Social Impact Bonds to Expand Pre-K

More than 2,600 disadvantaged kids will have access to a high-quality pre-kindergarten program under a plan approved by the Chicago City Council today. But the method of funding that expansion, called Pay for Success, is raising some eyebrows.

The plan will expand a half-day pre-K program called the Child-Parent Center model or CPC, which works with both students and their parents.

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The mayor's office says the goals are to increase kindergarten readiness, improve third-grade literacy, and reduce the need for special education services.

It's paid for through a public-private partnership, which in theory, sounds like a simple concept. Take a community problem; in this case, not enough early education seats for children who need them -- something Mayor Rahm Emanuel has championed the expansion of since he took office. A service provider or community organization has a tested solution; in this case the Child Parent Center education program. Private investors lend the money; a project manager oversees managing the loan and dispenses it to the provider who expands the program. A separate evaluator measures success and the lenders receive loan payments plus interest from the government for good results.

Goldman Sachs, which has entered into several other social impact bonds in other communities, including one for early education in Utah, Northern Trust and the JB and MK Pritzker Family Foundation, will all provide almost $17 million up front.

The idea is that the City and CPS are saving money in the long-run by investing in children early on. So, those savings turn into repayment.

The city is responsible for making those payments into an escrow account that will be returned to the lenders.

Laurence Msall at The Civic Federation says it's an innovative way to meet a need without having to wait until the city and the school district are doing better financially, and it doesn't hurt the city's credit rating to take on this debt.

Program success is measured by evaluating special education, kindergarten readiness and third-grade literacy. For Special Ed, the city pays $9,100 plus 1 percent interest for each student that avoids special education after attending the CPC program. Payments for kindergarten readiness are $2,900 for each student that is prepared for kindergarten. And payments for increases in third-grade literacy are $750 for each student that scores above the national average on the third-grade reading test.

Both the Chicago Teachers Union and the Service Employees International Union criticize the plan.

Jackson Potter, the staff coordinator at CTU, opposes this plan for a few reasons. It only funds half-day pre-K and many parents have complained about needing a full day. Potter doesn't trust the banks that are lending the money, and believes making a deal with them where children's educations are involved is risky business. He also says it's a moral hazard to incentivize a public service like education, rather than ensuring that every student receives the same high-quality education.

And what's more, CTU believes the mayor is sidestepping the real question of how to adequately fund early childhood education, a service that everyone knows is beneficial to a child's education in the long run.

Several aldermen also spoke out against this measure during City Council today, but were outvoted.

Read the resolution here.

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