'Pay for Success' could change the way government works

Earlier this month, Congressional committee leaders from both chambers and both parties introduced the Workforce Innovation and Opportunity Act (WIOA), which aims to update and provide a boost to workforce development programs that help connect struggling Americans to the skills they need to find jobs in this tough economy.

Congress has not passed major workforce development legislation since 1998, the year Google was incorporated, despite the fact that more and more Americans are falling behind the pace of change in today’s economy. Recognizing this reality, and the fact that budgets are tight, the Congressional leaders who introduced WIOA wisely focused on advancing innovation and accountability by including new provisions like the Pay for Success approach to financing social programs.

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Pay for Success is a performance oriented approach to achieving measurable outcomes to social problems, incentivizing more efficient use of government resources by rewarding what works and linking government dollars to positive outcomes. In other words, the taxpayer doesn't pay unless and until the service provider achieves the desired and required results.

America Forward and the America Forward Coalition worked closely with Sens. Rob Portman (R-Ohio) and Michael Bennet (D-Colo.) and Rep. Susan Brooks (R-Ind.) to develop this Pay for Success option and believe that when WIOA is signed into law, the implementation of this provision will ensure that our limited workforce funds go to providers that deliver results, and that will yield an improved,  stronger, and more inclusive workforce, 

Enabling local authorities to tie funding to results for a portion of their formula funds and supporting state efforts to assist them is important for several reasons. First, it means that at least some scarce federal dollars will be paid out only when results are achieved, ensuring that these funds go to programs that work and not to those that do not. Second, by opening eligibility to new programs not currently supported by workforce legislation, the WIOA embraces innovation by expanding support to new providers with strong track records that would otherwise be shut out of the federal system. 

Too often, public programs have no incentive to find the most productive providers. In many cases, they don’t even measure results, making it hard to tell which providers are the most effective. By failing to track outcomes, decoupling funding from effectiveness, and prioritizing compliance with rules (and even proscribing new approaches), most government programs actually discourage innovation. 

In the business world, the opposite is true. There, new value is created every day through innovation. The concept is simple: a product, service, or process is invented and tested.  If it is successful, it attracts investment to take it to market, and then to expand its reach. Profits gleaned from the invention can be reinvested in research and development efforts which that will result in continuous improvement or new inventions that will displace the original. And if customers don’t want the product, it goes away (unlike government programs that may stay in existence long past their useful life.)

This innovation cycle rarely operates in the public sphere. However, the new workforce legislation enables this concept to take root for the first time in our nation’s publicly funded workforce development system. These kinds of provisions are essential to enabling public programs to evolve in response to the increasingly rapid changes in society and achieve greater results at a lower cost. They are especially needed when Congress takes a decade or more to update expiring programs. Now that the WIOA legislation has a good chance of passing through Congress, we hope that the Elementary and Secondary Education Act, which was last updated when today’s graduating seniors were in kindergarten, will not be far behind! 

Smolover is the executive director of America Forward, a public education initiative of the venture philanthropy organization New Profit Inc., and leads the America Forward Coalition of over 50 innovative organizations achieving results in education, workforce development, and poverty alleviation.