This innovative financing mechanism is an important opportunity to better align public investment and high impact services. The essential structure of PfS financing is as follows: A payer–usually a government agency–contracts with a private service provider to administer a program. The contract between the two is structured such that all or a majority of payments are made only when the service provider hits certain performance targets, usually over a relatively long term of several years or more. To obtain working capital to fund its operations in advance of those performance payments, the service provider obtains private financing, which is repaid (with a modest return) only when performance goals are met.
The concept and delivery mechanisms of PfS transactions have received increasing attention among government leaders, social service innovators, and impact investors. While early interventions within the juvenile justice system and recidivism among adults were common, there is significant current momentum in fields related to housing, social services and early childhood interventions – issues areas with which Reinvestment Fund has deep familiarity and expertise. To date, fewer than ten transactions have been executed and Reinvestment Fund has emerged among the most active investors. We are the senior lender in the Cuyahoga County and Santa Clara County PfS projects.
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