outlook on pay for success / social impact bonds (sibs)
DESCRIPTION
On April 15-17, Housing California hosted its 2014 Annual Conference at the Sacramento Convention Center. The conference featured over 75 workshops and pre-conference institutes, exhibits, and networking events. It is anticipated that more than 1,000 people will attend. We are pleased to have taken part in the conference by facilitating a panel titled “Outlook on Pay for Success/Social Impact Bonds”—a panel that introduced Social Impact Bonds (SIBs) and discussed case studies pertaining to homelessness, recidivism, and workforce development. The panelists for this session included Jennifer LeSar, President and CEO of LeSar Development Consultants; Simonne Ruff, Director of the San Diego Corporation for Supportive Housing (CSH); Caroline Whistler, Co-Founder and Partner of Third Sector Capital Partners; Gary Graves, COO of Santa Clara County, and Zachary Olmstead, Office of Speaker-elect Toni Atkins. Social Impact Bonds (SIBs) are an innovative social investment-financing tool that transfers program performance risk from funder to implementer. Use of SIBs has the potential to increase the effectiveness of government resources spent on social programs, put greater focus on demonstrable results, and incentivize innovation in social outcome delivery. The SIB model is designed to deliver improved and clearly demonstrated results while limiting public expenditures for failing programs. This panel introduced SIBs, discussed case studies pertaining to homelessness, recidivism, and workforce development. Our speakers provided the audience with insight on how SIBs can be utilized for their organizations.TRANSCRIPT
LeSar Development ConsultantsSESSION MODERATORJennifer LeSar, President and CEO2410 First AvenueSan Diego, CA [email protected]
Outlook on Pay for Success/
Social Impact Bonds (SIBs)
Session Overview
Welcome and Introduction Overview of SIBs A SIB Program for Social Enterprise How SIBs Fit in a Workforce Context SIBs: The Source for Housing Solutions Moderated Q&A with the Audience
SIB Basics
A contract to deliver verifiable social outcomes in exchange for payment.
If outcomes are not achieved, no payment is made.
Also known as “Pay for Success” or Pay for Performance”
“Bond” is a misnomer, it’s a contract
The Potential Increase effectiveness of social
interventions in challenging program areas (e.g. homelessness, workforce development, recidivism, affordable housing)
Reduce public costs for downstream program expenses – or increase revenues
Reduce taxpayer dollars spent on in in-effective programs Bring new ideas, funding, strengthening, and management talent to social sector services
Critiques and Challenges Significant Transaction Costs Credible Outcome Measurement Limited Government Capacity Limited Provider Capacity Difficulty in “Accessing” Government
Cost Savings
Social Impact Bond Model
Intermediary
Service Providers
Investors
Public Agency or
Success Payer
Commitment to pay for outcomes achieved
Payment for services
Risk Capital to Finance Program
Re-paid + return if outcomes achieved
Evaluator
Supports evaluation design; measures progress
The Investor’s Role
Capital
• Provide working capital to fund implementation.
Risk• Absorb performance risk.
Due Diligence
• Perform due diligence assuring the intervention plan and payment mechanism are sound.
Oversight
• Monitor and oversee execution of the intervention. Oversee the Intermediary.
The Intermediary’s Role
Convene
• Bring parties together.
Structure
• Work with all parties to negotiate: Payment formula, Intervention, Risk/Return sharing, Verification mechanisms.
Manag
e
• Oversee and coordinate service providers, report progress to investors, implement course corrections
Three Necessary SIB Elements
Measu
rab
le
Imp
actTarget
outcomes are meaningful and credibly measurable
Valu
ab
le
Imp
actSuccessfu
l performance compensates for cost plus risk
No E
xcessiv
e
Harm
Program failure does not cause excessive harm
SIBs Underway Worldwide
Area Outcomes Public Agency
Criminal Recidivism Reduce re-offense rate by 7.5%+ among 3,000 short-sentence male prisoners being released from prison over 6 years
UK Ministry of Justice
Chronic Homeless Support chronic homeless into stable housing, employment and reduced usage of emergency health services
Greater London Authority
Juvenile Care and Recidivism
Reduce county’s adolescent residential care population by 6% (90 at-risk youths) over 5 year period
Essex County Council
Criminal Recidivism Reduce rate at which adolescent males incarcerated at Rikers Island reoffend post release over 4 years
The City of New York
SIBs Under Development in the U.S.
