• Author Deb Mayer

The Cost of Pay for Success


"North Coast preschool advocates prepare for pilot study" was the headline the July 6, 2018 edition of The Daily Astorian. This post is an appeal to the good people of Astoria to do your due diligence in investigating this proposal.

This story will be filed away under the "How stupid do rich people think the rest of us are?" category. It takes place in the picturesque setting of Astoria on Oregon's North Coast. A dark, deviate form of noblesse oblige has wormed its way into the politics of this small community. Whereas at one time in the not so distant past privileged citizens felt a responsibility toward those less privileged, today's wealthy elite expect to be repaid handsomely for their perceived generosity.

While few would argue against the notion that quality preschool for every child whose family desires is a noble undertaking, the devil is in the details. Who would create the program? How much would it cost? Who would pay for it? These are questions that immediately come to the fore. In a democratic society, the logical thing one might expect would be to vote on the prospect as a community to gauge whether or not citizens might want to take on the extra tax burden that such an endeavor would surely require. Also, hiring experts in the area of Early Childhood Education to create, lead, staff, and maintain the program seems a logical next step to assure quality and to guarantee tax dollars are well spent.

Instead the Way to Wellville seems to be the vehicle Clatsop County has chosen to address this prospect. This type of scheme is a fairly new one referred to as social impact bonds and "Pay for Success." (The two terms are used interchangeably.) In 2014, there were only a few social impact bonds in existence. With the advent of the Trump tax cuts for the wealthy accompanied by favorable legislation, social impact bonds aka Pay for Success investments are bursting like popcorn onto the national scene. The product and/or process subverts democracy and indentures taxpayers to the wealthy years into the future. What is happening in Astoria can serve as a cautionary tale for the rest of us.

What is Pay for Success?

In 2014, Goldman Sachs contrived the model known as social impact bonds. Below is the investor's definition. Here is a poster describing the investor prospective vs. the taxpayer perspective.

Pay for Success (PFS) is an innovative contracting model that drives government resources toward high-performing social programs. PFS contracts track the effectiveness of programs over time to ensure that funding is directed toward programs that succeed in measurably improving the lives of people most in need.

What does that mean? In short, governments are strapped for cash because the wealthy are not paying their fair share of the tax burden. So instead, rich people are saying they will invest (loan) the money to the government to be repaid with a premium if programs succeed. If programs fail, the government is not required to pay back the "investment." Who decides if the program is a success and how much must be repaid? More good questions. Algorithms are employed to design a metric that will indicate success. The amount to be repaid is not finite but depends on how successful the program is determined to be. Currently, investors are expecting a sure 12% return.

This 10-minute video by Alison McDowell at Wrench in the Gears provides an overview of “Pay For Success” and social impact bonds, detailing how their operations hinge on intrusive and oppressive collection of data from our classrooms, homes, jails, and clinics. More information may be gleaned from trailers of the film Invisible Heart.

The cost of Pay for Success in Astoria

It all began when the community of Astoria, Oregon along with over 40 others across the nation entered the that lost in the final round of competition.) Astoria was one of five communities to win, but conference attendees soon learned there would be It all began when the community of Astoria, Oregon along with over 40 others across the nation entered the Way to Wellville competition to win a $5 million prize. (These days you will be hard-pressed to find any mention of that prize except in aspirational articles from competitors like Scranton, PA that lost in the final round of competition.) Astoria was one of five communities to win, but conference attendees soon learned there would be no $5 million dollar prize. That should have been their first clue to back away.

Before going farther, Astoria would do well to note that it already has a thriving Head Start program and many other preschool choices for families to choose from. Head Start in particular has been proven many times over to be a quality program delivered at an economical cost to taxpayers. Why reinvent the wheel?

So, what exactly did Astoria win? Good question.

Although Way to Wellville founder and Health Initiative Coordinating Council (HICCup) co-founder along with Rick Brush, Esther Dyson has an internet presence, her Wikipedia page mentions neither enterprise. Neither would you find information about these organizations at the IRS Tax Exempt Organization Search or websites tracking charitable organizations like ProPublica or Guidestar. It is virtually impossible to find any substantial information about HICCup or Way to Wellness except on their own website pages -- HICCup was recently deleted. Why is this important? Knowing an organization's assets, board members, annual revenue, and expenses should be considered before doing business with them.

Here are some questions for Astorians to ponder before becoming further involved with Way to Wellness:

  • U.S. Representative Suzanne Bonamici, a fan of Pay for Success, was instrumental in procuring a $350,000 grant from the federal government for a feasibility study of the project. Wouldn't that money be better spent on actually providing services for preschoolers?

  • What kind and how much data is being collected on preschoolers and their families?

  • Why isn't the pilot study paid for by investors?

  • Who are the investors?

  • When do investors start contributing to the project?

  • How long do the investors stay with the project?

  • There are many pieces to the puzzle. I suggest Astorians scour the Way to Wellville website. Note the discrepancies between initial expectations, what is posted on the website, and what is reported in the news. Who are the supporting characters and organizations and how do they benefit, or benefit from, the Pay for Success scheme? Here is a list, by no means complete, to start:

  • Columbia Pacific CCO

  • Social Finance

  • Sorenson Impact Center

  • Kinder Ready

  • Northwest Early Learning Hub

  • Way to Wellville

  • Ester Dyson

  • Rick Brush

  • Dan Gaffney

  • Meyer Memorial Trust

  • Northwest Regional Education Service District

  • U.S Department of Education

  • Clatsop County commissioners

  • Tillamook County commissioners

  • CareOregon

  • Suzanne Bonamici

  • Department of Human Services

  • Oregon Community Foundation

Doing the Math

According to the article, “Over a child’s lifetime, there would be savings of about $14,500,” Gaffney said. That just doesn't make sense. The program will include children from families within up to 300% of the of the poverty level. That's families earning from about $12,000 to $72,000 a year. That's quite a range. Will preference be given to the poorest families?

Why doesn't Way to Wellville pay for the pilot program? If the pilot project for 60 children costs $2 million over three years, that equals about $11,000 a year per child. (By comparison, Head Start costs about $8,000 per child.) If the goal is to offer free preschool to 600 children in Clatsop and Tillamook Counties, is the total cost estimated to be $20 million dollars over three years plus a premium? When does that bill come due?

Does repaying investors the loan amount plus a premium seem like a good investment for taxpayers when the total savings over the child's lifetime is $14,500?

Would someone explain this in a way that even a preschooler can understand, please? This whole idea just doesn't make sense.

#WaytoWellville #EsterDyson #Astoria #preschool #PayforSuccess #socialimpactbonds #GoldmanSachs #Head #Start #HICCup #DanGaffney #SocialFinance #SorensonImpactCenter #Clatsop #Tillamoook

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