Special Topics Brief:

Pay for Success Financial Mechanisms

September 2015
The mission of the Corporation for National and Community Service is to improve lives,

strengthen communities, and foster civic engagement through service and volunteering.

Each year, CNCS provides opportunities for more than two million Americans of all ages

and backgrounds to serve their communities and country through AmeriCorps, Senior

Corps, the Social Innovation Fund, and the Volunteer Generation Fund.

The Social Innovation Fund (SIF), a program of the Corporation for National and

Community Service (CNCS), combines public and private resources to grow the impact of

innovative, community-based solutions that have compelling evidence of improving the

lives of people in low-income communities throughout the United States. The SIF invests in

three priority areas: economic opportunity, healthy futures, and youth development. 

Suggested Citation

Moazed, T. (2015). Special Topics Brief: Pay for Success Financial Mechanisms. Washington, D.C.: Abt Associates. Prepared 

for the Corporation for National and Community Service, Office of Research and Evaluation. 

Disclaimer: This report is a product of an independent study commissioned by CNCS. Views expressed in the

document do not necessarily reflect the official viewpoints of the agency or its staff. This report is in the public 

domain. Authorization to reproduce it in whole or in part is granted. 

Authors

The following researchers at Abt Associates prepared this report for the Corporation for National and Community

Service’s Process Evaluation of the Social Innovation Fund Pay for Success program: 

Tyler Moazed

1201 New York Avenue, NW

Washington, DC 20525

(202) 606-5000 │TTY: (202) 606-3472 

info@cns.gov │nationalservice.gov
Special Topics Brief: Pay for Success Financial Mechanisms

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Table of Contents

I. Introduction .............................................................................................................................................................................. 1

II. Question 1: Where does the money allocated for repayment reside during the length of the PFS project

during implementation?......................................................................................................................................................... 3

III. Question 2: How is the upfront capital managed, and how does it flow during service

implementation/project operation? ...................................................................................................................................... 4

IV. Question 3: What are the prices per outcome and the repayment structures for PFS projects?................................. 6

V. Conclusion ............................................................................................................................................................................. 10
Special Topics Brief: Pay for Success Financial Mechanisms

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I. Introduction

In 2010, the Corporation for National and Community Service (CNCS) launched the Social Innovation Fund (SIF), one of

six federal tiered innovation and evidence initiatives that prioritize rigorous evaluation and building evidence of

effectiveness. Through the SIF, CNCS augmented its existing activities with an enhanced focus on identifying and 

growing innovative, evidence-based approaches to challenges faced by low-income communities nationwide. The SIF

provides funding to grantmaking institutions, referred to as “intermediaries,” to support high-performing communitybased nonprofit organizations to identify and grow promising outcomes-focused solutions that address pressing social

problems in three focus areas—youth development, economic opportunity, and healthy futures. In 2014, the SIF launched

an initiative to support the expansion of Pay for Success (PFS), a strategy that seeks to better connect government funding

of services with real-world effects by tying funding for a service intervention to its impact in the community. Instead of

paying for services regardless of their effects, governments (or other entities) pay only if programs actually achieve

positive outcomes for the people they are designed to benefit. Where government employs PFS strategies, taxpayers no

longer bear the risk of paying for programs that are not effective.

CNCS recognized the PFS model as an important tool to build upon the goals and success of the SIF by supporting

innovation, ensuring solutions have the dollars needed to scale, and paying for results. The initiative, known as the SIF

PFS program, specifically seeks to: 

• Strengthen and diversify the pipeline of governments and nonprofit organizations that are prepared to engage in PFS

projects, 

• Assess the potential of PFS to address a variety of social issues relating to diverse populations in diverse geographic

contexts, and 

• Attract capital to high-performing institutions seeking to strengthen, grow, and sustain effective solutions for

challenges facing low-income communities. 

In its inaugural year, the SIF PFS program funded eight grantees to either conduct feasibility studies or support the

structuring of transactions for PFS projects in the SIF’s three focus areas. 

This report was developed as part of a series of special topics briefs designed to provide practical insights on specific

aspects of the PFS model and to assist stakeholders in making informed decisions as they explore and implement PFS

projects across the country.1 The focus of this brief is on the financial instruments and general accounting strategies being

implemented in current, domestic PFS projects. Specifically, this report will provide real-life, concrete examples of how

PFS projects across the nation store, manage, and eventually distribute capital used for PFS projects. 

In the United States the PFS model is still in its infancy, with only seven PFS projects operating domestically at the time of

this report.2 And while interest in the PFS model continues to grow in the United States, many operational details

underlying the design and implementation of PFS financing are still unknown.

3 To better understand the financial

mechanisms utilized in PFS projects, three questions were identified for the seven existing projects with PFS financing

that have been or are currently being implemented in the United States at the time of research for this report (“PFS

projects”):

1 This document was developed by Abt Associates under contract to CNCS as part of the CNCS Process Evaluation of the Social 

Innovation Fund (SIF) Pay for Success Program. 