Jennifer LeSarLeSar Development Consultants
2410 First AvenueSan Diego, CA 92101619-236-0612 x 101
The Source forHousing Solutions
Pay for Success / Social Impact Bonds
CSH: Our Mission
CSH advances solutions that use housing as a platform for services to
improve the lives of the most vulnerable people, maximize public
resources, and build healthy relationships.
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CSH: Our Work
SIB: Key Elements of Success
Take Away: Housing with Services for High Cost populations assembles these key elements
Key Populations for Investment
People inappropriately
housed in institutional settings
Homeless and frequent or high
utilizers of health or other crisis resources
People exiting state prison with chronic health conditions
Homeless families with high utilization
of child welfare systems
KEYPOPULATIO
NS
Shelter
Jail
Detox
Emergency Room
Hospital
SNF
Drug Treatment
Homelessness as an Institutional Circuit
Supportive Housing
Targets households with barriers to housing and/or employment
Is affordable
Provides tenants with leases
Engages tenants in flexible and voluntary services
Coordinates among key partners
Supports tenants in connecting with the community
Results
• 79 to 83% stay housed one year or more
• 41% to 67% decrease in Medicaid costs
• 24% to 34% fewer emergency room visits
• 27% to 29% fewer inpatient admissions and hospital days
• 87% fewer days in detox and fewer psychiatric inpatient admissions
Housing Stability
83% of formerly chronically homeless persons in housing programs remained housed after 1 year and 77% were still housed after 2 years Closer to Home Initiative (Barrow, Rodriguez, Cordova)
81% of formerly chronically homeless tenants in San Francisco remained in permanent supportive housing for at least 1 year Analysis of tenant outcomes of two supportive housing projects
in San Francisco (Martinez, Burt)
Pay for Performance in Minnesota
$10 million authorization
2 pilot projects Supportive Housing Workforce Development
Supportive Housing Example: Massachusetts
Competitive Procurement Evidence Based Partners:
Third Sector Capital Corporation for Supportive Housing United Way of Massachusetts Bay and Merrimack Valley
Massachusetts Housing and Shelter Alliance (MHSA): Home & Healthy for Good Low-threshold housing 600 units
Building the Evidence in CA: Just In Reach
Pilot project
Documenting cost impacts: Supportive Housing Homeless Frequent Users of LA County jail Chronic mental health/substance use Re-entering the community
Opportunities and Challenges
Innovation in Financing and Contracting
Focus on results and outcomes
Focus on data
Potential to reallocate or redistribute funding
Complicated work—need to keep it simple
Contact Information
Simonne [email protected]
Third Sector Capital Partners, Inc.Boston & San Francisco | (617) 912-8957 | [email protected] | www.thirdsectorcap.org
This document is the property of Third Sector Capital Partners, Inc. (“Third Sector”). It contains confidential, proprietary, trade secret information of Third Sector that must not be reproduced, disclosed to anyone or used for the benefit of anyone other than Third Sector unless expressly authorized in writing by
an executive officer of Third Sector.
Nuts & Bolts of Social Impact Bond Deal
Making
April 17, 2014
Caroline WhistlerCo-Founder & Partner
Key Players in a PFS Deal
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• Initiates contract and identifies intermediary and/or provider(s)
• Government pays for successful outcomesGovernment
• Negotiates deal construction, identifies service providers and raises capital
• May also be contract holder and service project manager
Intermediary
• Delivers services• Receives complete cost coverage; may receive performance payments
Service Provider(s)
• Provide working capital to intermediary/providers
• May lose capital if project unsuccessful or be re-paid with government success payments
Investors
• Supports rigorous evaluation design; measures progress towards outcomes based on contract requirements
Evaluator
30
Massachusetts Juvenile Justice PFS Initiative:Project Overview
Target Population
929 at-risk young men in Chelsea, Springfield and Boston aged 17-23
Intervention
Delivered by Roca, Inc.• 2 years: Intensive engagement,
case management and job/life skills training
• 2 years follow up: sustainable employmentTiming
7 year project
Project Intermediary
Third Sector Capital Partners, Inc.
