Here’s an idea: State pays only if programs achieve results

Government is often criticized for spending too much and measuring too little. So state Rep. Keith Downey, R-Edina, and state Sen. Julie Rosen, R-Fairmont, flanked by a bipartisan tank-full of thinkers, introduced legislation Monday to create a government model with the goal of spending efficiently by measuring results.

The legislation proposes a pilot program that pays out state money only when social-services programs achieve results.

Under the proposal, the state would issue bonds to create a pool of money, probably about $15 million to $20 million to start. Nonprofit groups that now use general-fund state dollars to, for example, train the unemployed or help people with drug dependency would get paid only if they demonstrate their programs worked, as measured — down to the dollar — by more tax revenues (from people going to back to work) or lower program costs (drug dependency is curtailed). The money and savings that are generated pay off the bonds, whose private-sector purchasers get a 4 percent return on their investment.

The proposal is a “win-win-win,” says Steve Rothschild, former General Mills executive vice president, who created the pay-for-performance model for Twin Cities RISE!, a nonprofit that trains the chronically unemployed and uses the model to attract donors. Rothschild helped put together the legislation because, he says, he believes health-care costs will continue to overwhelm the state budget, crowding out non-medical human services programs.

Downey describes the proposal as “one of the only truly transformational ideas I’ve seen since I’ve been in the state Legislature.” Rosen said: “This is exactly what we should be doing with government. It’s the first step to transform the expectations of state-funded programs.”

Their enthusiasm had a cheering section, representatives of groups — left, right and center — who attended the news conference. Organizations as diverse as the Center for the American Experiment, Growth & Justice, and several in between like the United Way, the Minnesota Chamber of Commerce and the Citizens League, have high expectations that the legislation will kick-start a new way to get a handle how the state spends tax dollars.

“How can you disagree with any of it?” asked Mitch Pearlstein, the American Experiment president.

Sean Kershaw, executive director of the Citizens League, quipped about the presence of “this caliber of leadership, this caliber of bipartisanship and it’s not a funeral.”

While the goal of the pilot program is straightforward, the structure is complicated. The legislation provides that Office of Management and Budget oversee the program with a committee to select qualified nonprofit providers, a committee to create the measurement system for the “return on investment” and analysts to determine whether the nonprofit met the requirement. Then, of course, the bonds must be repaid, and any revenue the state earns beyond bond repayment gets returned to the general fund.

The details may provoke a collective, “Huh?” But Rothschild sees it as an obvious example of corporate metrics — “measure it, capture it, reward it” — where efficiencies and results far outweigh administrative costs. 

Efficiency and savings, if they occur, will not be immediate. So, is this the kind of a long-term, long-thinking legislation to take up in budget year with a big budget hole?  “I think this is absolutely something we have to do this year,” said Rosen. “Would we ever have gotten to this point if we didn’t have a $5 billion deficit?”

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Comments (20)

  1. Submitted by craig furguson on 03/08/2011 - 09:49 am.

    “While the goal of the pilot program is straightforward, the structure is complicated. The legislation provides that Office of Management and Budget oversee the program with a committee to select qualified nonprofit providers, a committee to create the measurement system for the “return on investment” and analysts to determine whether the nonprofit met the requirement.” This is going to be a problem. Most programs take years to evaluate. There may be formative and outcome evaluations. You have to make a decision of what costs to include in the analysis, how will you calculate marginal cost benefits? When calculating costs, will you just look at it as a benifit to the state vs feds and local government (cost savings to the state when you include local resources leveraged)? Will providers skim off the best clients to get better results? Will there be experimental design? Fun idea on the surface, but I see lots of problems implementing.

  2. Submitted by Tony Wagner on 03/08/2011 - 09:53 am.

    It sounds like a good idea, but this short description leaves me with a question: what about initial start-up funding? Obviously, at the start of any program, no results can yet be measured. Can the state still provide a small amount to begin *potentially* profitable programs, with the promise that good results will lead to increased future funding? If public start-up funds are curtailed, it seems like it would lead to fewer programs, less innovation, etc. Given the diversity of the measure’s backers, it seems like this is addressed adequately, but this is the chief question that springs to mind whenever “pay-for-performance” systems are proposed.

  3. Submitted by Jackson Cage on 03/08/2011 - 10:07 am.

    So…..are the costs of overseeing the program, developing measurements, analyzing the results AND 4% interest more or less than these “savings”?

    Yeah, the last time I saw “this caliber of leadership, this caliber of bipartisanship” was in the Financial Industry and it’s watchdogs around 2008.

  4. Submitted by Neal Rovick on 03/08/2011 - 10:12 am.

    Some of the issues?

    Just for example, in drug treatment. How do you measure if someone has kicked a drug addiction? For a week, for a month, for a year, for five years? In a half-way house or back out in the community? When does the payout come? What is success and when does it occur?

    What can happen is that programs select those who they think have the most possibility of success to promote the continuation of their funding, because no one will be paying for those who fail.