2 This brief was developed prior to Special Topics Brief: Service Provider Capacity Building for a PFS Project and so is not inclusive 

of the eighth project reviewed for that report. Additionally, these seven PFS projects existed before the SIF PFS program, and 

have no connection to the program or CNCS. For additional information on these PFS projects please refer to CNCS’s State of 

the Pay for Success Field: Opportunities, Trends, and Recommendations.

3 PFS financing refers to the capital that covers the costs of service provision until success is achieved and payments are triggered. 

PFS financing is sometimes referred to as a Social Impact Bond (SIB). 
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1. Where does the money allocated for repayment reside during the length of the PFS project during

implementation?

2. How is the upfront capital managed, and how does it flow during service implementation/project operation?4

3. What are the prices per outcome and the repayment structures for PFS projects?

In order to provide answers to these questions, representatives from the seven PFS projects, were contacted via email 

and phone calls during the summer of 2015. Exhibit 1 provides a list of the PFS projects contacted and the 

organizational affiliation and roles of the organizations that provided responses. 

The remainder of this document presents the responses of project representatives to the three financing questions and

provides a brief analysis of the similarities and differences in strategies and structures across the seven PFS projects.

Please note that all but one of these projects are still active. Therefore, due to certain contractual limitations and the

involvement of proprietary information associated with the financial aspects of these projects, there is some variation

across responses in terms of the level of detail provided. Despite these limitations, every attempt was made to provide as

much relevant information as possible.

Exhibit 1. Affiliations of Interviewees for this Report

Pay for Success Project

(chronologically listed) Organization Role

New York City ABLE Project for 

Incarcerated Youth

MDRC Intermediary 

New York City Mayor’s Office Government Agency/ Outcomes Payor

New York Increasing Employment 

and Improving Public Safety PFS 

Social Finance US 

New York State Department of Labor 

Intermediary 

Government Agency/ Outcomes Payor

Project 

Massachusetts Juvenile Justice 

PFS Initiative

Third Sector Capital Partners Intermediary 

Massachusetts Executive Office of

Administration and Finance 

Government Agency/ Outcomes Payor

Utah Pre-K PFS Project United Way of Salt Lake Intermediary 

Voices for Utah Children Project Coordinator5

Cuyahoga County (OH) Partnering 

for Family Success Program

Cuyahoga County Health and Human 

Services (OH) 

Government Agency/ Outcomes Payor

Chicago Child-Parent Center PFS

Initiative 

Illinois Facility Fund Project Coordinator

Massachusetts Chronic 

Homelessness PFS Project 

Massachusetts Executive Office of

Administration and Finance 

Government Agency/ Outcomes Payor

United Way of Massachusetts Bay and 

Merrimack Valley 

Fiscal Manager

4 Upfront capital refers to funding for services and intermediary and/or evaluator fees. 

5 Within the PFS field the terms “intermediary” and “project coordinator” are often used interchangeably, but they represent specific 

roles in the Utah and Chicago PFS projects. In the Utah PFS project, the intermediary, United Way of Salt Lake, is responsible for 

overseeing the implementation of the project including contracting, reporting, and repayments to service providers. The project 

coordinator, Voices for Utah Children, helped design the repayment structure and provides financial structuring, research, and

analytic support. Alternatively, in Chicago the project coordinator, the Illinois Facility Fund, is responsible for managing the flow 

of capital between funders and Chicago Public Schools, distributing loan dollars for PFS operations, and repaying lenders based on

program outcomes. The intermediary in the Chicago PFS project, Metropolitan Family Services, assists exclusively on the services

side of the project by identifying best practices and possible sites for expansion.
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II. Question 1: Where does the money allocated for repayment reside

during the length of the PFS project during implementation?

At its core, the PFS model involves government (or some other outcomes payor) paying for outcomes achieved by a 

service provider only after services have been provided and outcomes have been achieved at pre-set target levels. In a PFS

project, the actual implementation of the service intervention is frequently financed through private investors. While this

concept is straightforward and commonly understood among stakeholders engaged in a PFS project, the details 

underlying how governments or other outcomes payors allocate and “protect” the funding until it is needed are often

overlooked by stakeholders new to the field. Exhibit 2 provides responses to this key question from representatives of the

seven PFS projects in the U.S. to date.

Exhibit 2. Responses to Question 1

Pay for Success 

Project

Where does the money allocated for repayment reside during the length of the PFS project during

implementation?

New York City ABLE 

Project for Incarcerated 

Youth

New York City entered into a direct contract with the PFS project intermediary, MDRC, to pay for the outcomes 

associated with the PFS project. According to the New York City Mayor’s Office, the Mayor takes very seriously 

the risk of negatively impacting the City’s credit rating if requested payments are not made. Therefore, when/if 

repayments are due, the City of New York plans to add a “new needs” item to the New York City Department of 

Corrections annual budget or “self-fund” the payments using available funds in the Department’s current 

budget.

