Leveraging new resources for pay for success and impact investing (Urban Institute)

Earlier this year, two large pools of resources were announced to generate greater investment in impact. These funds, one from the Ford Foundation and the other led by the Reinvestment Fund, take different approaches to catalyzing change, but both bring additional capital to spur innovative investments.

The Ford Foundation made a big splash with a commitment of $1 billion from its endowment toward mission-related investments (MRIs). For decades, the Foundation has issued grants using 5 percent of its total assets, while the remainder accrued financial returns to maintain their grant-making ability. But as its president, Darren Walker, stated, “If philanthropy’s past century was about optimizing the 5 percent, its next half century will be about beginning to harness the 95 percent as well.” The Foundation believes that these MRIs can achieve social justice goals aligned with its mission, while still securing financial returns large enough to maintain the health of their endowment. The Foundation initially plans to focus on affordable housing in the US and access to financial services in emerging markets.

The Reinvestment Fund also announced a new commitment to impact investing: the creation of a $10 million fund dedicated to supporting pay for success (PFS) projects in the United States. While the Reinvestment Fund is leading this new “PFS Fund” and is committing $1 million from its core loan fund, it has also engaged two partners: QBE Insurance Group, which will invest $7 million, and Living Cities, which will invest $2 million.

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Could this investment strategy help keep convicts from returning to prison? (Washington Post)

The lesson: Goldman Sachs and Bloomberg Philanthropies both lost money in the SIB, but was the public-private partnership viewed as a failure? No. It was executed as the parties agreed. The innovative financing structure took a critical first step in incentivizing private capital to address social challenges. It also signaled a new role for philanthropies: Rather than simply donating funds to address social problems, leverage private capital to finance the solutions by acting as a guarantor. A British-based nonprofit, Social Finance, estimates there are now 100 SIBs in development in the United States. Goldman is participating in early childhood education SIBs, among other projects. In addition, SIBs have paved the way for new kinds of social investment vehicles, such as environmental impact bonds, where early results have been promising. By definition, innovation is messy and iterative. Sometimes the most valuable parts of risk-taking are the lessons learned.

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Holding the PROSPER Act Accountable (New America)

And elsewhere, the bill adds language permitting grantees of TRIO programs and minority-serving institutions’ competitive grants to implement pay-for-success projects to innovate and test new ideas. Taken together, all of these ideas show a willingness to invest in new ideas and--even more importantly--the research to tell us whether those ideas are working.

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Here’s how New Jersey can capitalize on its best clean energy investment opportunities (Environmental Defense Fund)

Financial Tools

New Jersey can also make available financial tools that encourage private investment. Tools must be market-oriented: flexible and adaptable to react to market changes. At the same time, we need to envision at the outset ways to help low-to-moderate income households access efficiency and other clean energy upgrades.

  • Bonds – Green Bonds, Environmental Impact Bonds, and Qualified Energy Conservation Bonds are good tools for New Jersey to consider.
  • PACE – Property Assessed Clean Energy (PACE) legislation would allow the state to authorize commercial buildings to finance energy upgrades on their tax bill. PACE is a financing model that helps local governments and the private sector back energy efficiency and renewable energy upgrades for homes and businesses. Some states are even using PACE to give new life to historic buildings.
  • Community Solar – Community Solar projects benefit multiple home and business customers who don’t have the ability to install rooftop solar. The best community solar programs will include partnerships with local non-profits and community leaders, like we’re seeing in Los AngelesColorado, and North Carolina, for example.
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Round 2 of the Outcomes Rate Card Development Competition Now Open (Social Finance)

We are excited to launch the second round of our Outcomes Rate Card Development Competition, to help governments scale solutions to society’s most pressing challenges by employing Pay for Success to shift the procurement focus from outputs to outcomes. Local, state, and tribal governments, as well as nonprofits, are invited to apply between now and January 31, 2018.

Social Finance will select up to four applicants to develop outcomes rate cards. Each awardee will receive free, in-depth support from a dedicated Social Finance team over 12 months to develop an outcomes rate card, issue an RFP to procure for service providers, and launch the resulting Pay for Success projects.

