Urban Institute
Research Analyst

Growing the pay for success field: Two more projects launch in the United States

October 5, 2016 - 2:28pm

Two new pay for success (PFS) projects launched in the past week, bringing the total number of projects in the United States to 12.

The Connecticut Family Stability Pay for Success Project was announced back in February 2016, but launched officially on September 28th. The project aims to promote health development in safe and stable homes for children whose parent(s) struggle with substance abuse: in 2013, more than 50 percent of the families working with the Connecticut Department of Children and Families (DCF) struggled with substance abuse.

The project scales Family-Based Recovery (FBR), an intervention that combines in-home attachment-based parent-child therapy with contingency management for substance abuse issues. The four-and-a-half year contract stipulates repayments to investors—which include BNP Paribas, QBE Insurance Group Limited, and Reinvestment Fund, among others prominent in the PFS space—based on four outcomes: avoided out-of-home child placements, avoided re-referrals to DCF, decrease in substance abuse, and FBR enrollment.

Other project partners include Harvard Kennedy School Government Performance Lab, which provided technical assistance during project development; Social Finance US as an intermediary; Yale Child Study Center, which will provide FBR services to the 500 families served; evaluators at the University of Connecticut Health Center; and DCF as the outcomes payor.

Further south, the first PFS project in the environmental sciences—outside the traditional realm of social services—launched in Washington, D.C. on September 29th. The five-year, $25 million, tax-exempt Environmental Impact Bond (EIB) was sold to Goldman Sachs and the Calvert Foundation by DC Water and Sewer Authority at a 3.43 percent interest rate. The investment will fund the first green infrastructure in DC Water’s Clean River Project.

A third of D.C. is serviced by a combined sanitary and storm sewer system, in which storm and sewer water share a pipe. During periods of heavy rainfall or water runoff from melting snow, the volume of storm and sewer water can exceed system capacity, leading to combine sewer overflows (CSOs) into the Potomac and Anacostia Rivers. By investing in green infrastructure, such as porous pavements and rain gardens, the project hopes to reduce sewer volume, reduce combined sewer overflows, and combat environmental pollution.  

Unlike previous PFS projects and social impact bonds, the DC project is structured more strictly as a traditional bond, with a five-year maturity and provision for a “risk share payment” by investors to DC Water in the case that runoff reduction is less than 18.6 percent. Though repayments to investors are based on a well-defined outcome—percent reductions in runoff—the evaluation and evidence-building component core to PFS is tricky given the difficulty of creating environmental “control” and “treatment” groups. DC Water has opted for 12 months of pre- and post-construction monitoring of storm water runoff after green infrastructure is in place by mid-2019.

Harvard Kennedy School Government Performance Lab is providing technical assistance to the DC project, with Quantified Ventures as a financial intermediary, and DC Water as the outcomes payor. 

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