    Discarding (or defunding) unrepairable defectives may work with widgets but is hardly defensible, especially among the “all life is precious” crowd.

  5. Submitted by Gerald Abrahamson on 03/08/2011 - 10:47 am.

    Apply the same rules to politics. No politician gets paid until they have achieved what they claimed in their campaign promises. Problem fixed.

  6. Submitted by Pat McGee on 03/08/2011 - 10:50 am.

    I agree with craig.

    What results? In what amount of time? Who pays for the analysts? How do you track the information? Who collects it? Who counts it (whatever “it” is)? Who pays for the tracking database and reporting mechanisms? Who pays for developing the website to report “it”? Who decides what a good outcome is? Who decides when something is a success for failure? Do you stop training people for jobs when the economy is in the toilet because it’s hard to land a job? Do you start training when there are jobs?

  7. Submitted by Fred Haeusler on 03/08/2011 - 11:04 am.

    And, at the same time, we pay legislators only if they achieve real results.

  8. Submitted by Paul Udstrand on 03/08/2011 - 11:32 am.

    This is a very old idea that Republicans have been kicking around and implementing for decades. It’s an attempt to import corporate economics into civil government… and doesn’t work. For one, thing, it doesn’t even work well in the private sector- note CEO bonuses for less than mediocre performance for one example. Second, it always fails in the public sector the corporate metric of revenue or profit isn’t available. As many have already pointing out, the problem is measuring performance, and government performance isn’t measured the same way private sector performance is. Government services are typically strained during crises, yet these models would punish them by cutting funding when they need it the most. This is just another strategy to defund government, and dismantle services.

    Never take your eye off the ball, remember- Republicans are never interested in working the government, or having a government that works. No proposal they advance for better government is really intended to produce better government, there’s always the hidden agenda of dismantling government. Hopefully some day this will change, but these Republicans are not changing it.

  9. Submitted by Jeremy Powers on 03/08/2011 - 12:04 pm.

    I think this a great idea. I think we should take one step further. If the surgeon fails to save my life, my family doesn’t have to pay either the doctor or the hospital. If I buy an SUV but never get to drive it down mountain roads and across snow-capped mountains, I don’t pay. If I buy a deer hunting license and I don’t get a deer, I don’t pay. What a complete crock of…

    “A bipartisan tank-full of thinkers”? What a complete joke. The reason this isn’t the way we do business – private or public – in this country is because this model will NEVER work.

    Where are the “jobs, jobs, jobs?” Republican legislators are just wasting time. This is going to get really ugly in the end when they wake up and realize they have a HUGE budget deficit they have to fix and they haven’t done a damn thing except appease their party bosses.

  10. Submitted by Cecil North on 03/08/2011 - 12:06 pm.

    Of course, the devil is in the details: “The legislation provides that Office of Management and Budget oversee the program with a committee to select qualified nonprofit providers, a committee to create the measurement system for the ‘return on investment’ and analysts to determine whether the nonprofit met the requirement.”

    In the private sector, ROA is easy to measure in dollars and cents. Public programs, on the other hand, have results that are both tangible and intangible, and measuring “results” is no simple matter. Unfortunately, I expect that the setting of metrics for these programs will be outcome determinative, with the usual emphasis on political expediency. Simply dressing up the process in corporate speak is, in itself, unlikely to change anything for the better.

  11. Submitted by chuck holtman on 03/08/2011 - 12:07 pm.

    As previous commenters note, if funds are based on measurements, you produce what you’re measuring. Social services involve all sorts of “public goods” that can’t be measured and would be lost under a measurement approach. Recall the 1996 federal legislation dramatically restricting welfare eligibility, declared by the establishment politicians, media and think tanks as a grand success based on the tautological measurement of fewer folks on welfare. But far be it from me to dampen the expert bipartisan enthusiasm.

    On the other hand, this concept might be useful for, e.g., corporate tax breaks and bailouts, TIF subsidies, public contracts, stadium funding. Seems here you could actually measure most of the public benefits produced pretty well. I’m surprised the majority caucus hasn’t moved on this one.

  12. Submitted by Patrick Steele on 03/08/2011 - 01:34 pm.

    This reminds me of the merit pay ideas for education; sounds great, but how do we measure effectiveness? Life is full of variables, yet many want to govern in a way of black and white, success or failure. I can already see these cases ending up in court, where a judge will decide if benchmarks were met or if claims were artificially inflated. The idea SOUNDS nice, though. Too bad it’s impossible in reality.

  13. Submitted by Victoria Wilson on 03/08/2011 - 02:07 pm.

    If public goods (goods and/or services that a community agrees to make available to all its citizens) were fungible then they would certainly transpire in traditional markets where immediate payment settles the books with customers, suppliers and investors.

    I assume the bond program is an effort to raise capital-seemingly operating capital. But wouldn’t it encourage philanthropic donors simply funnel their funds through the bond program instead of giving directly to a non-profit? They still invest in a social cause, get their money back and earn some interest.