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Effects of Social Innovation Financed “Housing First” Programs on Retention, Utilization of Services and Cost-Savings: The Case of the Pay for Success program (Social Innovations Journal)

6. Conclusion

The Commonwealth and MHSA’s Social Innovation Financing Pay for Success program has successfully met its targets for housing retention, demonstrated a reduction in utilization of medical services by clients, and demonstrated a cost-benefit. The program has reduced the number of nights spent in emergency shelter, inpatient hospitalizations, and days spent in detox during the first six months and one year of housing for chronically homeless and high utilizers of health services. It has also brought much needed services to clients who could not otherwise have accessed services. In terms of cost-benefit analysis, the program made a total cost savings of $2.2 million after housing services were subtracted. Further, the retention rate was 92.2 percent after one year of implementation. Overall in its first year of existence, MHSA’s Pay for Success program has demonstrated success in housing and retaining the costliest segment of the homeless population, and long-term homeless adults who are high utilizers of emergency services. Cost savings amount to $2.2 million. 

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In Its Third Year, the Pay for Success Lab is Catalyzing Social Finance (University of Virginia Pay for Success Lab)

Since the opening of the Lab, Ogburn and his team have worked on projects ranging from workforce development to environmental sustainability. It wasn’t until the end of its second year, however, that the Lab found its competitive advantage in the market. In its early stages, the PFS Lab envisioned itself as having a role similar to the ten leading PFS advisory firms that provide a full suite of project development services. Now, the Lab focuses on only on “project discovery”. During this phase, the PFS Lab identifies a community wrestling with a difficult public policy issue, educates local stakeholders about PFS and other results-based strategies, and assists them with developing a PFS project outline. Should the community want to do more, it can refer them to advisory firms that can assist.

“There are a lot of organizations that help communities develop projects, but no organizations exist just to educate communities and let them know that Pay for Success is even an option,” said Ogburn.

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Underwriting Pay for Success Transactions (LISC)

With 20 projects launched and an estimated 80 in the pipeline (including 3 LISC projects), bringing new investors to the Pay for Success (PFS) world is critical for it to reach a tipping point. A key component to this is investor education around the model, including considerations around project risks and mitigating factors. At Opportunity Finance Network’s CDFIs Invest Conference in Washington DC this September, LISC hosted a panel, along with Living Cities, Nonprofit Finance Fund and Reinvestment Fund, bringing together a range of community development financial institutions, banks, foundations and government entities to learn more about underwriting PFS transactions.

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GOP Begins Rewrite of Federal Aid Law (Inside Higher Ed)

One of the most noteworthy, and probably controversial, of the bill’s ideas is to add completion-oriented performance-funding elements to federal grants for colleges that enroll large numbers of minority students.

This would be the first time that the federal government tied funding to graduation rates, a move that has become increasingly popular in state capitols.

The Journal reported that the bill would require historically black and Hispanic-serving institutions that receive targeted federal grants under Title III and Title IV of the Higher Education Act to graduate or transfer at least one-quarter of their students to remain eligible for the grant programs.

The committee also wants to encourage these minority-serving institutions to use grant money for “completion-focused initiatives such as pay for success, dual enrollment and the development of career-centered programs.”

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How PFS helps vulnerable people (Urban Institute)

PFS projects do not just use evidence—they also generate it. Each PFS project includes an evaluation to determine outcomes (and thus repayments), which expands our understanding of what works and what doesn’t. Repetition is crucial in social science, and to the scientific method more broadly; one study’s results does not prove a program’s effectiveness in all settings. In this way, the rigorous, independent evaluation of services provided in a PFS project can contribute to the evidence base and, in turn, expand the generalizability of program results. Even if the evaluation proves a program is unsuccessful at meeting outcomes, it provides the field with valuable information on a population or setting for which the program may not be best suited.

By scaling evidence-based programs and incentivizing outcomes rather than outputs, pay for success is a promising tool to help governments serve vulnerable populations more effectively—and, as a result, PFS has the potential to transform the way we think about the social safety net. 

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