Capital Structure
$18 million in upfront financing from commercial and philanthropic funders; $3.3 million in deferred service fees from providerProject Budget
$27 million in maximum success payments from Commonwealth of MassachusettsSuccess Payments
Based on:• Decreases in days of
incarceration• Increases in job readiness• Increases in employmentEvaluation Methodology
Independently conducted randomized control trial confirmed by validator
$9 million
Senior Loan
Evaluates impact
(determines payments)
$3 million
Up to $27 million
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Massachusetts Juvenile Justice PFS Initiative:Deal Structure
Youth Services, Inc. (special purpose vehicle operated by Third Sector Capital
Partners, Inc.)
Laura and John Arnold Foundation,
New Profit Inc., The Boston Foundation
Goldman Sachs
Commonwealth of
Massachusetts
Sibalytics
Roca, Inc.
Success Payments
Payments to fund
intervention
US Dept. of Labor
$12 million grant
Living CitiesKresge
Foundation
Non-recoverable (but recyclable!) grants: $6
million
Junior Loan
Defers 15% of
fees Public Consulting
Group
Verifies outcomes
Investors
Government
IntermediaryService ProvidersEvaluator
PFS Advisory Process
Government Feasibility
Landscape Analysis
Formal Procurement
2-3 Months 7-9 Months 1+ Months
Phase III
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Phase IVPhase I & II
Deal Construction
Project Launch
Assess the government’s ability to support a PFS initiative, and identify promising intervention
areas.
Complete procurement for service provider(s).
Complete project design and initial
contract deal terms, and raise
funds.
Begin service provision ramp-up period, and formal launch.
Santa Clara County PFS Timeline
Interim Report to Board by County COO (March
2013)
Phase 1: County Budget and Social Needs Analysis Explored internal feasibility for County.
Completed
Phase 2: Landscape AnalysisPublic education and landscape analysis of potential interventions, providers, and funders.
Completed
Phase 3: Formal Procurement and Deal ConstructionIdentifying 1-2 finalist service providers, and negotiate contract terms.
In progress
Phase 4: Project LaunchBegin service delivery and evaluation, pending board approval.
January 2013 April 2013 August 2013
October 2014
33
Why Pay for Success in Santa Clara County?
• Creates an opportunity to move our contract process from outputs to outcomes
• Presents an opportunity to attract new revenue streams to address especially difficult social issues
• Creates the opportunity to focus attention on two major issue areas in Santa Clara County and design projects that will have an impact: Chronic Homelessness – Acute Mental Health Treatment Issues
Important Lessons Learned
• A collaborative approach is critical with leadership from both Government and the community
• “Dual Path” – Pay for Success is worth pursuing even if it may be difficult to produce cashable savings. Improving outcomes is a worthy goal.
• Important for Government to be willing to commit time, resources and creativity to the process
How do we Sustain and Grow PFS?
• Start with program areas where you have a strong sense you can be successful
• Always be looking for opportunities to apply PFS. Doing an initial landscape analysis can create a roadmap for future application.
• Highlight the benefits of designing adequate systems to measure and evaluate pay for success programs.
Outlook on Social Impact Bonds
Zack OlmsteadOffice of Speaker-Elect Toni Atkins
Housing California ConferenceApril 17th, 2014
An Intriguing Tool for Legislators
• Strain on public resources persists despite improvement in economic climate
• Many competing interests for scarce public dollars• Need for a menu of new tools and resources in the new
post redevelopment era• Public-Private partnerships always a “buzzworthy”
concept• Desire to be in best position to keep investment at home
and take advantage of new funds as they become available
Pending Legislation• Many bills indicate legislative interest in the topic:
• AB 1837 (Atkins)-Establishes Governor’s Office of Business and Economic Development as lead entity to explore “social innovation financing”.
• SB 593 (Lieu)-Requires the Office of Planning and Research to create and manage a Social Impact Partnership Pilot Program.
Pending Legislation• AB 495 (Campos)-Establishes the California Community
Investment Program within the Governor’s Office of Business and Economic Development to coordinate public sector financial investment and public programs to assist low-income communities to utilize “triple bottom-line” investment.
• AB 1456 (Jones Sawyer)-Creates the “Pay it Forward, Pay it Back Pilot Program”, using similar concept where a student’s tuition would be paid if they agree to pay a percentage of their future earnings upon graduation.
What’s Next?• Fate of legislation
• Possible resources within state Budget?o Pilot programso Anti-Recidivism effortso Inclusion as an eligible model for existing funds?
• How state can best support local government efforts?