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Pay for Success Arrives in Career & Technical Education

Signed into law this summer, the Strengthening Career and Technical Education for the 21st Century Act – also known as Perkins V – includes a number of provisions that promote innovation, modernization and the alignment of workforce skills with labor-market needs (see our full summary here). Notably, the legislation also includes the first-ever federal authorization of Career and Technical Education (CTE) funding for Pay for Success.

This change unlocks the potential to accelerate gains in economic mobility for millions of Americans. Every year, $1.1 billion in CTE funding flows from the Department of Education, to the states, to post-secondary institutions and ultimately into classrooms where students learn vital career skills. While states have always set performance targets in the five-year plans that determine how CTE funding will support services at the local level, historically there was no mechanism to create financial incentives for CTE institutions to deliver measurable results. Perkins V gives the Department of Education the opportunity to change that.

If federal policy guidance enables state education agencies to depart from business as usual, states could change the playing field and gain the ability to pay for specific outcomes — like skill development, credential attainment, wage growth, and career progression. Instead of focusing exclusively on delivering specific services, CTE institutions could hone their focus on outcomes and tailor their services to industry and community needs, while emphasizing strong accountability for results. With Department of Labor workforce funding already authorized for Pay for Performance under the Workforce Innovation and Opportunity Act (WIOA), CTE institutions could coordinate with WIOA programs — not just with overlapping services, but with shared outcomes targets as well. This combination of flexibility, accountability, and collaboration could unleash a wave of innovation to deliver better outcomes for students and workers.

The Pay for Success provision in Perkins V holds tremendous promise, but if our experience with Pay for Performance implementation under WIOA teaches us anything, realizing this potential will require a coordinated effort across the federal, state and local levels. We offer the following recommendations for key stakeholders in the career and technical education system:

For the US Department of Education, we recommend issuing policy guidance that enables states to deploy Perkins CTE funding using the full range of outcomes-oriented contracting options. Pay for Success has evolved since the first projects launched in 2014, and states now have multiple options to link dollars to outcomes — from traditional “social impact bonds” to contract amendmentsrate cards, and even agency-wide procurement reforms. States should have the flexibility to use all of the tools at their disposal to drive improved outcomes for students and workers.

Additionally, we recommend a targeted investment in technical assistance to help states implement Pay for Success under Perkins V. This investment could leverage other sources of technical assistance funding, such as the $10M appropriated under the recently passed Social Impact Partnerships to Pay for Results Act, and should allow for technical assistance engagements spanning 18-24 months to ensure that implementation capacity is deeply embedded in state education agencies and their partners. The most obvious vehicle for such investment is the newly created competitive grant program for CTE innovation and modernization, which includes Pay for Success implementation as a potential use.

For state education agencies, we recommend convening multi-stakeholder working groups to explore Perkins V Pay for Success implementation. We know from Pay for Success projects, spanning workforce development, family services, and mental health, that efforts to link dollars to outcomes can only succeed through a highly collaborative process. In light of the potential to coordinate Perkins V Pay for Success with WIOA Pay for Performance, these working groups should include state workforce boards and departments of labor alongside representatives from CTE institutions, technical experts and communities. Historically, implementation of Pay for Success and Pay for Performance has taken the form of national competitions for technical assistance, and states with strong working groups will be well positioned to secure this support.

For CTE institutions such as community colleges, we recommend preparing for increased outcomes orientation in the nation’s CTE system by clarifying outcomes achieved through CTE programs, investing in systems that use data to track those outcomes over time and engaging proactively with state agencies seeking to apply outcomes orientation to their CTE contracts. Service providers with innovative programs that deliver measurable outcomes should evaluate the role CTE funding could play in helping to further scale or improve their services.

We have high hopes that Perkins V marks the beginning of a fundamental shift in the way that federal funding flows to the state and local levels. The legislation creates the first-ever opportunity for multiple federal funding streams (versus individual programs) to pay for related economic outcomes with WIOA and CTE funds. We envision a future in which this becomes the norm, and all federal funding streams that target related outcomes can be “blended and braided” to achieve the best results at the state and local levels. Perkins V brings us one step closer to this future and better outcomes for all Americans.

About the authors

DEBORAH SMOLOVER

Deborah S. Smolover is a Managing Partner of New Profit and leads New Profit’s policy work, advocating for more innovative, effective, and efficient policy solutions to our country’s most pressing social problems affecting access to opportunity in America.

CAROLINE WHISTLER

Caroline Whistler is CEO and co-founder of Third Sector Capital Partners, Inc., where she leads the firm’s work to drive public sector resources to measurably improve lives.

OLIVER GOULD

As a Business Development Manager in Third Sector’s San Francisco office, Oliver drives fundraising initiatives and supports the cultivation of financial stakeholders for Pay for Success projects.
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