||It is important to select a service for which there is evidence that the financial benefits are sufficient to cover the cost of service provision plus transaction and financing costs. The full set of costs comprises bond issuance, interest on the debt, and evaluation, legal, and administrative costs. Also, service providers might need to access working capital, since they will not be paid until well after they have incurred the costs of providing services. If there is not sufficient evidence that people can reasonably conclude that they will come out of the deal at least “whole,” they will be reluctant to participate in the deal.
For example, the Minnesota Department of Corrections (MNDOC) conducted a rigorous evaluation of a pilot program called EMPLOY.4 On the basis of this evaluation, it was determined that for every dollar spent on EMPLOY, the state saved $2.20 in correction costs and that the state collected higher taxes (MNDOC 2011). With this evidence, the state can be assured that its transaction and financing costs will be covered, and service providers can have confidence that payment will meet or exceed their costs.
4 EMPLOY is the actual name of the program, not an acronym.