Community Development Innovation Review

Although Pay for Success (PFS) contracts have received widespread attention in the United States and abroad, there is nothing fundamentally new about governments paying for outcomes.

The president’s fiscal year 2014 budget demonstrates that we can make critical investments to strengthen the middle class, create jobs, and grow the economy while continuing to reduce the deficit in a balanced way. Pay for Success (PFS) fits squarely in this strategy.

Our society needs Pay for Success (PFS) schemes to work. We are spending too much on social programs that do not generate results, too much on high-cost treatments, and not enough on lower cost and more humane prevention. Amid our deteriorating fiscal state, we must figure out how to do more with less.

Pay for Success (PFS) contracting, social impact bond financing, collective action, impact investing, human capital performance bonds–these are all fascinating and powerful ideas. But the big idea that unites them is progress.

This issue of the Community Development Investment Review focused on Pay for Success financing, attempts to do two things. The first is to serve as a comprehensive resource for the most current thinking on the origins, models, and potential implications of Pay for Success. The second is to encourage readers to weigh its exciting potential against its possible pitfalls. Pay for Success is a tantalizing idea but it raises important questions. Are we privatizing important government services that should remain under public control? How can we accurately measure and enforce “success”? Can we guard against fraud? Can we effectively balance our often-conflicting goals of equity, efficiency, and efficacy? Understanding and answering these, and other, questions is a crucial first step before widespread adoption of Pay for Success tools.

This issue of the Review includes the proceedings of the “Advancing Social Impact Investments through Measurement” conference held at the Federal Reserve Board of Governors on March 21, 2011. The conference was an attempt to bring both the community development finance and the impact investing communities together to share recent developments in innovation in social metrics and to think more deeply about how the government could play a role in promoting more and better measurement of social and environmental outcomes. In addition to the proceedings, this issue includes a series of thoughtful essays written by conference attendees in response to what they heard at the convening.

Both the community development and impact investing fields are working diligently to find ways to bridge their divides and in many ways they are closer together now than ever. But if we are to make real progress in combining forces, focusing in particular on how we measure social and environmental outcomes holds promise in resolving […]

Measuring social impact appears daunting. Many CRA-obligated institutions are trying to comply with regulations that they provide banking services (beyond deposit) to low-and middle-income communities.

It is possible to do systematic, methodologically sound impact measurement that more fully demonstrates what investors want to know: How are people’s lives improving? How are communities changing?

Enormous progress is being made in the design of metrics to assess the consequences of social interventions. But four considerations could still usefully be given greater salience in the design of social impact measurement systems.