Lawmakers get a second look at “pay for success”

A new bill in the legislature would enable the state to launch “pay for success” programs through which private investors or philanthropists would fund social services programs.

Funders would be repaid if those programs produced savings in other government services but would have to absorb their costs if programs didn’t produce results.

For example, investors in a preschool program would be repaid if that program led to reduced remediation or special education costs in schools.

The bipartisan sponsors of House Bill 15-1317 hope their bill has better luck than a similar 2014 measure, which passed the Senate but died in a House committee during the chaotic final days of that session.

“It’s a very new concept,” acknowledged prime sponsor Rep. Alex Garnett, D-Denver. (Some senators at hearings last year seemed a bit befuddled by the whole idea.) But Garnett hopes the idea will get more traction the second time around, and that this year’s version may have more appeal, given that it’s less focused on education services.

He also said increased experimentation with such programs by local governments provide concrete examples that can be cited during hearings on HB 15-1317.

Garnett stressed the concept is worth serious attention because “for a state as cash strapped as Colorado … we really need to find innovative ways to fund programs.”

The idea is gaining interest around the nation. Pay for success programs have been launched in a handful of state to pay for preschool, recidivism prevention programs for youth offenders, and for initiatives to reduce homelessness.

A conference sponsored by Chalkbeat Colorado last December drew about 150 people to learn more about the concept. Read about that event here, and also see this previous Chalkbeat story about pay for success.

What’s named the Pay for Success Contracts Act would put the Office of State Planning and Budgeting, the executive branch’s budget arm, in charge of developing such programs. The state treasurer and auditor also would have roles, and the effectiveness of the programs would be judged by outside evaluators. Local governments and agencies could partner with the state in such projects.

Garnett said local governments are free now to launch pay for success programs but that the bill is needed to get the state into the game.

The bill was introduced last Friday, with just 40 calendar days left in the 2015 session. Garnett admitted, “The timing is something I worry about,” given that lawmakers still have to approve the 2015-16 state budget and deal with big issues like school funding, testing and others.

The other prime sponsors are Rep. Bob Rankin, R-Carbondale and a member of the Joint Budget Committee; Sen. Mike Johnston, D-Denver, and Sen. Beth Martinez Humenik, R-Thornton. Both Garnett and Martinez Humenik are freshmen.

The bill has been assigned to the House Business Affairs and Labor Committee, but no hearing date has been set.

Read the bill here.