Public-Private Partnerships and Free Market Mythologies

Given the post-apocalyptic hellscape that is the Trump administration, any of us would gladly take the Obama administration, even with its weaknesses on some issues. However, if there’s one area where the two administrations overlap, it’s in the privatization of education. Rachel Cohen has a typically excellent report on so-called “Pay for Success” programs that encourage private investment in social programs that, if successful, the government pays back with interest. Pushed by the Obama administration, much of this was in education and there are plenty of connections already with Trump officials.

Chicago’s Pay for Success project launched in 2014, and aims to improve students’ kindergarten readiness, boost third grade literacy and reduce special education services. Goldman Sachs, Northern Trust and the Pritzker Family Foundation invested $16.9 million into the program, with the potential to roughly double their investment over the next 18 years. The bulk of those returns would come from reducing special education services for the 2,600 program participants—about $9,100 per child.

Undergirded by narratives of wasteful government spending and market-driven accountability, a small group of philanthropists, financiers, and policy leaders have helped elevate the Pay for Success model quickly over the past few years. State and local governments have launched 16 such projects across the U.S since 2012, tackling a range of issues from foster care and education, to criminal justice and public health. Dozens more wait in the pipeline.

At its best, advocates say that Pay for Success could foster greater government accountability, fund needed programs in cash-strapped political climates and potentially save the public money down the line. “Innovative models like Pay for Success … shift the risk of achieving targeted outcomes away from the taxpayer and enabl[e] governments to pay only for what works,” said Andrea Phillips, the Vice President of Goldman Sachs’ Urban Investment Group.

But at its worst, Pay for Success can leave taxpayers paying substantially more than if their governments had just funded programs directly, cement narratives of fiscal austerity and incentivize misguided social outcomes.

Free market mythology plopped on our kids! Great! What about Trumpers?

Federal support for Pay for Success continued to mount steadily under the Obama administration. In 2015, Congress passed the Every Students Succeeds Act (ESSA)—the successor to No Child Left Behind—and changed the law to allow states and school districts to use federal dollars to fund Pay for Success projects. The move was applauded by groups excited about leveraging public money with private partners, and criticized by others for the same reason. Senator Orrin Hatch, (R-UT), largely responsible for the inclusion of Pay for Success in ESSA, said “rather than being limited by what federal bureaucrats at the Department of Education think best, funding should be more connected to local innovation and successful outcomes.”

Lexi Barrett, a former policy advisor in Obama’s DOE who also served on his Domestic Policy Council, left the executive branch in 2014 to work as the policy director for America Forward, where she pushed for Pay for Success’s inclusion in ESSA. Now she works as the director of National Education Policy at Jobs for the Future, which was recently awarded $2 million in Department of Education grants to spearhead Pay for Success projects in career and technical education.

“The fact is you have very senior level officials leave the federal government and then turn around to lobby and influence their former agencies,” says Craig Holman, the government affairs lobbyist at Public Citizen, which advocates for tougher restrictions on former federal employees.

The Obama administration laid the groundwork for Pay for Success, paving the way for its potential expansion under Trump—who has declared his intent to expand public-private partnerships across all sectors of government.

A bipartisan commission established last March by Speaker Paul Ryan (R-WI) and Senator Patty Murray (D-WA) will be issuing formal recommendations later this fall on how to grow the evidence-based policy movement. America Forward lobbied for this federal commission, and Jeffrey Liebman serves on it. And a bipartisan bill—the Social Impact Partnership to Pay for Results Act—was reintroduced this past January, which would direct at least $100 million to states and local communities to expand Pay for Success projects.

Meanwhile, in March, Trump announced the creation of the White House Office of American Innovation, charged with improving government and society in collaboration with the “private sector and other thought leaders.” With its stated plans to tackle areas like workforce development and the opioid crisis, PFS supporters have been eyeing the Office of American Innovation as a potential new base of federal support. Senior White House advisers, including Goldman Sachs alumni Gary Cohn and Dina Powell, were even tapped to help guide the new agency. Before joining the Trump administration Powell herself had led Goldman’s “impact investing” initiatives, a portfolio that includes Pay for Success.

Truth of the matter is that Obama has an awful lot to answer for with his terrible education policies, not to mention his fundamental faith in free market mythologies.