What’s the latest on Pay for Success? Profits for investors.


Here are some of my posts on Pay for Success, a Wall Street investment deal for public schools that returns to investors are based on not providing services to special education students.









Yesterday’s Catalyst brings us up to date on the latest profits made by Wall Street investors on Pay for Success at CPS.

Students targeted for special education services are down 41%.

Private investors who are paying $16.6 million for a four-year preschool expansion are now assured a $500,000 “success payment” for the initial outcomes—a first step toward a total payout that could eventually more than double their investment.

These first results from Chicago’s experiment in what are called “social impact bonds” showed that more than half the children from the first group of 374 preschoolers were deemed kindergarten-ready, triggering the big early dividend for Goldman Sachs and other investors.

Social impact bonds are a growing trend in public finance that are being used to pay for projects that target a range of societal problems—in this case, the lack of high-quality preschool for lower-income children. The bonds have the blessing of the U.S. Department of Education, even though, at best, they’ve had mixed outcomes in the cities where they’ve been tried out. Still, the new federal education law, called the Every Student Succeeds Act, will allow school districts and states to use some federal dollars to pay for social impact bond projects.

In Chicago, project leaders say these first-year results are an early indicator that the preschool expansion is going well. (See related story on the kindergarten readiness outcomes.)

“This is a very good first result,” says Jose Cerda, a spokesman for IFF, a lender and real-estate consultant to nonprofits that is administering the social impact bond project. “These findings are consistent with other national studies that have been done, with about half of the kids, roughly, being kindergarten ready after getting a sufficient dosage of the CPC program. So we’re all happy with that.”

But the expansion of a well-researched, decades-old preschool model called child-parent centers was an investment that critics say is without much risk. Indeed, the longitudinal research on child-parent centers, which require significant parent involvement and provide additional social services to families, has shown academic and social benefits that translate into long-term cost savings of $7 for every $1 spent by taxpayers.

And most of the payback to investors is tied to a riskier proposition that some experts view as problematic: an expected reduction in the number of children placed in special education.

Next spring, project leaders will release data on investor payments based on that metric, which city officials and investors agreed to because of research showing that children who attended child-parent centers had a 41 percent lower rate of placement in special education.

One Reply to “What’s the latest on Pay for Success? Profits for investors.”

  1. Here’s some other ways to make money-
    1. the parks department will pay a fee to investors for each person who does not walk on the grass
    2. the police department will pay a fee for each citizen who does not use 911
    3. the sanitation department will pay a fee for each customer that does not use their full allotment of services (complicated, but I’m sure the investors will figure out a fair way to do this!)
    4. the public transportation system will pay a fee for each commuter who does not ride the trains/buses
    5. hospitals will pay a fee for people who do not feel ill

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