New York Increasing 

Employment and 

Improving Public Safety 

PFS Project 

To ensure sufficient funding is available over the life of the project for outcome payments, New York State 

annually appropriates funds for this project until the outcome payments are potentially due. The annual 

appropriation is accounted for in the New York State Budget in the Aid to Localities Federal Workforce 

Investment Act (WIA) account of the Federal Emergency Employment Fund. The New York State Division of 

the Budget requires the New York State Department of Labor (NYSDOL) to segregate PFS monies 

appropriated in that account separately from other federal grants. This enables the NYSDOL and the state to 

control PFS funds for their intended purpose, and prevents them from being used for other budgetary 

purposes. 

Massachusetts Juvenile 

Justice PFS Initiative

In 2012, the Massachusetts Legislature authorized the Secretary of Administration and Finance to enter into up 

to $50 million in Social Innovation Financing (i.e., PFS) contracts, backed by the full faith and credit of the 

Commonwealth. This statute also created the Social Innovation Financing Trust Fund (“Trust”) to house and 

protect outcome payments for PFS projects. Every year, the Secretary of the Executive Office of Administration 

and Finance requests an appropriation equal to the expected future payments for all PFS services provided 

that year. Funding for the state's various PFS initiatives is all housed in the Trust and is not separated.

Utah Pre-K PFS Project For cohort 1, repayment funding comes from the United Way of Salt Lake and from Salt Lake County (not the 

state) and was placed in a special fund created and managed by a local foundation, the Park City Community 

Foundation. By the time the second cohort began, the Utah Legislature enacted HB96, the Utah School 

Readiness Initiative. Among other things, the bill established the School Readiness Board (the “Board”). 

Contingent on the annual allocation of State funds for this purpose, the bill allowed the Board to enter into 

results-based financing contracts with private investors on behalf of the State, and created the School 

Readiness Restricted Account to house outcome funding for PFS projects. Initially allocated at $3 million, this 

funding along with future allocations in this account can be used to repay investors based on results of the 

project, as well as provide grants for quality improvement.

Cuyahoga County 

Partnering for Family 

Success Program

Cuyahoga County created the Social Impact Financing (SIF) Fund for the project to manage the unique nature 

of PFS contracts. The funds in the SIF Fund are certified and encumbered for the Partnering for Family 

Success project. Beginning in 2014, and continuing for the next 4 years, $1 million annually is budgeted for this 

fund, per Council ordinance, totaling $5 million in funding. The County created guidelines for the fund that 

include contractual language that requires a certification and encumbrance for the project to continue, as well 

as a stipulation that the project would wind down if the allocation did not occur or there was a reallocation of the 

funds that were already in place.
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Pay for Success 

Project

Where does the money allocated for repayment reside during the length of the PFS project during

implementation?

Chicago Child-Parent 

Center PFS Initiative

There are two outcome payors in Chicago (the City of Chicago and the Chicago Public Schools), and each is 

handling its funding obligations differently. The City of Chicago created a special escrow account called the City 

PFS Escrow Account, and money is placed in the account annually based on base case expectations for the 

number of students in that year’s cohort. The base case estimate is for two of the three outcome measures 

(Kindergarten Readiness and Third Grade Reading). The first deposit into the escrow account by the City of 

Chicago occurred at the time of the deal’s initial closing around November or December 2015. All future 

deposits will occur on August 15th of each year.

Due to legal reasons, Chicago Public Schools was not able to create an escrow account, so it uses its annual 

budget process to secure PFS project funding. Each year, Chicago Public Schools appropriates funding to 

cover PFS costs related to 1) the actual cost of the services to the expanded cohorts and 2) the projected 

“base estimate” payments for the special education services outcome. Unlike the City of Chicago, which 

deposits money annually based on the size of the cohort, Chicago Public Schools budgets for the payments it 

expects to make that year.

Massachusetts Chronic 

Homelessness PFS 

Project 

See Massachusetts Juvenile Justice PFS Initiative above. 

As indicated in Exhibit 2, four of the PFS projects involved some type of legislative initiative or new governmentsponsored financial instrument, such as an escrow account, to house and protect outcome payor funds until it is time to

repay investors. The two Massachusetts projects, the Utah project, and the Cuyahoga County project enacted legislation

that explicitly allowed the local or state government to engage in PFS financing, while creating a special fund specifically

for that purpose. While no legislation was passed for the Chicago PFS project, the City created a PFS-specific escrow

account, similar to the projects in Massachusetts, Utah, and Cuyahoga County. 

