Denver officials on Tuesday will unveil long-awaited details of a novel $8.7 million "social impact bond" contract that would draw on private dollars to house and rehabilitate 250 of its most chronically homeless.
In the proposed arrangement, investors providing startup money to the city could earn back as much as $11.7 million — including up to $3 million in bonuses — or they could lose out on full repayment.
It all would depend on how well the program keeps participants out of jail, the emergency room, detox and other costly services in the next five years — saving the city millions of dollars a year. Each client would get housing and a case manager along with mental health or drug counseling, if needed.
A City Council committee on Tuesday morning will get its first look at Denver's negotiated arrangement with a contracting team to be led by the Corporation for Supportive Housing and Enterprise Community Partners, both nonprofits.
But some details will remain shrouded until the council receives the final contract in coming weeks, before its likely vote on the deal Jan. 25.
Chief among them: who's fronting the money.
Cary Kennedy, the city's chief financial officer, and other officials say the financial backers represent a typical social impact bond or "pay for success" arrangement. They said the proposed investors include a foundation and the community investment arm of a large bank.
Kennedy portrays those investors as taking on the program's risk. Repayment factors would include how long each participant spends without major problems in housing supplied by the city's nonprofit partners and how many days they spend in jail.
The housing partners, the Colorado Coalition for the Homeless and the Mental Health Center of Denver, would provide the bulk of the supportive housing, with the first 20 or more people moving into a new CCH property in northeast Denver in coming months.
City officials say they hope to see at least a 40 percent reduction in days spent in jail among participants, compared with the jail stays of similar identified homeless people who are not in the program.
The city would pay more in "interest" or bonuses to the investors if the reduction is higher, up to 65 percent, or less if the reduction is lower. But the maximum $3 million in bonuses is seen as unlikely.
And if the project is a bust? Investors would receive a minimum of $2.6 million back if too many participants revert to the streets, spend too many nights in jail or get kicked out of the program.
In an average year, the city says, the top 250 "high utilizers" of city and county services spend roughly 14,000 days in jail, make 2,200 visits to a detox facility, get arrested 1,500 times and visit emergency rooms 500 times. The taxpayer tab for all that is more than $7 million.
City officials have tracked those users, but they have not yet recruited volunteers to participate, although they have worked on setting eligibility.
Tyler Jaeckel, who has coordinated the program's development, said the search for an independent performance evaluator — the city selected the Urban Institute — was met with wide interest from research groups.
"It's pretty much the longest study of supportive housing to be developed," he said. "In this unique format, it's probably going to produce more evidence than what we've seen."
Governments elsewhere have begun to use similar private funding arrangements to tackle thorny social problems with new preventive programs.
By design, the investors get repaid by tapping savings in government costs. After the pilot period ends, those savings pay for the program's operation.
Elsewhere, investment bank Goldman Sachs, foundations started by the Rockefeller, Pritzker and Bloomberg families and nonprofits have been among the largest financial backers of such programs. Besides housing, other programs have focused on early childhood education, including in Utah, and prisoner recidivism.
Social impact bond arrangements have attracted critics who say cities and states should start preventive programs using public money rather than relying on private financing.
A guide released last month by several policy and labor organizations, including one called In the Public Interest, advises skepticism toward such deals. It suggests that investors will fund only proven models — such as supportive housing for the homeless — that minimize their risk.
But Kennedy said the city likely would have difficulty covering the startup costs of the program on its own. She said Denver's negotiation has produced a deal that will protect the city from paying back investors "more than it would pay for that population in the safety net."