Massachusetts Pathways to Economic Advancement, a Pay for Success Project

Massachusetts Pathways to Economic Advancement is the first Pay for Success project to focus exclusively on adult education and workforce development for low-skilled adults. This innovative program model is being implemented by Jewish Vocational Service (JVS) at five program sites in Greater Boston. Pay for Success program models are unique because private investors provide up-front capital to proven, high-performing education, training, or social service providers to deliver services, and the government pays the investors back with interest if the agreed-upon outcomes are achieved.

The MA Pathways project goal is to promote economic mobility of low-skilled English language learners and ultimately generate more public dollars through increased tax revenue as participants obtain new or better-paying jobs or through savings in public expenditures as people utilize fewer public supports. Pay for Success programs started in the UK, and there are now more than two dozen projects being implemented in the US, for example, to reduce recidivism or homelessness.  But until 2016, there have been none in adult basic education/workforce development when the Massachusetts project was funded at $12.43 million.

That funding pays for a generous cost per student at an average of $5,300, as well as a rigorous, random assignment third-party evaluation, and the effort it takes to line up investors willing to invest in the program. It enables JVS to serve nearly 2,000 English language learners in four tracks each of which blends English instruction and employment services:

1. Rapid Employment – provides vocational English and job training services to adults, many of whom are refugees looking to secure a first job immediately
2. English for Advancement – provides English language instruction and job placement for students seeking re-employment or job advancement
3. Skills Training – provides specific vocational training, certification and job placement in the healthcare or hospitality sector
4. Bridges to College – provides remedial math, science, and English Language Arts to support individuals seeking to transition into higher education

Students attend between 7 and 35 hours per week, and the program follows up with them post-placement for 2 years.  The measurement timeframe is six years, but the direct service component is three years.

Interview with Jerry Rubin, CEO of JVS

• Why did you, JVS, decide to go for this Pay for Success program model?

Several reasons: First, we had as part of our business plan, a goal to expand our services to Massachusetts “Gateway Cities”  because they have large populations of adults that could benefit from our services and tend not to have strong workforce development infrastructures, but we had no financing mechanism. The Commonwealth’s interest in a project to serve English language learners and increase their earned income was the perfect solution. The second reason was that we have a strong view that traditional, publicly funded adult ESOL programs could be designed much better to achieve economic opportunity and we wanted to demonstrate that if you focus the programs on what most people are looking for – better economic opportunity – adult learners would benefit more. Our model combines contextualized English language instruction with employment services and career coaching. And third, we were intrigued by the idea that the State would pay for ESOL services with a performance-based contract with meaningful outcomes verified by their own data, (a real breakthrough for the workforce development field), and only upon successful delivery.

• Isn’t there a high risk for you?

The biggest risk to JVS is if we are not successful our reputation would suffer. The financial risk was limited because we get our funding in advance as working capital. As it turned out, because Pay for Success is new and complicated, it took longer than expected to finalize the contract.  To be most successful, we wanted to start classes in the fall when students are traditionally looking for ESOL classes, so we ended up starting classes with our own money before the closing of the financing.  A second complicating factor is that one part of the project is geared toward refugees, and it is entirely focused on immigrants, and the project went into effect the same week as the Muslim ban and a huge reduction in refugees being admitted into the country. There was a point in time that we were worried that the project might not go forward, but it did, and was ultimately over-subscribed.

• Is this just performance-based funding with a new name?

It’s true the concept of pay-for-performance is not new to workforce development, and JVS has other performance–based contracts. What’s new is that if you want to scale, you need working capital to run it, and the Pay for Success model provides that by using investor dollars that the State then pays back based on project outcomes and success. This also means that if the project fails, the investors take the lion’s share of the financial risk.

• Was it difficult to raise the necessary funds?

No.  Raising the capital wasn’t the biggest challenge to the project.  There’s a lot of wealth and many people want to do something beneficial with their money. There are not that many social impact deals for them to invest in. But we could not have done this project ourselves. Social Finance is our partner, and they negotiated with the State for the payment terms and they raised the capital.

• How are the early outcomes?

It is going well so far. Our internal data is showing an average of about 50% earnings gain for our students placed in jobs. The data on which investor payments are made is earnings data from the State.  The fourth and largest track is English for Advancement with about 1,000 students. That’s being evaluated with a randomized controlled trial where students’ wage gains are compared to a control group of students who were screened and eligible but not accepted into the program.  This data is not yet available.  Also, we don’t measure the educational gains of our ESOL students because the goal is to get someone a better job. The educational gains don’t matter in that equation.

• Will the investors get their money back and at what interest rate? When is the payout?

There have been several small payments to date to the investors based on enrollment. The major payments will start this spring (2019) based on the wage data from the State, and continue quarterly if success continues to be achieved through the end of the project.

• What lessons have you learned so far?

We have learned that this can be done though it’s not easy. We’re learning that you can design adult education differently and get good results. You do what is measured.

We have learned that how you think it’ll go won’t be the way it goes.   You need to track implementation and early outcomes closely and make rapid adjustments. There is no room for failure here.

• Have there been any challenges and how have you addressed them?

This was a significant scaling up of our work to date. We had to figure out how to start up classes in many new locations, hire instructors and career coaches – all kinds of operational challenges. We had high expectations for our community partners for recruitment goals and some didn’t come through, so we had to terminate some of our agreements.

There were two big changes in the environment: one was when refugee admissions stopped. Also, the unemployment rate dropped significantly from the time we planned the project. People tend to go to school when they’re not as busy with work. Therefore, recruitment was more challenging than we expected.

• What about very beginning level adult learners? Could the Pay for Success program model work for them?

Absolutely! We serve beginning level adult learners in this project. The majority of our students speak very limited English when we meet them (some even complete the intake process in their native language). As a workforce development agency, we are very successful at delivering contextualized ESOL and building connections with employers who need talent.  We also build people’s social capital and their confidence to get them into better jobs.

• Would you recommend this program and funding model to be scaled and why?

First, we need to see what our big outcomes are like. I’m optimistic but need to see that the early outcomes are reflected in the full outcomes. We as an organization were ready for this. We were frustrated by traditional ESOL program models.  This program model is not for the faint of heart or those who are risk-averse.  You need to be able to make adjustments on the fly when things are not going as you anticipated.

• How do you envision these types of programs can become sustainable?

Ideally, we’d like to see this kind of model built into the State’s procurement for adult education at least for a portion of programs. They’d have to pay more per student to get these kinds of results.  And, some version of Pay for Success could be part of it.  That would be real system change.

• You wrote in a recent article that you believe Pay for Success models have the potential to transform workforce development and adult education. How so?

When you are literally paid for success, it drives program quality.  If you’re measuring wage gains, which is possible, your program design will result in people getting better jobs and increased wages. Right now adult education and workforce development are separate. This model merges the two. The reason you want to merge them is that’s what people want and need.  This model produces genuinely meaningful outcomes for both the clients and the Commonwealth, which is transformative.

Written by Silja Kallenbach