The two PFS projects in New York took a slightly different approach to financing. Representatives from the NYC ABLE

project, the first domestic PFS project, emphasized that a key goal when designing their PFS project was to make the

financing structure as simple as possible. The New York City Mayor’s Office felt strongly that it could use the standard

budget allocation process to fund repayment when it was time for outcome payments to be distributed. The New York

State PFS project also relied on the budgetary process for allocating PFS money, but instead of simply expecting money to

be available at the time of repayment, it created a system where the New York State Department of Labor could segregate

PFS monies appropriated in that account separately from other federal grants. Ultimately, both projects relied on state/

local legislatures to allocate funding accordingly, knowing that while there was no legislative requirement, a failure to

properly repay investors based on outcomes achieved would negatively impact the credit standing of the governments

involved.

Key themes/findings from question 1: 

• Unique, PFS-specific, escrow accounts are often used to house funding for outcome payments.

• Failure to sufficiently appropriate funds may adversely impact credit ratings of government/outcomes payors.

• Legislative authorization is frequently needed to establish a structure for outcomes payments.

III. Question 2: How is the upfront capital managed, and how does it

flow during service implementation/project operation?

Due to the complex nature of PFS financing, paying for project services and other operational costs is often not as

straightforward as funding service interventions in traditional ways. Therefore, governments and intermediaries have

developed innovative ways to collect funds and manage operational costs during the length of a PFS project. Exhibit 3

provides information on how the seven PFS projects collect, manage, and distribute private funding to implement

services and fund program operations. 
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Exhibit 3. Responses to Question 2

Pay for Success 

Project

How is the operating capital managed and how does

implementation/operation?

it flow during service 

The New York City ABLE 

Project for Incarcerated 

Youth

MDRC managed the program’s operations through an interest-bearing loan from Goldman Sachs Bank USA. 

The loan was used to cover expenses incurred by Osborne Associates and Friends of the Island (service 

providers) in delivering the service intervention. MDRC also entered into a contract with the Department of 

Corrections of New York City (DOC), which would have made outcomes payments to MDRC for all or a portion 

of the costs of the program, if target reductions in recidivism were achieved. DOC was also obligated to make 

additional outcomes payments if the target percentage of reductions in recidivism was exceeded. Payments 

from DOC to MDRC would have been used to pay back the loan from Goldman Sachs along with an additional 

performance fee for exceeding outcome targets. 

New York Increasing 

Employment and 

Improving Public Safety 

Pay for Success Project 

Capital is requested from the contracted investors twice, half at the beginning of the PFS project and half at the 

start of the second phase. Funds from the investors are placed in an account managed by the “managing 

member,” Social Finance US, using a Special Purpose Vehicle (SPV) created for the project, and are disbursed 

based on a contractual agreement. Funding for the service provider, Center for Employment Opportunity 

(CEO), is provided on a quarterly basis in advance of expected services provided. Social Finance receives 

reports from CEO on key metrics to ensure appropriate use of funds. 

Massachusetts Juvenile 

Justice PFS Initiative

The intermediary, Third Sector Capital Partners, created Youth Services, Inc. (YSI) a supporting 509(a) (3) 

organization of Third Sector, as a Special Purpose Vehicle (SPV) that controls the funding in the PFS project. 

YSI receives quarterly funding draws from the private lenders and yearly draws from the philanthropic investors. 

The funding amount provided to the service provider is based on the number of project participants receiving 

services. These funding draws are used by YSI to cover project costs such as service fees from the service 

provider, evaluation service fees, fiscal agent fees, and project management costs. 

Utah Pre-K PFS Project The operating capital is managed by the intermediary, United Way of Salt Lake (UWSL). At the beginning of the 

project, J.B. Pritzker and Goldman Sachs agreed to loan up to $7 million to UWSL to cover high-quality preschool education for up to five cohorts of participants. The loan payments are made in quarterly advances and 

held in UWSL’s primary deposit account until service provider payments are made. Money is then distributed to 

providers monthly, starting at the beginning of the school year. The amount funded to each provider is based on 

the number of participants it will serve.

Cuyahoga County 

Partnering for Family 

Success Program

As part of the PFS contract, the intermediary, Enterprise Community Partners, Inc., established a Special 

Purpose Vehicle (SPV), Cuyahoga PFS, LLC, that houses the Partnering for Family Success operating 

account. PFS investors wire their investments into the SPV operating account based on a funder drawdown 

schedule that was established as part of contract negotiations. The schedule is broken down by quarter, with 

the first disbursements made in Q1 through final disbursement in Q9. The intermediary is also responsible for 

ensuring the SPV provides the PFS Governance Committee with the operating account’s quarterly financial 

statements and to ensure investors are making their payments based on the agreed-upon schedule.

