In 1994, Steve Rothschild resigned from his post as executive vice president at General Mills to found Twin Cities RISE!, a Minneapolis nonprofit that provides job training to unemployed adults and helps them find jobs that pay a living wage. Ever the figures-focused executive, he immediately began wondering how the economic benefits of TCR! could be quantified, and whether any of those cash savings could be funneled back into his nonprofit somehow.

“I started with the assumption that social improvement would lead to economic value,” Rothschild says. “Economic value is the same as cash; it’s no different than economic value for a business.”

The next year, Rothschild approached the deputy director of the Minnesota planning agency with the seeds of an idea for a radical new social services financing structure: What if the state made TCR!’s funding contingent upon its success, assuming that its success could be shown to save the state money? The state’s economist crunched the numbers necessary to undergird the pay-for-success model, and determined how much the state would gain in tax revenues and save in welfare subsidies, food stamps, and other subsidies if TCR! helped one person move from an annual income of, for example, $10,000 to $20,000. The legislature approved the pay-for-success model in 1996, TCR! implemented it in 1997, and since then, Rothschild says, the state has invested $4.6 million in his nonprofit and has received $34 million back in economic value. That’s a return on the state’s investment of 624 percent.....

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