Social Impact Bonds (SIB), also known as Pay for Success, are a relatively new financing tool that governments can use to pay for programs that deliver results. SIBs are public-private partnerships in which a private funder pays for programs or services carried out by a service provider (usually a non-profit organization.) Private funders can include foundations, businesses, and/or individual donors. If the program meets specific, measurable outcomes for a defined population, the government uses public funds to repay the private funder.

This model means that local governments don’t take the initial risk for funding a program, and they only pay the investors if the program meets its stated outcomes. Payments typically rise for performance that exceeds a minimum target, up to an agreed-upon maximum payment level. For example, an early childhood education SIB could measure whether children need remedial programs when they enter elementary school, and pay based on the percent of participating children that are prepared to enter school.

Several cities and states have launched SIB initiatives related to early childhood services. Examples include preschool programs in Salt Lake City (a case study is included in the toolkit) and Chicago, and nurse-family partnerships for parents of infants in South Carolina. For local governments in North Carolina to create Social Impact Bonds with private investors, the state would need to pass enabling legislation authorizing local governments to make payments based on defined outcomes.