All project operations are paid through the SPV on different schedules: 

• Evaluator (Case Western Reserve University): Monthly

• Service Provider (Frontline Services Inc.): Quarterly (beginning of quarter)

• Project Manager (Enterprise Community Partners, Inc.): Quarterly (end of quarter)

• Fiscal Agent (Enterprise Community Partners, Inc.): Quarterly (end of quarter)

• Outside Auditor (through Enterprise Community Partners, Inc.): Quarterly (end of quarter)

• PFS Advisor (Third Sector Capital Partners): One-time payment in Year 1

Chicago Child-Parent 

Center Pay for Success 

Initiative/SIB

The project coordinator, the Illinois Facility Fund, created IFF LLC to act as a borrower of investor funding and 

as the manager of the PFS funds during project operations. IFF LLC receives the money loaned from investors 

and then loans the money to the City of Chicago, which uses an inter-government agreement to loan the money 

to Chicago Public Schools for program operations. (Chicago Public Schools cannot directly loan the money 

from IFF LLC, so an inter-government agreement must be used.) The loan request from the City of 

Chicago/Chicago Public Schools is made twice a year, in early September and early January (following the 

semester schedule). The loan request is in the amount of the expected operating costs needed for each cohort 

that semester. IFF LLC was not designed as a funding warehouse, so the pass-through loan from investors 

through IFF LLC to the City of Chicago/Chicago Public Schools takes place in a single day.

In addition to the City of Chicago/Chicago Public Schools, there are also three other organizations paid as part 

of the PFS project. IFF itself receives an annual fee for project coordination costs, payment for which comes 

from the IFF LLC investor funds. SRI International serves as the evaluator whose first-year costs are covered 

via a grant from the Finnegan Foundation. The project is currently exploring philanthropic and other alternative 

funding options for years two and three. Metropolitan Family Services provides technical assistance and 

wraparound services to project participants. Its first-year costs were covered through investor funds, and the 

project is currently exploring philanthropic investment opportunities for years two and three.
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Pay for Success How is the operating capital managed and how does it flow during service 

Project implementation/operation?

Massachusetts Chronic At the beginning of the project, 100 percent of all investments were placed in a special LLC called the 

Homelessness PFS Massachusetts Alliance for Supportive Housing. When a participant is placed in a housing unit, the provider 

Project submits an invoice for a housing voucher to the fiscal agent, the United Way of Massachusetts Bay and 

Merrimack Valley, monthly. There are four organizations involved in this PFS project who also receive funding 

from the LLC. The evaluator, who is responsible for verifying placement in supportive housing, submits monthly 

invoices. The fiscal manager, the program administrator, and the advisor all have contracts for the length of the 

project and are paid quarterly from the LLC. 

As indicated in Exhibit 3, five of the seven PFS projects in operation used either a Limited Liability Corporation (LLC) or

some other type of special purpose vehicle (SPV) a to house and manage the funds during program operations. LLCs and

other types of SPVs serve a similar purpose for the intermediary, which is to protect the organization by isolating 

financial risk inherent in receiving a loan from the investors. The rationale was that if problems occur with services, such 

as not recruiting enough participants, or with outcomes payments, the intermediary would not want to bear the burden of

defaulting on a loan or declaring bankruptcy. 

PFS projects utilized a variety of draw-down strategies to pay for service interventions advanced through PFS projects.

Three of the projects, the Massachusetts Juvenile Justice, New York State, and Cuyahoga County PFS projects, made

quarterly disbursements to the service providers and other contracted partners. The involvement of public school

districts and the provision of services within schools for the PFS projects in Utah and Chicago pushed them to create a

funding assessment and disbursement plan that followed a semester-based academic calendar, with service providers

paid before the start of the fall and/or spring semesters. In the Massachusetts homelessness project, because a large

portion of investor funding is going to housing vouchers, the project did not need access to recurring drawdown funds.

Instead, the intermediary received invoices for the housing costs of each individual placed in supportive housing. 

The proprietary nature of the New York City ABLE project prevented those involved from providing specific information

about management and disbursement of investor funding. 

Key findings/themes:

• The majority of PFS projects developed an LLC or SPV to help protect intermediary organizations (or any

organization managing PFS financing) from financial risks associated with PFS financing.

• The two PFS projects that did not establish an LLC or SPV both had loan arrangements with a very small number of

investors (one or two) and wanted to keep the financial arrangements simple and straightforward.

• Operating capital is typically drawn down annually or quarterly (i.e. withdrawn from the LLC/SPV), while the

disbursement of the funds is often based on the structure of the services being provided (i.e., rolling service

enrollment vs. academic calendar based enrollments).

IV. Question 3: What are the prices per outcome and the repayment

structures for PFS projects?

How key outcomes are valued and packaged as metrics for repayment to investors is by far the most complex of the three topic

areas explored in this topic brief. Pricing outcomes and negotiating returns on investment (ROI) can be a very delicate process,

where those involved need to balance project savings with service intervention risk and make it acceptable to investors, policy

makers, and the community. Often, the final determinations around outcome metrics and repayment levels are based on the

government or the outcomes payor’s “willingness to pay” for the desired outcomes. The purpose of this question was not to

explore the details of how theoretical savings and due-diligence resulted in these repayment structures, but instead to provide

an overview of what types of outcomes are being targeted, what value those outcomes have for specific PFS projects, and how

investors are repaid from those values. 
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New York City ABLE Project for Incarcerated Youth

The target outcome for the NYC ABLE PFS project was recidivism, with a goal of reducing recidivism among the target

population by 10 percent. The maximum amount of outcomes payments was $11.7 million, and payments were graduated 

based on the average percentage decline in recidivism rates after three years of operation and one year of follow-up, as 

demonstrated below. It is important to note that repayments from NYC were channeled through the project intermediary, 

MDRC. 

