County Tries ‘Pay-for-Success’ Funding Model for Public Housing

Santa Clara County has taken an unusual tack in funding a housing initiative, testing what it calls a pay-for-success model that leverages private funds for public service.

Under a contract with Abode Services to provide shelter for some of the region's chronically homeless residents, the county has agreed to pay only if the nonprofit delivers results. In this case, that's the physical stability and mental wellness of homeless clients.

The idea is to emphasize outcomes—like housing stability and wellness—over units of service.

Some call these types of agreements social impact bonds, which is sort of misleading because they're more like contracts or loans than "bonds" referred to in traditional investment parlance. The multi-month agreement with Abode Services is the county's first contract of this type.

"I believe the pay-for-success model offers a lot of promise for governments seeking to address complex challenges while connecting payments for services to results," Supervisor Dave Cortese said in announcing the experiment with Abode Services last December.

Cortese suggested housing as the first pay-for-success project because of the growing impact of homelessness on the county's public health system and the region as a whole.

Time and again, studies have shown that housing the unsheltered is cheaper than leaving them on the streets. Under duress of addiction, mental illness and exposure, homeless people end up routinely relying on emergency hospital and psychiatric services. Of Silicon Valley's 7,600 homeless residents,  about 2,500 are considered chronically homeless—defined as people who live on the streets for long and repeated periods of time.

Between shelters, emergency rooms and jails, it can cost up to $40,000 a year for a person to live on the streets, according to the U.S. Department of Housing and Urban Development.

Last year, the county launched a two-part plan to address the top 25 percent "frequent users" of public health services, the ones who repeatedly end up in emergency rooms or jail cells and cost taxpayers the most money. First, offer stable housing and case management. Second, offer targeted, intensive mental health intervention for the most frequent and expensive users of county-owned and contracted psychiatric facilities.

On Tuesday, the Board of Supervisors will consider paying $253,000 to launch its inaugural pay-for-success program to house 112 chronically homeless people.

Part of the goal, in addition to housing some of the region's most vulnerable residents, is to test this pay-for-performance concept with Abode Services. The money pays for a ramp-up period for the housing nonprofit to hire staff and start a pilot program before the official launch in July this year.

"These services reduce or avoid costs for frequent users of the healthcare system, increase the number of healthy life years for individuals served, and reduces the burden of illness and cost of care," according to a memo from County Executive Jeff Smith's office.

For background on the pay-for-success model, here's a report that uses Silicon Valley as a case study.

Critics of these pay-for-success contracts argue that governments don't need private help to improve outcomes in social services.

“I find government wants to do things that are measurable and that provide results,” Nonprofits Quarterly correspondent Rick Cohen told Government Technology magazine. “It’s not the government that is the problem, but political will that is the problem.”

Also, Cohen added, the model has only been around since 2010, not quite enough time to have seen payouts on investments.

More from the Santa Clara County Board of Supervisors agenda for April 7, 2015:

  • Indiana is about to lose another customer over its so-called religious liberty law. That's the week-old legislation enabling businesses to discriminate against gay people—or anyone the company disagrees with, really—by allowing them to use religion as grounds for denying service. To make a political point, Supervisor Ken Yeager has proposed a ban on county-funded travel to the land of bigoted pizza parlors. Yeager, who's openly gay, said this is a chance for the county to leverage its economic power to stand up against discrimination.
  • Plans to turn hundreds of acres of donated open space into an agriculture-themed public park are moving forward. Construction is nearly finished on phase one of Martial Cottle County Park, which will include public trails, farmland, gardens and other amenities.

WHAT: Board of Supervisors meets
WHEN: 9am Tuesday
WHERE: County Government Center, 70 W. Hedding St., San Jose
INFO: Clerk of the Board, 408.299.5001

Jennifer Wadsworth is the former news editor for San Jose Inside and Metro Silicon Valley. Follow her on Twitter at @jennwadsworth.


  1. I was right out there with the San Jose and Modesto homeless this weekend. It got me to thinking, why are we trying to house some of these folks in San Jose where the cost of services is so much higher?

    I drove down the 99 right past a Motel 6. The sign said, “$55 @ night” IIRC the same in the bay area will run about $75 (or $115 in SF proper)

    It could easily be argued that “We’re shipping them off” but at the same time, lowering the cost of housing allows us to serve them longer, or more of them. In a city that can’t keep officer pay and benefits high enough to keep them here, don’t we have a fiducial responsibility to our taxpayers to look for the lowest cost solution to getting the homeless off the streets?

    Here’s a clip of some of the work we did over the weekend. We served out over 40 pairs of socks, and about 80 feminine hygiene products to San Jose and Modesto homeless over the weekend. Also learned from some of the homeless women that we need to distribute condoms as well. Prostitution is a sad reality for women that are chronically homeless.

    • I can’t believe I actually watched a 3:27 video about providing a small bag of junk food to a homeless pair.

  2. > It got me to thinking, why are we trying to house some of these folks in San Jose where the cost of services is so much higher?

    Silly question. Because the political establishment believes that the homeless will vote for Democrats.

    That’s why.

    • I sort of have a more sinister idea why than swinging votes.

      I own a run down hotel on Gish, so run down that there’s no way any decent person would want to rent from me. Solution? I throw down some graft (bribe) at an elected official to send grant money my way to house the homeless. We put out a press release about what a great job we’re doing, everyone gets paid, and some feel good press comes out of it.

      In Adobe’s case, it’s hard to say who’s getting paid off.

      • > I throw down some graft (bribe) at an elected official to send grant money my way to house the homeless.

        I’m shocked! I can’t believe this goes on.

        No, wait. This is San Jose. Yes, I can believe it.

      • Cousin Cortese: Does your new business plan pay more than the hookers and Johns, net of the envelope to the right folks?

  3. One reason why we have so many homeless in San Jose is because the Social Services are right here. Case in point: many transients camp in Saint James Park for the checks that arrive for them at the convenient Post Office located on the park. Salvation Army is located on 4th, and the courts, food sources, mass transit, and multiple parks and waterways are all nearby. We can move them, but they will return to the area they know and are registered for services. The real solution here is to shift obligation from “Community Mental Health” to mental hospitals where the mentally Ill and addicted get medical care, food, and beds. The boarding homes downtown are unregulated jokes, too.

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