LeSar Development ConsultantsSESSION MODERATORJennifer LeSar, President and CEO2410 First AvenueSan Diego, CA 92101619-236-0612jennifer@lesardevelopment.com

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

jennifer@lesardevelopment.com

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 RuffDirector619.234.4102simonne.ruff@csh.org

Third Sector Capital Partners, Inc.Boston & San Francisco | (617) 912-8957 | info@thirdsectorcap.org | 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

caroline@thirdsectorcap.org

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

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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

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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?