Utah has used a social impact bond (SIB) to provide high-quality preschool education for low-income children, leading to the first-ever “pay for success” payout in the United States. Targeted to prevent at-risk kids from entering expensive special education, the project has exceeded targets every year, saving the state money and providing healthy returns to private investors. Though it has triggered greater state involvement in preschool education, critics have argued the results were tilted in favour of investors, and the long-term impact on children may have been overestimated.
Results & Impact
In the first cohort, just one of 110 vulnerable children was assigned to special education. In each year of the project, less than 10% of at-risk kids were in special education, well below the target of under 50%. More than 3,500 children have participated in the project.
Voices for Utah Children, Granite School District (GSD) Preschool Services, United Way of Salt Lake, Utah Governor’s Office, Goldman Sachs, J.B. Pritzker Foundation
The high-quality preschool program — proven to improve academic performance among three- and four-year-olds — was implemented by the charity United Way of Salt Lake. According to the “pay for success” SIB bond, investors would be paid a return if participating at-risk children avoided being assigned to special education. Children were judged as “at risk” based on their score in a picture and vocabulary test, which was around 25% of each preschool cohort.
Salt Lake County, Utah
Infants and toddlers
Cost & Value
Special education costs around $2,600 for one child per year in Utah, compared to $1,700 for the preschool year. The investors, Goldman and Pritzker, invested $7 million and receive 95% of the expected savings when a child avoids special education between kindergarten and sixth grade. The state keeps the yearly savings for the remainder of their schooling. Provided 50% of the children avoid special education, investors will earn all their money back with 5% interest.
Running since 2013
The project has been criticised for the way that “success” is measured, because there is no definitive proof that the children who avoided special education would not have done so without preschool. There was no comparison group of children to test the assumption, and suspicions have arisen that the test used to determine their academic ability has been overestimating the number of vulnerable children, particularly among non-English-speaking students. More measures were needed for a longer period of time to determine the program’s long-term impact on children.
SIBs in early childhood have since been implemented elsewhere, including in Chicago. In 2016 South Africa became the first-middle income country to use a SIB for early childhood development programs.
In 2013, Utah became the first place in the United States to use social impact bonds (SIBs) in early childhood education. Backed with millions from the private sector and philanthropy, a preschool program for more than 3,500 children was created in low-income communities in Salt Lake County.
Under the scheme, for every at-risk child who avoided being assigned to special education when they got to school, investors would be paid a return. In the first cohort, this happened to just one of 110 vulnerable kids, leading to the United States’ first-ever SIB payout.
SIBs have become a popular way of trialling government policies without risking taxpayer cash. Such schemes, from cutting recidivism in UK prisons, to helping young people in Rotterdam find work, are backed by private investors, who are then paid a return from the state — but only if the outcomes are positive.
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Utah’s results look impressive, and have triggered a larger political conversation about preschool in a state with very little public early childhood education. However, questions have been raised about how much real impact it’s had on child outcomes.
A successful investment
The program has proved a worthwhile investment to its backers, Goldman Sachs and the Pritzker family foundation, who put up $7 million.
“Special education in the United States is an expensive proposition,” said Mark Innocenti, the program’s lead evaluator. It usually costs around $2,600 to fund special education for one child for a year in Utah. Low-income kids are particularly vulnerable — 17-18% of them are assigned to special education at school.
As a result, “the greatest amount of return is on the children who are most vulnerable,” said Tracy Gruber, director of the Office of Child Care in Utah’s Department of Workforce Services. With 49,000 under-fives in Utah living in poverty, reducing the number that end up needing special education seems like a worthwhile investment.
In the absence of public preschool in Utah, the charity United Way of Salt Lake stepped in to implement the SIB scheme. They use a high-quality preschool program tested in Granite School District, proven to improve academic performance amongst three- and four-year-olds. The preschool costs just $1,700 a year for each student.
Investors will earn all their money back along with 5% interest
The participating children are assessed with a picture and vocabulary test, and are identified as at risk of entering special education if they get a very low score – which usually includes around 25% of the class. While the whole class receives the preschool support, the success of the project and resulting payouts are judged on the outcomes of this at-risk group.
For each child avoiding special education, the investors receive around 95% of the savings from kindergarten through to sixth grade. For the rest of each child’s time in school, the state keeps the expected savings. After the first year, school districts and governments were expected to have saved $281,000, Reuters reported, meaning Goldman and Pritzker would have received a payout of around $267,000.
Provided 50% of the children in the program avoid special education, investors will earn all their money back along with 5% interest. At the current rate that will easily be fulfilled by the time the repayments finish in 2025.
Too good to be true?
Critics of the program, though, have argued that the results have been tilted in favour of the investors. There is no definitive proof that the children who avoided special education would not have done so without preschool. There was no comparison group of children to test the assumption.
Studying a child’s academic achievement in kindergarten is the best way to predict whether they will end up in special education. But suspicions have arisen that the picture and vocabulary test they use has been overestimating the number of vulnerable children. Non-English-speaking students — of whom there are many in the participating cohorts — have been known to score particularly badly, because of language skills rather than any learning disability.
“[Children] regress to the mean in some aspects”
“If we were to do it again, I would have more indicators involved as part of the payback scheme,” said Innocenti. He would want to monitor academic progress more closely, and compare the children to a control group of similar kids. Innocenti argues this would add “more skin in the game,” raising the bar for investors to get a return, and providing more proof that the preschool program was having a significant impact.
For example, a similar SIB preschool program has since been created in Chicago. Instead of just monitoring whether they entered special education, “success” included meeting certain standards in school readiness assessments and reading scores in grade three.
Meanwhile, Innocenti worries that this focus on avoiding special education when children first reach school may lead to a drop off in quality education afterwards. He is currently collecting data which suggests that children “regress to the mean in some aspects”, with some children ending up in special education having avoided it at first. As a result, he argues they should be tracked from preschool well into elementary school.
Changing the conversation
Utah’s preschool SIB may not be perfect, but it has provoked an important shift in a state where early childhood has never been a priority.
The program has highlighted the importance of investing in the early years, said Innocenti. In 2016, for example, legislation was introduced to expand access to preschool for the worst-off four-year-olds, looking to target children at most risk of intergenerational poverty.
This is the real value of SIBs, said Gruber: the private sector can establish a policy’s impact with little risk to taxpayer dollars. “The government can come in later and scale it,” she said. Under her leadership, the Utah government are taking over the SIB preschool program when the private contract expires in 2018. Early childhood is now a salient issue, she said.
The scheme’s encouraging results, though they should be taken with a pinch of salt, have also begun to drive similar SIB preschool projects elsewhere. In 2016, for example, South Africa became the first-middle income country to use a SIB for early childhood development programs.
With the right design, SIBs could prove a useful tool for early childhood policymakers, especially in places where governments are not yet fully behind preschool expansion. —Jack Graham
(Picture credit: Flickr/Alik Griffin)