees, for example, to pay upfront $100,000 to contract with a nonprofit or community organization for health services for homeless individuals and families.

* A contract spells out outcomes that must be reached before the county reimburses the investor or foundation. For example, the nonprofit must provide basic health care for 100 clients in a year.

A health clinic is set up and the nonprofit works with other agencies and nonprofits that help homeless to bring in clients to receive the care.
The county pays only when outcomes are reached as determined and evaluated by an independent partner. The investor or foundation recovers the $100,000 with interest, or reinvests it in the program so more homeless can receive health care.

The investor, not taxpayers, bears the risk of the project not reaching the outcomes and therefore not getting reimbursed, and the $100,000 that the county didn't pay upfront could be used for other services. Also, the county and taxpayers save money by providing a health care alternative to the expensive hospital emergency room used by many ill and injured homeless people. On a social level, a segment of the population becomes healthier and has a better likelihood of getting into permanent housing.

The next phase for Pay for Success will focus on creating a method to measure successful outcomes, analyze savings to the county, identify a sound economic model for the service provider and project financing requirements and investor appetite.

For more information, contact Supervisor Cortese's office at (408) 299-3050.

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