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Social Impact Bonds: Chicago Plays Pay for Success with Young Kids

Published in ChicagoNow, October 20, 2015

I’ll confess that in my capacity as an early childhood director for over twenty years, I often made the argument for the benefits of quality early childhood education. I discussed it at community meetings as a way to level the playing field to give every child a decent start in life. I wrote about it in grant applications, saying things like:

  • Giving children access to an excellent early childhood education is the key to the betterment of their lives and our community.

  • Research confirms that children who attend preschool are more likely to succeed in school.

  • While all children benefit greatly from preschool programs, it is even more important that children with special needs and children from low-income families attend.

  • All children, regardless of ability, culture, language barriers, or family income, are entitled to equal access to quality early childhood education.

What I did not say was that a grantor should also be able to profit monetarily from investing in early childhood education. In fact, I have long wondered how anyone can make a profit from educating children. The federal government is folding social impact bonds into the reauthorization of the Elementary and Secondary Education Act (ESEA), based on pay for success programs in Utah and Chicago. Mayor Rahm Emanuel and Chicago Public Schools (CPS) think this approach is a great idea. They partnered with Goldman Sachs, Northern Trust, and the Pritzker Family Foundation to lend CPS money with the promise of huge payouts down the road.

Chicago’s plan for funding preschool social impact bonds works like this: According to the Chicago Tribune, starting this school year and for three more years, borrowing money from the investors named above will finance 2,618 children’s education in half-day Child-Parent Center preschools. The City will save $300 million over the duration of all of these children’s educations if none of them end up in special education classes. CPS risks nothing by selling these social impact bonds, but pays the lenders substantial dividends for success (avoidance of costly special education services).

For the launch of the program, CPS identified six schools serving low-income families in communities that had a shortage of publicly funded, high quality pre-K seats available. CPS and its teachers manage the expanded program in these schools for the current academic year and plan to expand to additional schools in future years. Two of the schools selected are rated five out of ten, which is the average rating for CPS: José de Diego Community Academy and Thomas Hoyne Elementary. One school, Peck Elementary School, is actually rated a six. Three are rated below the CPS average, Hanson Park Elementary School (4), Geneva Melody STEM Elementary School (3) and James Wadsworth STEM Elementary School (1). What the schools have in common is poverty, ranging from 88.5 to 98.5 percent low income. They serve predominately Black or Hispanic populations and include English language learners and significant special education populations. The goal of providing quality preschool experiences for 2,618 children in these neighborhoods is a good one. No one can dispute that. But I have five questions I would need to have answered before I could endorse this plan:

  1. How are the early childhood programs determined to be high quality?

  2. Are the measures used to assess progress for these children accurate?

  3. Will the quality of education and services these children encounter in elementary school and beyond sustain any gains that were made by the preschool?

  4. Is avoiding special education services the best measure of good early childhood programs?

  5. And most importantly, what impact will the profit motivation have on the honesty of the results and should anyone profit from this program other than the kids and their families?

I ask the first two questions because of my concerns about developmentally appropriate early childhood education being replaced by inappropriate practices like rote memorization, worksheets, and direct instruction rather than learning through play. I also have serious doubts about the validity of kindergarten screenings and do not think the PARCC test is a good measure of progress for third graders. My third question relates to the “fall off” factor for kids who participate in programs like Head Start. Once the services end, especially the family support and social services, the gains the children had made going into kindergarten disappear by later elementary school. A parent commented on one of the schools in the CPS Pay for Success program stating,

“My son went here for [pre-kindergarten] … the teacher was great. The school overall was just wild…The students regularly used foul language even in kindergarten and PK. I pulled my son out midyear in kindergarten…The environment encourages behavior problems in the children.”

So, if the investment stops at the kindergarten door, how long will the children be able to sustain the gains they made?

I take issue with what my fourth question implies, that avoiding placement in special education is a valid measure of success and the way to make a profit for the investors. Of course, as we all know, there is an overrepresentation of boys of color, who are often diagnosed with conduct disorders or ADHD, in special education classes. Good early childhood programs may be able to avoid having children like these placed in special education by providing educational opportunities and appropriate social services. Sadly, good early childhood programs also identify children with special needs who will require special education services to succeed. And many children’s learning disabilities and emotional disorders do not become obvious until later in their educational lives.

This leads to the concern voiced in my fifth question. We are paying for “success,” meaning avoiding costly special education services. The investors expect to earn money. Will that impact how CPS labels children as successful? If the effort fails to produce the desired results, CPS and the agencies administering the investment look bad and Goldman Sachs, Northern Trust, and the Pritzker Foundation lose money. Thus, there is a huge incentive to claim success and deny special education services.

My thinking (and I admit it is a bias) is that making a profit in education is intrinsically wrong. If a program is great and saves money, shouldn’t the children be the total beneficiaries of the profit? I’m sure there are many better uses for the money than paying large dividends to investors. Perhaps our schools and children should be paid for their success by using any funds saved from avoiding special education services for some students to improve the services for the those who do need them.


by Laurie Levy
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