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"Pay-For-Success" Social Impact Finance: A PKSE Bond Example to Increase School Readiness and Reduce Special Education Costs

Experts have long believed that the high economic returns on sound early childhood programs means it should be possible to pay for such programs with so-called "invest-in-kid bonds", a form of social impact finance that would pay income and repay invested capital from the proceeds of the economic gains from high-quality early childhood programs. The field of "pay for success" social impact finance has been evolving for over a decade, and transactions are taking many forms. This paper reviews the economic research, statutory and contractual, and community involvement standards that would need to be met in order to apply social impact finance in early childhood programs. Particular attention is given to implementation challenges in jurisdictionally and demographically complex urban regions. To aid understanding, a specific program concept is examined in detail. The paper presents an operational example of how social impact bonds might be used to pay for early learning to increase school readiness, paid for by lower public school special education costs. These pay for pre-k to reduce special-ed costs are called PKSE ("peek see") bonds.The example program is based on the 2009 Pennsylvania Pre-K Counts study of 10,000 children and uses data from the Bethlehem Area School District in PA's Lehigh Valley.

Authors: 
Robert Dugger, ReadyNation / Hanover Provident Capital
Robert Litan, Ewing Marion Kauffman Foundation
Publication Date: 
March, 2012
Publication Status: 
Document Number: 
2012-007
File Description: 
First version, March 2012