Exhibit 4. New York City ABLE Project Repayment Structure

Percentage Reduction in Reincarceration Rate City Payment to MDRC ($)

20.0 $11,712,000 

16.0 $10,944,000 

13.0 $10,368,000 

12.5 $10,272,000 

12.0 $10,176,000 

11.0 $10,080,000 

10.0

(breakeven) 

$9,600,000 

8.5 $4,800,000 

New York Increasing Employment and Improving Public Safety Pay for Success Project

There are three outcome targets in this PFS project: 1) recidivism reductions (in the form of bed-days avoided over a five-year

period); 2) employment (achievement of positive earnings in the fourth quarter after exit from incarceration); and 3) number of

treatment group members participating in transitional employment arranged by the service provider. The primary repayment

outcome is recidivism, which has a repayment formula based on the estimated averages savings and community benefit of

avoiding a single bed-day. This PFS project is broken into two phases, with each phase having slightly different repayment

amounts ($85 in Phase 1 and $90.10 in Phase 2 for each bed day). Each repayment measure and phase is also capped to ensure

the state does not overpay and lose money on the project. The performance thresholds and repayment structure for the three

metrics are in the tables below. 

Exhibit 5. New York Increasing Employment and Improving Public Safety Project Repayment Structure

Performance Threshold

Repayment Formula

Phase 1 Phase 2

Outcome 1: Recidivism

At least an eight percent average reduction 

in bed days (estimated to be 36.8 bed 

days) for treatment group members relative 

to the control group 

Average reduction in bed days x $85 x 

number of participants up to $6,832,000 

(then $42.50 per bed-day avoided up to 

$11,095,000) 

Average reduction in bed days x $90.10 x 

number of participants up to $6,668,000 

(then $45.05 per bed-day avoided up to 

$10,448,853

Outcome 2: Employment

At least a five percentage point difference 

in employment rate for treatment group 

members relative to the control group 

Percentage point difference in employment 

rates x $6,000 x number of participants (up 

to $2,000,000) 

Percentage point difference in 

employment rates x $6,360 x number of 

participants (up to $2,000,000)
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Performance Threshold

Repayment Formula

Phase 1 Phase 2

Outcome 3: Transitional Employment

Number of participants engaged in 

transitional jobs (no threshold or 

comparison)

Number of participants engaged in 

transitional jobs x $3,120 

(If average hours worked is equal to or over 111) 

Number of participants engaged in 

transitional jobs x $3,307 

(If average hours worked is equal to or over

111) 

Number of participants engaged in 

transitional jobs x average hours worked x 

$20 per hour

(If average hours worked is under 111) 

Number of participants engaged in 

transitional jobs x average hours worked x 

$21.20 per hour

(If average hours worked is under 111) 

Massachusetts Juvenile Justice PFS Initiative

The three target outcomes in this project include: 1) recidivism reductions (in the form of bed-days avoided); 2) employment

(based on the percentage of quarters an individual has with earnings more than $1,000); and 3) youth worker engagement (nine

or more engagements with a service provider staff person within a quarter). For the recidivism metric, the Massachusetts

Juvenile Justice PFS Initiative utilized a tiered outcome/repayment model to help place emphasis on meeting outcome targets

that utilize the most monetary savings. The repayment thresholds and amounts for the three metrics are below. 

Exhibit 6. Massachusetts Juvenile Justice Project Repayment Structure

Outcome 1: Recidivism

No Impact Low impact Medium impact High impact Maximum

Performance 

Thresholds 

Less than 5% 

reduction in bed days 

5% – 14% reduction 

(29 – 87 bed days) 

15% – 42% reduction 

(88 – 243 bed days) 

43% – 66% reduction 

(244 – 358 bed days) 

67% or more

reduction (359 or 

more bed days) 

Repayment Amount 

(per person served) 

