Implementing Pay for Success and Social Innovation Finance Webinar

Implementing Pay for Success and Social Innovation Finance Webinar

October 25, 2012

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Agenda

• Opening remarks from APHSA and logistics 5 min• Overview of Pay for Success (PFS) • Update: Existing PFS Exploration 15 min• Q &A 10 min• Existing PFS Pilots & Questions:

–Massachusetts 10 min• Q &A 5 min

–Cuyahoga County, OH 10 min• Q &A 5 min • PFS Outcomes Measurement • Potential Applications for PFS • Roadmap for PFS Exploration 20 min• Q &A 10 min

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Third Sector Capital Partners

Transaction Advisory Services

Program Feasibility, Program Risk Evaluation and Partnership Formation

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Overview of Pay for Success

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What is Pay for Success?

performance-based contracting for outcomes between government and social service providers

financing that supports PFS. “social impact bonds” are one type of SIF financing.

PFS requires a public-private collaboration focused on outcomesand preventive initiatives that are rigorously measured

Investors bear the majority of up-front risk, government reallocates expenditures towards  success payments only when results are achieved

Pay for Success (PFS):

Social Impact Financing (SIF):

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PFS Construct

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How is Impact Rewarded?

• Reward for impact is an outcome-based success payment from government

• Outcomes determined with support of project parties and evaluator to design rigorous, feasible and appropriate measures

• Success payments are triggered when a PFS program achieves mutually, pre-determined metrics outlined in contract

• Outcome metrics are critical for alignment between government, service providers, intermediaries, and investors.

• Role of 3rd Party Evaluator is essential to independently track and validate outcomes.

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Types of Investment

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Non-recoverable GrantsNon-recoverable Grants

Recoverable Grants/Program Related Investments

Recoverable Grants/Program Related Investments

LoansLoans

Private InvestmentPrivate Investment

Pay For Success programs allow investors to structure their investments using various financing options:

Existing Landscape of PFS Exploration

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National Developments

= Third Sector Projects

= SIB Interest/Developments

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Key State and Local Agencies

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Goals and Timeframes

• Requires up-front community education with providers, funders, government stakeholders and evaluators

• Contingent on government approach (procurement vs. sole-source pilot)

• Dependent on access to administrative data for evaluation and cost-benefit purposes– MA: 15 Months to select winning bidders- still in

negotiations– Cuyahoga: 12 months of exploration and RFR

procurement launch• Significant time and resource investment for government

and all partners

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Question Break

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Existing PFS Pilots: Massachusetts & Cuyahoga County, OH

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Metrics: Massachusetts• Procurement Process:

– Request for Information (RFI)– Request for Responses (RFR) for both intermediaries and

providers in two areas: juvenile justice and homelessness– Negotiations to contract with first apparent bidders in each

area• Trust

– Legislative approval for up to $50M of pay-for-success contracts, backed by the full faith and credit of Commonwealth

– Ongoing analysis to estimate and capture budgetary savings– Independent Evaluator hired by Commonwealth will be

responsible for validating outcomes that trigger payments

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Stakeholder Roles: Massachusetts

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Commonwealth of Massachusetts (ANF, HHS, LWD)

Political leadership and staffing, project management,

procurement, fiscal commitment

Commonwealth of Massachusetts (ANF, HHS, LWD)

Political leadership and staffing, project management,

procurement, fiscal commitment

Professor Jeffrey Liebman

Government advisor and technical assistance for

evaluation, procurement and contract design

Professor Jeffrey Liebman

Government advisor and technical assistance for

evaluation, procurement and contract design

Third Sector Capital Partners

Chosen intermediary; project manager with Pay for Success

Expertise

Third Sector Capital Partners

Chosen intermediary; project manager with Pay for Success

Expertise

Roca Inc.

Chosen lead service provider; program expert

Roca Inc.

Chosen lead service provider; program expert

Department of Youth Services

Leadership and staff resources, parties to project and contract

negotiations

Department of Youth Services

Leadership and staff resources, parties to project and contract

negotiations

Evaluator & Validator

Evaluation design and outcomes for contract; validation/auditing

function

Evaluator & Validator

Evaluation design and outcomes for contract; validation/auditing

function

Question Break

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Community Outreach

and Education

Community Outreach

and Education

Landscape Analysis

and Identificati

on of Suitable

Interventions

Landscape Analysis

and Identificati

on of Suitable

Interventions

Process Advice for

County

Process Advice for

County

Technical Assistance

for Responders

Technical Assistance

for Responders

Technical Assistance and Deal

Construction For

Finalists

Technical Assistance and Deal

Construction For

Finalists

Mechanics: Cuyahoga County Pay for Success Process

July 2012 August-Sept. Sept-October November Dec-May 2013

How is this different to MA? Similar?

