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Public preschool has been a no-go in Utah despite mounting evidence of its academic, social and economic benefits.
But the United Way of Salt Lake has devised a way to prove its worth to taxpayers. The charity this week struck a $7 million investment deal with the banking firm Goldman Sachs and J.B. Pritzker, a Chicago-based investor, to expand access to early childhood education for up to 3,700 low-income children.
The money is a loan that these private investors expect to be repaid over 12 years with 5 percent interest, said Rebecca Dutson, executive vice president at United Way.
Such so-called "social investment," or "pay-for-success," bonds help cash-strapped governments test innovative ideas for tackling social programs without having to come up with the money upfront, said Dutson. In this case, it also helps United Way leverage its money to do more good and give at-risk kids a leg up with limited risk.
"We see it as a win-win-win," Dutson said.
The first installment of $1 million will be used to open 450 more slots in a popular preschool program at Title I schools in Granite and Park City school districts, said Dutson.
The United Way has committed to repay that initial investment, said Dutson. But to draw down the remaining $6 million in installments, it must line up other public and private-sector backers to repay those continuing loans.
And to do that, it plans to prove the program prepares children to succeed in school and life and saves taxpayer dollars.
J.B. Pritzker, president of the Chicago-based J.B. and M.K. Pritzker Family Foundation, is convinced.
"Investing early and intelligently... in early learning reduces social and economic inequality and builds a better workforce and a stronger nation," he said in a prepared statement.
In his State of the Union address in February, President Barack Obama called on Congress to extend high-quality preschool to every child in America.
The idea has also been championed by Salt Lake County Mayor Ben McAdams, a Democrat who predicts a return on investment in money not needed for special education, crime and public assistance as well as higher wages and consumer spending.
"It's the right thing to do for children, and the fiscally responsible course for taxpayers," said McAdams in a prepared statement.
Success will, of course, hinge on the effectiveness of the preschool program designed by Granite. But it's not untested.
Peabody Picture Vocabulary assessments of 3- and 4-year-olds entering the program in 2006 showed 33 percent were so far behind on their colors, shapes, letters and numbers that they likely would have needed special education.
But after participating, 95 percent of those students avoided special-education services, an estimated $2,607 savings in per pupil funding per year, according to study that tracked students through 2010, sponsored by the United Way, Voices for Utah Children and the district.
Granite and Park City have waiting lists for the program.
There are a lot of reforms and education initiatives out there, said Dutson. "But if we really want to move the needle and meet the state's goal of 90 percent high school graduation, preschool is the answer."
Social investment bonds
An idea first tried in Britain, private investor loans are being eyed by governments in the U.S. as a way to jump-start and test the savings potential of social programs, according to The New York Times.
Since the loans must be repaid with interest, though, it adds expenses, say critics who argue profiteering muddies government motives and impartial evaluation of programs.
The fine print
Goldman Sachs loans up to $4.6 million to the United Way of Salt Lake.
J.B. Pritzker provides a subordinate loan up to $2.4 million, reducing risk to Goldman if the preschool program proves to be ineffective.
United Way oversees the "Utah High Quality Preschool Program" and commits to repaying a first-year installment of $1 million.
To draw down the rest of the money in continuing installments, the United Way lines up other public and private investors to repay the loan, reducing its risk.
Payments will be made over 12 years equal to 95 percent of avoided special-education costs, or $2,470 per child per year from kindergarten through sixth grade, plus 5 percent interest.
Thereafter, payments will equal 40 percent of avoided special-education costs, or $1,040 per child per year, until the loan is repaid.
The rest, and any savings generated after that point, will be captured by the school district and state and other government entities.