No Payment $785 – $3,975 $4,016 – $26,491 $26,639 – $28,463 $28,540 

Outcome 2: Employment

No Impact Impact

Performance 

Thresholds 

Less than 5 percentage point difference in “person 

quarters” of employment 

At least 5 percentage point difference in “person quarters” of 

employment 

Repayment Formula No Payment Total quarters observed for treatment group x percentage 

point difference between treatment and control group x $750, 

up to $1.6 million 

Outcome 3: Youth Worker Engagement Calculations

No Impact Impact

Performance 

Thresholds 

Fewer than 9 meetings between a treatment group 

member and a Roca Youth Worker 

9 or more meetings between a treatment group member and 

a Roca Youth Worker 

Repayment Formula No Payment Impact 

Utah Pre-K PFS Project

There is one outcome measure for this project—usage of special education services in kindergarten through sixth grade. Each

cohort of three- to four-year-olds is given the Peabody Picture Vocabulary Test (PPVT), a predictive assessment that serves as

an indicator of the likelihood of later need for special education and remedial services. Students who test two or more

standard deviations below the mean at preschool entry form the “payment cohort” and are followed in K-6 to determine

outcome payments. For each year (from kindergarten through sixth grade) a child in in the “payment cohort” does not utilize

special education, a success payment is made equal to 95 percent of the avoided costs per-pupil costs (approximately $2,600 for 
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CNCS Process Evaluation of the SIF Pay for Success Program

Corporation for National and Community Service

Office of Research and Evaluation

nationalservice.gov/SIF 9

Cohort 1 and approximately $2,700 for Cohort 2), or approximately $2,470 (Cohort 1) and $2,565 (Cohort 2) per child for every

year. For the first cohort, the cap on return is the full amount of investment plus a base interest rate of 5 percent. If this cap is

reached before the cohort completes sixth grade, success payments will equal 40 percent of Cohort 1 costs ($2,600) or $1,040 per

child per year of special education services avoided through sixth grade. For the second cohort, the investors will be repaid up

to a maximum interest rate of the Municipal Market Data General Obligation Bond AAA scale for a ten-year maturity at the 

time of issuance plus 5 percent. Outcomes for each cohort are calculated in the summer, and repayments are made to

investors each August. 

Cuyahoga County Partnering for Family Success Program

The sole outcome metric for this project is a reduction in the number of out-of-home foster care (OHF) days for children. For

each OHF day reduced for participating children relative to the control group, Cuyahoga County will pay $75, which 

represents the combined average cost of foster care and related social services per child, per day. The target impact for the

project is a 25 percent reduction in OHF days for treatment group participants. Below is a table with the breakdown of outcome

payments by percentage reductions in OHF days. 

Exhibit 7. Cuyahoga County Partnering for Family Success Program Repayment Structure

Percent Reduction in OHF Days Success Payments Paid by Cuyahoga County

40% $5.0 million

30% $4.55 million

25% $4.125 million

20% $3.4 million

10% $1.7 million

Chicago Child-Parent Center Pay for Success Initiative/SIB

There are three outcome metrics for this project: 1) kindergarten readiness; 2) special education usage; and 3) third grade

reading level. For every participating student who is “school ready” for kindergarten, investors will be repaid $2,900. For each

participant who does not need special education services, investors will be repaid $9,100 per student, per year, with a one

percent compounded interest rate per student. Finally, if there is an increase in third grade literacy, investors will receive $750

per student who tests above the national literacy average. 

Massachusetts Chronic Homelessness PFS Project

The target outcome metric for this project is stable housing. Investors are paid $3,000 for every year that an individual is in 

stable housing during the project, up to a total of $6 million dollars. The contract's target success level is 85 percent of

participants successfully housed for one year or more. Below is a table with a sample of the breakdown of return on investment

by the percentage of participants successfully housed for one year or more.

Exhibit 8. Massachusetts Chronic Homelessness Project Repayment Structure

Participants in Stable Housing for at Least One Year Return on Investment

94% or more 5.33% 

91% 4.66% 

85% 3.33% 

79% 0% 

Below 79% Begin Losing Principal Investment 
Special Topics Brief: Pay for Success Financial Mechanisms

CNCS Process Evaluation of the SIF Pay for Success Program

Corporation for National and Community Service

Office of Research and Evaluation

nationalservice.gov/SIF 10

Unlike the first two questions explored in this topic brief, where there were some commonalities among responses, the outcome

metrics and repayment structures reported by project representatives varied extensively across the seven PFS projects. While

there were common areas of focus (e.g., recidivism, employment) and measures (e.g., bed-days, wage increases), the actual

prices and payment thresholds were very diverse. For example, four of the seven PFS projects focused on just a single outcome

metric (New York City, Utah, Cuyahoga County and Massachusetts [homelessness] projects). In all four cases, the projects

tended to be smaller in size and scope and had very targeted savings areas. Representatives from these projects emphasized the

importance of trying to make these aspects of the projects as simple and straightforward as possible. Chicago, New York State,

and the Massachusetts Juvenile Justice project all had three outcome measures. While Chicago had three outcome measures,

they are all education focused and interconnected. The general thinking behind Chicago’s outcome and repayment model is 

that improved kindergarten readiness (measure 1) will lead to reductions in special education resources (measure 2), which will

ultimately result in better third grade reading levels (measure 3). So while there are three distinct outcome measures, there is a

strong correlation and progression between them. 