    What if a taxpayer could voluntarily increase their tax contribution and select where the state spends their money?

  14. Submitted by Lynnea Forness on 03/08/2011 - 05:04 pm.

    in addition to paying legislators only if they achieve real results, we should include sports teams.

  15. Submitted by John Clawson on 03/08/2011 - 05:09 pm.

    What’s not to like about this scheme? asks one of the perpetators. Let me count the ways, like the fella says. Prime, is that this is on its face NOT a scheme designed to help make life better for lower-income/more vulnerable persons. Second is that the indices/measurements these perpetrators speak of do not exist. Third is the nature of the committee deciding who’s in and who’s out and what counts toward a truly credible organization/goals/outcomes; reminds me of the controversy currently washing over the Minnesota Heritage/Legacy Committee awarding money and status to favored groups aligned with the committee members. Third, all this COULD be done in making grants and allocations/contrcts currently; the Palwnty administration, e.g., could have done this already and shown us the path of truth and enlightenment over the past eight years. Fourth, nonprofit granting/contracting is ALREADY so overlain with evaluation/measurement/proving their worth/value, that I think it bit ironic/maddening that the party given to demands for efficiency for everyone except big business, the military, the tax system, and themselves demdns it increasingly from providers who are not always able to control their outcomes (teachers, social services, health care). Fifth, presumably some types of service providers will be excluded from this scheme, but what exactly ARE the grand outcomes we can expect from a shelter for homeless teens (other than getting them off the streets and attempting to und–without the support of coherent public policy–what may be the results of a lifetime of abuse)? or of a wethouse for chronically alcoholic men (other than to prevent them from dying drunk undder a bridge, down by the river, and at 20 below zero) after a lifetime of chemical abuse, or to provide support to a GLBT teen who’s threatening suicide over bullying in his school in the Anoka system, where this doesn’t seem really to be a major concern for the administration? Can’t go on….whole thing makes my head and heart hurt. I worked once for a nonprofit whose stated mission was to care for homeless persons, but whose Board (made up mostly of noblesse riche conservatives and Republicans) in reality held the residents “captive” in a way, almost as if they needed to have these people as “pets” so as to give credibility/purpose to their mission and service. Feels like what we have going on here. The most vile thing about it: it’s 180 degrees away from person-first.

  16. Submitted by Bernice Vetsch on 03/08/2011 - 06:53 pm.

    Can you, MinnPost, make these expert comments available to the think-tanks and members of the legislature who designed this system?

    It might help them to more easily see potential problems instead of assuming it will work resoundingly well.

    Thanks.

  17. Submitted by Kevin Whalen on 03/08/2011 - 09:27 pm.

    It’s a little bit astounding to me that such a controversial and politically charged idea is presented here as a common-sense model. This looks like any number of recipes from the neoliberal cookbook: build roadblocks between new agencies (government or non-government) and government funding, and find ways to strip funding from pre-existing agencies. The end result: fewer non-profits, fewer services for the folks who need then most. Who’s going to be measuring the effectiveness of these non-profits? What will be their criteria? How can we keep evaluation processes non-political? This would seem difficult, given the right-wing tilt of the very idea proposed in the bill. Cindy, where is the critical analysis?

  18. Submitted by Richard Molby on 03/09/2011 - 07:29 am.

    Once again Cyndy brings us a piece so full of puff and so lacking in “yeah, but what about…?” questions that I wonder just what value she brings to MinnPost and to the general discussion.

  19. Submitted by Charlie Quimby on 03/09/2011 - 08:42 am.

    Wow. By the time I got here, every one of my comments was addressed, including shipping these comments to the committee hearing this bill.

    I can only add that Cyndy has provided a service by drawing out the commenters; bipartisan “cheering section” is her term, not necessarily the term of those in attendance; and John Clawson, your comments were great, but this isn’t the Strib. MinnPost lets us make paragraphs!

  20. Submitted by Derrick Schluck on 08/26/2011 - 03:28 pm.

    Government programs being required to achieve measurable results makes scene in some aspects, but government is supposed function and provide services that aren’t met by the private sector or mandated by the USC such as free education.

    Typically these programs are designed to combat problems which aren’t very condusive to meeting measurements. The whole reason they are even programs to begin with.

    Plus haven’t we learned from government, sports, and the private sector that meeting numbers as a function of a job only leads to cheating. School test fraud and teaching to the test, steriods in baseball and other sports where numbers get you paid, and lets not even start with the private sector and what meetings “numbers” does to one’s mindset. All you have to say about that is Wallstreet, Banking, and any economic boom and bust.

    Measure, but measure growth of the individual if a school or drug progam, measure, but measure the long term independence of a homeless program and the individuals ability to use the assistance to then help themselve. Many of these programs are great in theory and have great staff and dedicated volenteer’s but they fall short because they are focused on a “number” and not individuals.

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