The Arnold Foundation is Betting Big On Pay for Success

It's hard to think of a funder that is more obsessed with finding breakthrough solutions than the Laura and John Arnold Foundation. One day, it's laying out big bucks to find alternatives to expensive college textbooks, and the next day, it's forging a left-right coalition to reform criminal justice policies. 

Its big move last week? Pumping $8.4 million into a major initiative at the Urban Institute to advance Pay for Success (PFS), which aims to reward successful programs in the social sector. The investment will pay for a variety of technical resources aimed at bolstering and evaluating PFS projects, with an eye toward upping the game of all the players involved in PFS: government, service providers, evaluators, and funders. Tools developed by the Urban Institute will help to structure deals, determine which projects are most effective and cost-efficient, and set benchmarks for success.

The Arnold Foundation has been involved in a PFS for a while now, working closely with the White House Office, which got behind PFS in a serious way in 2012. With a third partner, the Nonprofit Finance Fund, the Arnold Foundation recently hosted a series of regional summits on PFS to share best practices and learning. 

The regional PFS Summits convened more than 400 stakeholders in social services including representatives from federal, state, and local governments, nonprofit service providers, academics, foundation leaders, and impact investors. Three cities at the forefront of PFS served as sites for the summits: Bridgeport, Connecticut; Chicago, Illinois; and Salt Lake City, Utah. A summary of the 10 takeaways from the summits is here.

It's not surprising that the Arnold Foundation would see the need to bring in a major think tank to help move its work on PFS to the next level. This is a funder with an insatiable appetite for more and better data, as well as stronger analytic frameworks for shaping policy. Urban is great at that stuff. With its history of providing rigorous evaluation and careful guidance, this think tank is well positioned to provide plenty of wonk power on PFS.

Over the next three years, Arnold money will support Urban researchers to help guide, design, and assess PFS transactions across the country. By both helping to shape the tools for this effort and acting as catalyst for communication, Urban will work to help disseminate the results and best practices of this initiative with government leaders, service providers, and funders.  

The Arnold investment is timely, since a number of new PFS deals are in the works. As Urban says:

PFS has grown from four deals last year, at approximately $50 million annually, to as many as 25 deals in FY15 at $250 million annually. After another three years, it is likely that up to $1 billion will have been invested in these transactions.

That's a lot of money, and as Urban notes, the "stakes are high." With Arnold's resources, Urban will be working to support this growing number of deals, providing scholarly expertise to ensure that the deals are designed with the best available evidence and with evaluation measures that are as independent and objective as possible. 

We should note that this is the second time a major funder has turned to the Urban Institute this year to act as kind of the brain for its grantmaking efforts. Last month, the institute announced a somewhat similar partnership with JPMorgan Chase, to help inform the bank's grantmaking on economic opportunity and workforce issues. 

Now, normally we might be alarmed that a major think tank is letting funders dictate its research priorities in such a big way. Of course, the Urban Institute is different than many other think tanks in Washington in that its operating model has long involved close partnerships and contract work. In that sense, it's more like, say, the Rand Corporation, than the Brookings Institution. 

As for whether Pay for Success is going to be the big breakthrough the Arnold Foundation and Urban hopes, many skeptics have their doubts. You can read critiques here, here, and here