Voices from PFS Pioneers: Salt Lake County (Nonprofit Finance Fund)

by Nonprofit Finance Fund (08/13/2015)

NFF spoke with Third Sector Capital Partners, Inc. (Third Sector) and the Community Foundation of Utah about the Salt Lake County Pay for Success Portfolio Projects. You can read more about the project here. This blog is part of an interview series with selected project partners from our Social Innovation Fund transaction structuring competition

NFF: Tell us about the genesis of this Pay for Success (“PFS”) project. What was the original impetus? How were the stakeholders who have been moving the project forward brought together originally?

Third Sector: Salt Lake County is an early leader in the PFS space. In 2013, the County contributed the funding for the first year of the high-quality preschool PFS project when legislation failed to pass in the Utah state legislature. Mayor Ben McAdams and his team in Salt Lake County have a broad and ambitious goal of making their decision-making more data-driven and they see PFS contracting as one innovative policy tool to help further this goal.

In July 2014, in line with these goals around innovation and data-driven policy, the County released an RFP for a consultant to develop PFS projects and, more broadly, build local capacity to engage in PFS work. Our response to the RFP proposed developing a portfolio of three PFS projects simultaneously. We believed, and the County agreed, that this portfolio development approach could result in learning in several critical areas: economies of scale, integrating performance-based contracts into public policymaking, procurement and contracting processes and data sharing efforts.

Once we were selected as the transaction coordinator we did an extensive process of stakeholder engagement which included meeting with the State, issue area experts, local philanthropies and service providers. By the end of 2014, the County and Third Sector had enlisted several stakeholders to assist with the PFS initiatives, including: Janis Dubno at Voices for Utah Children, providing early childhood expertise; the Community Foundation of Utah, acting as a financial and legal intermediary for potential PFS projects and project development; and the University of Utah Policy Innovation Lab, providing evaluation assistance.

Community Foundation of Utah: The Community Foundation of Utah is very interested in opportunities to make a difference on pressing social issues we face in Utah. We wanted to provide deeper services to the community and partner with government in innovative programs that seek to deliver measurable outcomes, so PFS was right in our strike zone. We felt we were uniquely suited to serve as the financial and legal intermediary given our expertise in financial transactions, and PFS represented an opportunity to bring new ways to invest to our donors.

NFF: One of the things that struck us as being innovative about this project was the portfolio approach. Can you speak a little bit about how launching three projects simultaneously will grow the existing PFS field?

Third Sector: Our hope is that we can realize several benefits through the approach of developing three projects simultaneously. Of course, the portfolio approach itself is a test of whether PFS projects can be implemented on a broader scale by governments. To start, we hope to see whether or not we can achieve some economies of scale in the project contracting and construction phase, particularly in the areas of fiscal and legal management and evaluation. For example, we have contracted with the University of Utah Policy Innovation Lab for our evaluation services, engaged a single pro bono law firm, and are working with experts early on to assist in data analysis and evaluation. Also, we as the transaction coordinator are working across all three deals.

Constructing three projects at once also provides an opportunity to speed the adoption of PFS principles into the county’s policymaking and data efforts. The development of multiple projects instills the data- oriented ethos of PFS across several county departments, and also demonstrates how municipal governments can sustainably adopt performance based contracting in the future. To date, the PFS initiative has resulted in several data sharing agreements between county and state departments, as well as data matching across domains in order to fully understand the county’s at-risk populations.

Community Foundation of Utah: Developing three projects also presents an opportunity for innovation in raising project development funding as well as structuring overall project financing. The initiative has raised a PFS Development Fund, which we will manage. This is a natural fit for us, as a community foundation and experienced funding intermediary organization. The PFS Development Fund will cover the various stakeholder costs over the long project development phase. This critical time in a project’s development has heretofore been either unfunded, or funded by a single entity. The Salt Lake County project has a dozen supporters, the majority of whom are new to the PFS field. This strong interest from individuals, foundations and local and national banks regulated under the Community Reinvestment Act represents an opportunity to bring more liquidity to the PFS market.

We also think it is important that the Community Foundation of Utah be involved in the transaction structuring phase to gain direct PFS project experience in order to build a sustainable PFS community here in Utah. The Community Foundation, Third Sector and the County have deliberately tried to manage the initiative such that community partners are heavily involved in developing and managing all aspects of the project. Community capacity-building has ranged from funder education on PFS, to working closely with providers on data sharing, data collection, budgeting and evaluation.

NFF: As you know, the road to launching a PFS project is a long one! Can you share with us what the biggest challenge to date has been? How have you and your partners overcome this challenge?

Third Sector: We kicked off our project development phase in July, so we are anticipating spending a lot of time over the next year working out several issues – some of which we’ve already identified, some of which will surely arise – in order to successfully launch the projects.

The biggest challenge to date as we’ve procured our criminal justice and child/maternal health providers and completed feasibility has been working through the differing timelines for different projects and anticipating issues in project planning. For example, our homelessness procurement was delayed because matching and analyzing the appropriate homelessness data took more time than that process in the other issue areas. Because people who are homeless are often engaged in the criminal justice system, we wanted to make sure we understood the real differences in their needs and targeted an appropriate intervention. We’re sure that other delays will happen on other projects as they develop. While we are committing to moving aggressively forward, the challenge for us is to ensure that all projects can develop at an appropriate pace and that we can accurately anticipate some of these issues.