In Its Third Year, the Pay for Success Lab is Catalyzing Social Finance

By Adam Jones

This is the first of a series of blog posts to share the University of Virginia Pay for Success Lab’s impact as it enters its third year. In this post, Adam Jones, Fellow for Strategic Initiatives, interviews Joshua Ogburn, the lab's Director.

The University of Virginia’s Pay for Success (PFS Lab) was started in September of 2015 to educate the University and its surrounding communities about social finance and evidence-based policymaking. Dr. Christine Mahoney, Director of Social Entrepreneurship @ UVA, and Josh Ogburn, then a Masters of Public Policy candidate, discussed the possibility of convening stakeholders from across the state to foster conversations around these topics. Since then, the PFS Lab has engaged with dozens of communities, employed almost 30 student researchers, and developed strategic partnerships with several leading PFS advisory firms.

“I’ve always been interested in how governments can achieve their objectives more effectively. There are a lot of evidence-based ways to solve problems, but communities aren't adopting them on a large scale,” said Ogburn, founder and Director of the PFS Lab.

Pay for Success (PFS) contracts, also known as Social Impact Bonds, are an innovative funding vehicle to draw private capital into traditionally government-funded services. Because Pay for Success facilitates government payments based upon achievement of results, instead of traditional upfront funding, these contracts lend themselves to bipartisan support - a key advantage in a purple state such as Virginia. By efficiently allocating public funds to projects that have retroactively proven their worth, PFS contracts promote fiscal responsibility. Additionally, PFS contracts provide access to private capital through investment, meaning more people get more social services. By striking this balance, PFS projects have the potential to increase services for at-risk populations through a bipartisan channel.

The advantage of housing the PFS Lab under the umbrella of the University of Virginia extends beyond the state’s political climate. “The PFS Lab gets UVA involved in one of the most exciting ideas in the public sector,” said Ogburn.

By leveraging the institutional support of the University, the Lab hopes to act as a catalyst in getting communities to adopt more innovative policy solutions. The PFS Lab also makes UVA part of a select group of elite universities that have dedicated research wings for exploring the intersection of evidence-based policy and impact investing. As the PFS Lab continues to build its brand, building connections to other national organizations at the cutting-edge of policy innovation will be instrumental to its success.

Since the opening of the Lab, Ogburn and his team have worked on projects ranging from workforce development to environmental sustainability. It wasn’t until the end of its second year, however, that the Lab found its competitive advantage in the market. In its early stages, the PFS Lab envisioned itself as having a role similar to the ten leading PFS advisory firms that provide a full suite of project development services. Now, the Lab focuses on only on “project discovery”. During this phase, the PFS Lab identifies a community wrestling with a difficult public policy issue, educates local stakeholders about PFS and other results-based strategies, and assists them with developing a PFS project outline. Should the community want to do more, it can refer them to advisory firms that can assist.

“There are a lot of organizations that help communities develop projects, but no organizations exist just to educate communities and let them know that Pay for Success is even an option,” said Ogburn.

The PFS Lab’s mission is now to identify and advance promising projects through education, engagement, and networking. Ogburn is confident that this new approach will bring more localities into the social-finance fold. With a new mission in place, the PFS Lab has high hopes for the future. Within the next five years, Ogburn hopes to partner with all leading PFS advisory firms: “Under our model, there is a streamlined progression from us to advisory firms.”

Furthermore, the PFS Lab will keep churning out the policy leaders of tomorrow. With sixteen former fellows and fifteen current fellows, the lab is on track to educate over seventy-five students on the principles evidence-based policy and social finance. Ogburn believes these students will go on to spread awareness of how communities can increase their impact.

The PFS Lab has found its place in the market, and its current trajectory is promising. But at the end of the day, it all gets back to public service. According to Ogburn, “This is about serving people, we’re making a positive impact on at-risk people’s lives.”