Early Stakeholder Roles: Cuyahoga

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From Interest to Action: Cuyahoga

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Success Factors:•Leadership from County Executive Ed FitzGerald

– Public Commitment to PFS in Western Reserve Plan

•Collaboration and early engagement with funders and providers– George Gund Foundation investment; Public Community Meetings and

Landscape Education; Funder Convening;

•Commitment to improved social outcomes and savings– Willingness to explore intersection between County savings and

programmatic priorities across multiple areas– Openness to failure or inability to find alignment in County

•Access to Technical Assistance – Third Sector brings PFS Expertise, Landscape analysis and project

management skills

Question Break

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PFS Outcomes Measurement

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Evaluation Mechanism for PFS

• Evaluation of project outcomes is at the core of PFS and is key to validating a project’s impact and cost-savings.

• Impact measurement is a notoriously subtle science.

• The world is full of false-positive evaluations due to a large number of factors: – Underpowered experimental designs,– Publication bias, – Low-fidelity execution, – Wishful thinking,

– Regression to the mean, and many others.

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Developing Outcome Metrics

Critical to establish ambitious yet realistic target metrics and thresholds that define program success. This requires significant discussion and negotiation between the intermediary, government, and potential investors. Process includes:

1.Select a technical assistance provider or evaluator with experience measuring outcomes with government administrative data2.Determine what administrative data sources and data collection strategies are available to measure key outcomes and process for accessing this data.3.Define and articulate a shared vision of what a successful program would accomplish for the target population. 4.Negotiate and establish ambitious but realistic outcome measures with clearly defined thresholds for success.

– Pay “per” Success (ie foregone incarceration)– Pay for overall reduction (reduced recidivism rate)

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Who Measures Outcomes?

• The number one risk of PFS failure is tied to the possibility of non-rigorous evaluation.

• Essential to have independent, 3rd Party evaluators, with a

strong focus on counterfactuals, and a power to audit.

• Administrative data is also essential for PFS as a key enabler of evaluation. Requires government collaboration with PFS project partners and may initially limit potential intervention areas if data is prohibitively costly or unavailable

• Outcome measurement and achievement of contractually-established metrics drive government success payments

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Potential Applications for PFS

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Key Characteristics of PFS

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Government

Leadership

Government

Leadership

Significant Unmet

Needs & Targetable Populations

Significant Unmet

Needs & Targetable Populations

Credible Data

Credible Data

Interventions that Work

Interventions that Work

Scalable Service

Providers

Scalable Service

Providers

SafeguardsSafeguards

Cashable Fiscal

Savings for

Government

Cashable Fiscal

Savings for

Government

Challenges for PFS Implementation

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Promising SIB Intervention Areas

Social Challenge Potential Interventions

Homelessness (family or individual) Permanent Supportive Housing

Child Welfare/Foster Care Redirection from Out-of-Home Placement

Re-entry/Recidivism Community Based Alternatives to Incarcerations

Kindergarten Readiness/Early Childhood Education

Universal Pre-K Interventions; Home visiting

Mental & Behavioral Health Community Based Clinical Interventions

Workforce Development/ Employment Apprenticeship Programs

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Roadmap for PFS Exploration

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Steps for Exploring PFS Opportunities

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Key Questions

•Is there initial community interest in Pay for Success?

•Is there government human and fiscal capacity to explore non-traditional procurement and payment policies? •Are there interventions that are potential fits and also fall within existing community priorities?

•What are key concerns about a potential Pay for Success pilot in your locality?

•Will there be an investor base interested in funding a PFS pilot?

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Questions & Contact Information

• Commonwealth of MassachusettsRyan Gillette, Government Innovation Fellowryan.k.gillette@state.ma.us

• Cuyahoga County, OhioDavid Merriman, Special Assistant to the County Executivedmerriman@cuyahogacounty.us

• APHSALarry Goolsby, Director of Strategic Initiativeslgoolsby@aphsa.org

• Third Sector Capital PartnersCaroline Whistler, Partner cwhistler@thirdsectorcap.org

George Overholser, Co-Founder and CEO goverholser@thirdsectorcap.org

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