Cuyahoga County is seeking creative way to aid children (Crain's)

By JAY MILLER

Extending the concept of the public-private partnership into the social services, Cuyahoga County is embarking on a pilot program to attract outside funding to find innovative and lower-cost ways to assist families and children.

Called “Pay for Success,” or social impact financing, the idea is to attract foundations and private investors who will create and fund new kinds of social programs from scratch, apart from existing, often lethargic, bureaucracies. The expectation is that if programs are well designed, they will provide quality service at a lower cost, and the investors would share in the savings created, essentially providing a return on their investment.

The FitzGerald administration and Cuyahoga County Councilman Dale Miller have proposed legislation to Cuyahoga County Council to establish a social impact financing fund.

“We've created the funding mechanism,” Miller said. “We're now waiting for the contract to be developed.”

Miller said the initial legislation passed with a 7-4 vote and he believes there is support to go forward, though, he conceded, skepticism remains. “It's a very complex financing system; it's innovative,” Miller said.

Only two other social impact financing programs are underway nationwide. One is in Massachusetts targeting youth on probation. The other is in New York state, targeting prison recidivism.

The county has enlisted assistance to develop the program from the Cuyahoga Metropolitan Housing Authority; Case Western Reserve University's Center on Urban Poverty and Community Development; the Gund Foundation; and Third Sector Capital Partners, a Boston-based nonprofit financial advisory service that has counseled similar efforts.

The pilot program would offer housing and mental health care to mothers who otherwise would be homeless, a status that normally would send their children into the expensive foster care system. David Merriman, deputy chief of staff for health and human services in the FitzGerald administration, said it costs $70 a day to care for a foster child.

Cuyahoga County spends more than $35 million annually on foster care, either to foster parents or to dozens of institutions. It also spends millions of dollars on housing and providing services to the homeless, through a number of organizations that serve the homeless.

Merriman said he did not foresee using Pay for Success for core county services. Rather, he sees the subject of the pilot as a kind of preventive service that can avoid resorting to more expensive traditional services like foster care and homeless shelters.

“We spend all this money, and few (children) ever get home,” he said. “We've tried everything.”

Merriman said the county is looking at committing $4 million to develop the program and it hopes it can reduce by 25% the length of foster care stays.

Investing in community

A key to this and similar programs is developing fair and accurate ways to measure success, which, in turn, sets the rate of return on any investment.

The county is working with Frontline Services, a Cleveland nonprofit that already contracts with the county's Alcohol, Drug Addiction & Mental Health Services Board, to set the benchmarks for success for a family unification program that could attract private funding.

The funders likely would be foundations and banks, both of which already make community development investments with public agencies in hard assets such as real estate improvements or affordable housing loans. This pilot program already has caught the interest of several local foundations, which see Pay for Success as a way to stretch their spending on social service programs.

The Cleveland-based Gund Foundation has been involved in the New York program and is advising Cuyahoga County in developing its pilot program.

Banks might invest in this program as they invest in community development programs — as a way to satisfy their regulatory obligations to meet the banking needs of low- to moderate-income neighborhoods.

In New York, a program was created to tackle recidivism among 2,000 recently released prison inmates. Most of the $13.5 million needed to start the program came from Bank of America and Merrill Lynch.

In Massachusetts, the state, with help from Third Sector Capital, developed a program to keep at-risk young men leaving the juvenile justice system from returning to the adult justice system.

Caroline Whistler, a co-founder of Third Sector Capital, said the funding is very much like high-risk loans and represents another way that foundations, banks and others can reinvest in their communities.

“They are ways for banks, for community impact investing lenders, to innovate with new programs,” she said. “The hope is you get your moderate interest back, but it's not going to be financially lucrative” like investing in a hedge fund.