Pay and Manage for Results
To deliver non-educational services as efficiently as possible and to improve payment structures to deliver better results, policy makers should pursue strategies that will enable them to pay and manage for results. Pursuing performance-based funding, performance contracting, and shared services, can result in meaningful cost savings with minimal effort.
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Performance-based funding: Performance-based funding and other structures that allocate dollars based on the educational results achieved, are gaining traction in the education field. Growing in use in higher education and adult education as well, performance-based funding is being pursued in K-12 education for its emphasis on improved outcomes and cost efficiencies.
- Florida Virtual School – A state operated online school that works with school districts to provide online learning options for students in grades K-12. The school has modified the way most traditional public school systems work by moving to a completely results-based funding model in which a school only receives funding for students who successfully complete courses. It is designed to allow students to progress at their own pace, and provides many traditional schools economical options for providing courses they would have difficulty staffing locally. Additional link here.
Performance-based contracting: Many school districts, cities, and counties have taken advantage of performance-based contracting, a strategy that enables them to purchase outcomes as opposed to inputs. A number of school districts across the country use performance-based contracting for non-instructional services, particularly energy. Energy performance contracts in particular have shown to result in substantial cost savings for districts.
- Colorado Springs School District 11 – This school district reports savings of nearly a half a million dollars a year through an energy performance contract. Through an initiative of the Governor’s Energy Office, the district was matched with an energy company who audited district facilities and operations, installed energy saving measures, and guarantees that savings will meet or exceed the costs of the project. Additional link here.
Strategic sourcing or shared services: Pooling purchasing when procuring goods and services can help to reduce costs. Consolidating or expanding shared services and cooperative agreements among school districts or between school districts and municipal governments can result in cost savings and quality improvements.
- Maine – The state passed a law in 2007 that required schools and districts to form larger administrative units or find other ways to reduce their costs. Since then, the state reports that it has eliminated over 110 school administrative units. Reorganized schools have reduced costs by no longer supporting multiple central offices; sharing professional development activities; pooling contracting, transportation, and procurement; and instituting common curricula. Maine estimates that the reorganization may save $36 million in annual state support and $30 million in local funds.
- Ohio Smart Schools – Ohio Smart Schools is an initiative of Ohio Education Matters, a public policy research organization. The Ohio Smart Schools initiative explores ideas, policies, and procedures that can help schools cut costs while improving student achievement. The initiative’s work focuses on collaboration and shared services, the sharing of best practices including regional systems of support to facilitate shared services, and analysis and rethinking of the school funding systems and policies.
- Rhode Island – A 2009 Rhode Island Senate Resolution created the Senate Commission on Shared Municipal Services. The Commission was charged with identifying ways to manage resources and deliver services in more economical, efficient, and effective ways. Both short- and long-term recommendations on shared services were developed and could result in cost savings for school districts.
- New Jersey’s Local Unit Alignment, Reorganization and Consolidation Commission – In 2007, this Commission was created to study and report on the structure and functions of county and municipal government. The Commission, prior to being defunded, made recommendations on legislative changes to enhance the efficiency of local government, including the use of shared services. The work of this Commission serves as a bipartisan model to drive local government efforts to increase productivity.
Additional Resources:
- Social Impact Bond: A promising new financing model to accelerate social innovation and improve government performance, Center for American Progress
- Towards a new social economy: Blended value creation through social impact bonds, Social Finance
- Benchmarking Ohio’s School Districts, Ohio Smart Schools
- Towards a new model of educational governance for Ohio, Ohio Smart Schools
- Pay for Success Bonds – Modeled after the United Kingdom’s social impact bonds, pay for success bonds provide a new approach to funding social programs. Under this funding structure, the government works with a financing organization to obtain service providers and secure private investors who are willing to provide up-front funding for social services. If the previously agreed upon results are achieved, the government pays the financing organization for the services rendered, and the financing organization in turn shares a portion of the government payments with the private investor. This financing structure creates an incentive for providers to deliver outcomes at lower costs and increases the governments return on investment in social programs. The President’s budget currently includes up to $100 million to fund pay for success initiatives.
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