February marks the anniversary of an ambitious experiment: 12 months ago, Denver became one of the first cities to employ “pay-for-success” contracting, which taps private investors to pay for social programs or public services. If the program meets its predetermined goals, investors reap a profit from the local government.

Denver’s five-year program provides permanent housing and other services to 250 people experiencing homelessness, who together cost taxpayers $7.3 million each year through arrests, court costs, and emergency-room visits. The Piton Foundation, Northern Trust bank, and other investors put up a combined $8.7 million to help pay for housing in three new affordable-living apartment complexes in Denver. The first—the 103-unit Renaissance at North Colorado Station—opened in February 2016. The hope is that if people experiencing homelessness have steady housing, case workers can ensure they visit the doctor to care for chronic ailments, adhere to substance-abuse treatment, and stay out of jail. If the plan is a success (meaning residents stay in the apartments for longer than a year and spend 35 percent fewer days in jail), project backers say it could save the city $9.6 million by 2020. In that case, investors would earn about 3.5 percent on their investment.

5280 February 2017
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Should the program fail, however, funders won’t get a cent of their investment returned. (Denver’s pay-for-success plan is the only one in the country that doesn’t offer security.) We won’t know whether the project is paying dividends until later this year, but pay-for-success contracting is already spreading across the Front Range. At least nine other projects are potentially on the horizon, including these three.

A Wider Net

Problem: Social-service providers believe the most crucial time to help kids at risk of abuse and neglect is before they turn three years old.

Proposed solution: For three decades, Boulder County’s Community Infant Program (CIP) has dispatched nurses and therapists to the homes of infants in danger of abuse and neglect. The CIP currently assists 280 families, yet 200 more need its services. Boulder County could use pay-for-success contracting to double the program’s size.

Payoff: The Rose Community Foundation, the Piton Foundation, the Denver Foundation, and Caring for Colorado (all potential investors) paid for a feasibility study, which came out in January, that examines how much money the program could save the county on, for example, child-protective services and ER visits.

Smart Money

Problem: More than half of Westminster Public Schools (WPS) students begin kindergarten reading below grade level.

Proposed solution: In fall 2016, WPS launched a two-year pilot program funded by the Piton Foundation and the Walton Family Foundation to provide full-day preschool to 112 four-year-olds from low-income families. If it succeeds, WPS may consider pay-for-success funding to expand full-day preschool to every four-year-old in the district by 2019.

Payoff: Should students in the program hit certain metrics, such as grade-level reading standards, that might reduce the amount that WPS and the state spend on remedial and special education services.

School Ties

Problem: Less than 30 percent of Colorado middle and high schoolers in foster care graduate from high school on time.

Proposed solution: In 2016, the Governor’s Office of Planning and Budgeting began studying pay-for-success options for delivering services, like substance-abuse treatment, to kids in foster care so they can stay on the path to a diploma. The
office hopes to move forward with the program
this summer.

Payoff: The governor’s staff believes higher graduation rates and lower recidivism rates would help the state save on education and
corrections spending.