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Pay For Success aka Social Impact Bonds aka
Social Innovative Financing
SIF is a Big Deal…and Growing• Internationally, nationally (16) & locally (3+)
• Commonwealth of MA committed $50M (homelessness & juvenile recidivism)
• Harvard / Kennedy School – SIB Lab
Why?• Desire by governments to reallocate resources to “what works”
• Not making rapid enough progress in solving social problems
• Governments don’t always know what is working and how well
• Governments generally underinvest in prevention
• Fiscal constraints stifle innovation
• Repurposing of contracts that result in an improved public procurement model
Agenda
• Overview of MA Chronic Individual Homelessness PFS Initiative
• Participants
• Concerns
• United Way: Roles, Benefits & Risks
• Financing
Massachusetts Pay For Success – Overview• Ending Homelessness – Up to 800 unaccompanied chronically homeless adults
• (1/2 of MA chronically homeless population)
• Network of 22 Providers – Low Threshold Supportive Housing Model (Housing First)
• Tested intervention model: Home & Healthy for Good and Medicaid expansion
• 500 units of housing; mix of subsidies, scattered sites, existing units & shelter conversion
• Delivers housing & supportive services in holistic, integrated, results oriented way
• Highly Leveraged Model ($27.5M) over 6 years
• Housing Vouchers ($14.2M); Medicaid ($7.3M); Success Payments ($6M)
• Required $2.5M private debt capital & $1M philanthropy
• Role of UW: Secure Capital; Fiscal Manager; Board of Managers
• UW Benefits: Solves Big Social Problem; Positions UW as an innovator; Topline $; Fees
• Concerns: Time; Risk; Legal Counsel; Financial Management; Success Metric
Participants
Assembled TeamParties to the Agreement
• Lead Partner: • Massachusetts Housing and Shelter Alliance (MHSA)
– Network of Providers and Proven Intervention (Home & Healthy For Good)• Other Partners
• United Way of Massachusetts Bay, Inc.– Fundraising & Financial Management
• Center for Supportive Housing, New York, NY– Technical Assistance
• Partners collaborated to submit response (RFR)
Created LLC to serve as Intermediary AFTER the fact• Massachusetts Alliance for Supportive Housing (MASH)
• Single member LLC of MHSAAgreement with Three Governmental Departments• Executive Office of Administration & Finance (Funding)• Department of Housing & Community Development (Housing)• MassHealth (Medicaid)
Concerns
Time• MA Homeless SIF – 2 yrs. 7 mos. from “award to launch”Legal Counsel
• Obtained strong pro bono counsel (Weil, Gotshal and Manges, LLP)• Structured deal for maximum protection to UW• Preserved/Reserved many rights for UW• All revenue comes into UW as a grant or fees
Risk Mitigation• Limited Liability Corporation (LLC) was formed to mitigate risk to partners• Kept debt off UW balance sheet• UW representative serves on Board of Managers for LLCStrong (Internal) Finance Team• Protected against risk• Developed economic and funding modelsSimple Success Metric• One year of tenancy
UW – Roles, Benefits & Risks
Roles•Investor ($1M capital / $750K philanthropy)•Intermediary – Board of Managers (one of four Board of Managers seats)•Lead fundraiser
• Leverage United Way brand to raise dollars for this project
• Bring our partners /other investors to this innovative project•Financial manager of Intermediary (MASH)
Benefits•Position UW in key role for solving big, chronic social issue•Topline revenue•Earned fees as financial manager
Risks•Capital at risk of loss•Reputational risk if initiative fails, etc.•Fundraising complexities – this is NOT fundraising as UW knows it!
PFS Financing
Investor Private Capital Investment
Philanthropic Funding
Total Investment
Financial Institution - Bank $ 1,000,000 $ 250,000 $ 1,250,000
United Way $ 1,000,000 $ 750,000 $ 1,750,000
Corp. for Supportive Housing $ 500,000 - $ 500,000
TOTAL $ 2,500,000 $ 1,000,000 $ 3,500,000
• Measureable goal is 12 months of tenancy. • Tenancy verified by independent evaluator• Additional goals (NOT tied to success payments):
• improving the well-being of individuals• reducing utilization of costly emergency resources.
• Commonwealth will pay $3K per participant for each year+ of tenancy up to a total of $6M in success payments.
• Recovery of Capital• 80% success rate recovers investors capital• 85% success rate yields 3.33% return• 90% success yields 5.33% return
Time pressures,
Legal issues,
Investor concerns,
Fundraising challenges,
Evaluation…
Maybe even some politics.
Stay focused on the “Why”.
UW – Roles, Benefits & Risks
Questions to Ask Yourselves Before Pursuing SIB / SIF / PFS Contract
•Do you have the time to commit to the process?
•Are you prepared for the lengthy negotiations process?
•Do you have fundraising ability to tap into major investors?
•Can you manage the political issues that will come up with the state on something this new?
•Do you have strong legal support?
•Is your finance team capable of modeling complex deals and managing the associated risks?
•What role do you want or are comfortable playing?
• e.g. Intermediary, Investor, Philanthropist, Financial Manager, Fundraiser, etc.
For further information, please contact:
Patricia Latimore, Chief Financial Officer
United Way of MA Bay
617-624-8200
Jeff Hayward, Chief of External Affairs
United Way of MA Bay
617-624-8150