Only the New York State and Massachusetts Juvenile Justice PFS projects had three distinct outcome and repayment metrics. In

both cases, the focal measure is recidivism, as both projects identified that outcome as the biggest source of government fiscal

and societal benefit. While the employment metric also provides savings in the form of increased tax revenue and reduced

dependence on supportive services, the potential savings are not nearly as large as those achieved through recidivism reduction

outcomes. US Department of Labor (USDOL)’s requirement for projects to target employment and include that measure in the

repayment structure is a key factor in both projects.6 Finally, both projects also included a third payment metric directly related

to the service model. These two projects are significantly larger, longer, and more expensive than any of the other PFS projects.

As a result, both projects wanted measures that would both acknowledge successful implementation of the services and serve 

as an indicator for success for the other two measures. 

Key findings/themes:

• The outcome metrics and repayment structures varied extensively across the seven PFS projects depending upon their

focus and size. 

• Smaller PFS projects focused on a single outcome measure for repayment to help simplify the PFS financing while the two

largest projects identified three outcome measures each. 

• Savings and outcome payment calculations are complex and frequently involve the use of outside advisors to help in their

construction. 

V. Conclusion

Despite the diversity of projects and complexities inherent in these financial questions, some key findings and lessons can be

found across the seven PFS projects and in response to the questions driving this inquiry. In addition, new areas of inquiry

emerged as potential future research topics. We begin with the three key findings: 

1. Legislative initiatives can help position local/state governments to engage in PFS projects, but they are not a

requirement. While most of the PFS projects that were surveyed enacted legislation to better position the government 

to engage in PFS projects and protect back-end funding, it was not always a necessity. Multiple governments were able 

to implement PFS projects without any legislative changes.

2. Intermediaries (or similar organizations who manage PFS projects during implementation) frequently create

special purpose vehicles (SPV) or limited liability companies (LLCs) to manage investor funding during project

6 USDOL committed funds to New York State and Massachusetts for outcomes payments for a portion of the New York Increasing 

Employment and Improving Public Safety PFS project and the Massachusetts Juvenile Justice PFS Initiative.
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Corporation for National and Community Service

Office of Research and Evaluation

nationalservice.gov/SIF 11

operations. The majority of PFS projects have SPVs or LLCs to house and distribute investor funding as a way to

protect the larger organizations from any potential negative consequences of unsuccessful PFS projects. As with any

service intervention, there are a variety of risks that threaten the success of these PFS projects, but unlike traditional

service projects, there can be hazardous financial repercussions that must be addressed in order for a PFS project to

successfully begin. If the PFS model is to continue to grow domestically, intermediaries may well need to implement

strategies that protect their larger organizations from long-term negative consequences. 

3. Calculations of savings and outcome payments are extremely complex and vary dramatically across projects and 

policy areas. Across the three financial mechanism questions, the structures of outcome payments provided the most 

variety among the projects surveyed. Since these payments are so closely tied to projected savings, the way in which 

local or state governments price various aspects of savings and benefits will change. Regardless, this aspect is

extremely complicated and requires the involvement of highly skilled and experienced staff.

While the seven PFS projects featured in this brief provide useful information about the financial mechanisms involved with

non-federal PFS projects, there is still a lot to be learned. As frequently noted within this Special Topic Brief, the financial 

structures and instruments involved with non-federal PFS are very complicated and the emergent nature of the field means 

there is no definitive, evidenced-based approach to PFS financing. At the same time, in helping to answer these three 

questions, a number of otherrelated areas of inquiry emerged that could also prove beneficial to those exploring PFS projects. 

Potential future research questions include: 

• What is the nature and structure of the fees collected by intermediaries (or similar organizations)? What is included in these 

fees, and what type of variation is seen across the active PFS projects? 

• What is the motivation for intermediaries to become involved with PFS projects? What do these organizations see as the

potential benefits of their involvement, especially in light of the inherent risks associated with any PFS project? 

• For projects that involve Federal monies allocated for PFS projects, what happens if the project does not produce the

intended outcomes? Can monies be repurposed or will the money go back to the Treasury? 

• What types of financial instruments are being used to collect investor funding (e.g., loans, grants, private-placement

offerings

7

), and what are the various pros and cons of each tool? 

• What is the impact of service providers having a financial stake in the success of PFS projects? Is there any difference

in program operations or service outcomes when a service provider has portion of its their fee/costs tied to outcome

benchmarks or when grants are awarded to service providers who achieve certain outcomes? 

• How frequently are PFS outcomes and/or repayment schedules renegotiated during an active PFS project? How

common are exit options for investors? What are the financial and reputational consequences for parties that exit a

PFS project early? 

Those interested in pursuing PFS projects have the opportunity to learn from these current projects. Although financing

structures can be idiosyncratic due to differences in funders, state/local laws, and domain focus across projects, these broad

lessons learned can prove to be helpful. Of course, what works and what is currently successful in the PFS field may change

many times before true best practices are identified in this nascent field. 

7 A private placement is the sale of securities to an individual or a small group of investors. This is the counterpart to public

offerings, which are sold in the open market and available to any investor.