The Power of Incentives for Performance

Pew staff members frequently contribute articles and essays to media organizations. A version of this piece appeared online in Governing magazine.

Facing similar fiscal pressures, state and local governments often pass financial problems back and forth. But by restructuring their relationships based on evidence of what works, they can achieve better results at less cost.

A prime example involves corrections, the second-fastest-growing element in state budgets after Medicaid. Starting with Texas in 2007, 15 states have passed comprehensive sentencing and corrections reforms with bipartisan and often-unanimous support. In 2012 alone, Georgia, Hawaii, Missouri, Oklahoma, and Pennsylvania adopted policies proven to protect public safety, hold offenders accountable, and contain costs.

Performance incentive funding is a lesser-known but important part of this broad movement, and it is a particularly useful approach for turning fiscal tension between state and local leaders into a productive relationship.

This sort of funding addresses a structural contradiction in the way most states share responsibility with local governments for the 5 million adults who are under some form of correctional control. Counties or cities in those states supervise (and usually bear the costs for) offenders on probation—the largest criminal justice group—while states pay for imprisonment. So when probationers break the rules, local governments and courts have a strong motive to clear these individuals off their caseloads by revoking probation and passing them on to the state prison system. That minimizes political risks for local officials and is easier than paying for programs that help probationers stay on track.

In a vicious cycle that doesn't promote public safety or effective use of taxpayer dollars, underfunding of local probation programs contributes to a failure rate of more than 40 percent. In some states, this dynamic has been so powerful that more than half of the offenders entering prisons have violated supervision rules, not committed new crimes.

Performance incentive funding programs offer an elegant solution and in recent years have been implemented in eight states: Arkansas, California, Illinois, Kansas, Kentucky, Ohio, South Carolina, and Texas. They are based on a common assertion that local jurisdictions should be given financial incentives to adopt evidence-based corrections strategies and should share in the savings when they cut prison commitments and crime.

These incentives set up a win-win-win: States reduce the costs of building and operating expensive prisons; communities receive funding for strong supervision programs; and public safety is improved through reductions in crime, recidivism, and probation revocation rates.

California's legislature unanimously passed the Community Corrections Performance Incentive Act in 2009, creating a system that paid counties to invest in proven probation practices. Previously, probation services in California had been funded primarily by local dollars. In the year after the system took effect, 23 percent fewer probationers committed new crimes or violated the terms of their probation, and 47 of 58 counties reduced their revocation rates. These improvements saved the state $179 million in prison costs. Meanwhile, California's violent crime rate dropped faster in 2010 than it had in any year in the past decade. In 2011, the state distributed $87.5 million in incentive payments to the counties for the evidence-based programs that contributed to these results.

Illinois implemented a performance incentive funding program five years ago that helped counties achieve a 52 percent reduction in juvenile confinement, with state savings of $19 million. The state recently launched a program for adult corrections that has reduced prison commitments among nonviolent offenders in 10 pilot sites, producing annual savings of $6.6 million.

The results of these programs clearly demonstrate that when state and local governments work together, they can find solutions that turn vicious cycles into virtuous ones and produce better results at less cost.