Ohio legislation would expand use of pay-for-success contracts

Ohio lawmakers are mulling a proposal to expand a program that allows the state to pay contractors only for successful services.

Senate Bill 122 would allow the state treasurer to work with state agencies to enter into pay-for-success contracts with service providers for a range of services, including education, public health, criminal justice and the management of natural resources.

Under a pay-for-success contract, the state would only pay a service provider if the company meets specific performance targets established as part of the agreement. The state treasurer would appoint an independent evaluator to review results and gauge the program’s success.

“The pay for success model would bring private sector innovation to meet some of Ohio’s biggest challenges,” state Sen. Steve Wilson, R-Maineville, said in his prepared testimony. “Rather than paying for unproven services and hoping for good results, pay for success contracts would empower policymakers at the state and local level to invest in programs that they know will be a good use of public funds, address the issue at hand, and ultimately save taxpayer dollars.”

The bill transfers oversight of the program from the director of administrative services to the state treasurer. The state House included pay-for-success contract language in the version of House Bill 166 it approved, but the Senate is also considering the bill separately.

The proposed legislation requires the state treasurer to adopt rules to administer the program under the Administrative Procedure Act. The rules must include procedures for state agencies to request a contract and also the types of services that are appropriate for such an agreement.

During a Tuesday hearing before the Senate Finance Committee, Wilson proposed an amendment to his legislation that would require the state treasurer to hold any funds connected to a contract in a custodial fund, so the money remains separate from other funds in the State Treasury. Wilson also wants lawmakers to give the state treasurer the authority to evolve the program in line with pay-for-success contract trends at the national level.

“Ultimately, the pay for success model diverts risk away from taxpayers by first ensuring measurable outcomes are achieved,” Wilson said in his prepared testimony. “It helps us allocate scarce resources to projects that we know get results. Many times, objectives in the contract stipulate that results must lead to government savings, which help pay for the projects themselves and generally help build efficiencies in government.”

The proposed legislation allows an existing pay-for-success program administered by the director of administrative services to continue. Under the program, the Department of Health administers pilot projects aimed at reducing infant mortality.

“We should continue to be careful that we are spending tax dollars on things that are appropriate and necessary for government,” said Greg Lawson, a research fellow at The Buckeye Institute. “That said, to the degree we do spend those dollars, this program appears as though it will help confirm the return on the investments made.”

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