Praxia Partners believes that innovative finance can boost social services and ease inequity. This week, we discuss how “Pay for Success” can help some of Ohio’s most vulnerable families
Ohio’s Cuyahoga County– home to Cleveland– is looking at using Pay for Success (financed by social impact bonds or SIBs) to help homeless children stay with their own families and avoid the foster care system. The county stands to save millions of dollars, and, more important, families could be stronger, healthier, and happier.
“Diverting dollars that would otherwise be used for foster care to solve underlying family problems makes so much sense,” said Joe Recchie, Praxia Partners founder and advocate of social impact bonds.
The program is designed to keep families who are homeless together by helping mothers access mental health care and housing. In this way, County Executive Ed FitzGerald aims to, in his words, “transform how human services are provided in Cuyahoga County.”
He notes that the SIB plan is the latest in a long line of efforts to reduce the number of children who enter the foster care system. “Our Division of Children and Family Services has led the country in child welfare reform, reducing the number of children in foster care in Cuyahoga County from over 6,000 to 1,700 in 10 years.” However, the County still spends $35 million every year on foster care.
Cuyahoga County described how the financial aspects of the program will work. “Under this model, private investors and foundations pay for the cost of providing services. If the services are successful, the county pays back the investors and foundations out of savings achieved from preventing the need for more costly services in the future.” The Cleveland Plain-Dealer explains that, with the 5-year plan, “rather than writing a check and walking away, donors could get their money back, plus up to 2 percent interest, if the intervention program hits its performance goals. FitzGerald’s proposal, which is still being developed, would aim to raise between $8 million and $9 million from foundations, banks and other investors.”
Organizations that will work on the program include:
- FrontLine, which provides mental health care for homeless individuals, acting as service provider
- County Division of Children and Family Services, which seeks to “[stabilize] and [reunite] families that have been weakened through poverty, illness or crisis, resulting in neglect or abuse of children”
- Cuyahoga Metropolitan Housing Authority, which will act as housing partner
- Case Western’s Center on Urban Poverty and Community Development, which will gather data about the program
- Third Sector Capital Partners, a nonprofit firm, which will provide advisory services
Cuyahoga County, the largest county in Ohio, has been hit particularly hard by the recession, resulting in exacerbated hardships for impoverished families. Although the model gained popularity in the UK, recently, Connecticut, Illinois, Massachusetts, and New York have explored Pay for Success. For example, Riker’s Island used it to address recidivism rates. (You can watch a PBS report on their efforts.) The federal government has also backed the fundraising approach. “Pay for Success is an innovative way of partnering with philanthropic and private sector investors to create incentives for service providers to deliver better outcomes at lower cost—producing the highest return on taxpayer investments,” explains the White House. “The concept is simple: pay providers after they have demonstrated success, not based on the promise of success, as is done now.”
The White House points to examples of programs that are ideal for the Pay for Success model:
- multi-systemic therapies that reduce recidivism by offenders;
- early childhood interventions that reduce costly long-term special education placements of children whose mild learning disabilities or behavioral problems could be better treated early on;
- summer academic programs for disadvantaged students that accelerate and maintain academic gains;
- elder care services that reduce the number of elderly who are inappropriately placed in costly nursing homes; and
- transition services for youth with disabilities that enable young people to enter postsecondary education and obtain employment.