Panel 1 Summary

Panel 1 Summary – Pay For Success: Innovations in Financing Services

Tracey Palandjian, Chief Executive Officer & Co-Founder, Social Finances

Social Finance: An Innovative Multi-Stakeholder Partnership

Successful impact investments are built upon a foundation of data. They invariably involve multiple stakeholders – investors, governments, social service providers, populations in need, and independent validators – with data from diverse sources that must be properly integrated. Instead of merely counting people served (“outputs”), integrated data enable PFS projects to take a more holistic approach, measuring the actual impact (“outcomes”) on people’s lives over a significant period of time.

The impetus to launch an impact investment typically arises at the state or local level with the identification of a particular problem, such as childhood asthma or recidivism. A project must, of course, do no harm by generating perverse incentives. It must also:

  • Engage reputable providers that can effectively deploy capital.
  • Generate quality metrics, with external evaluation.
  • Achieve a positive return on investment (ROI) within a reasonable time.

The potential benefits to stakeholders are huge. Taxpayer resources are only spent on effective results that benefit society; high-performing nonprofits can focus on delivering results-oriented services; investors see a double bottom-line in social and financial returns; and troubled communities receive the support they need to thrive.

As with any investment, there are risks involved with a SIB. Palandjian’s organization differentiates between risk associated with the effectiveness of the intervention and the ability of the provider to deliver, a distinction that helps in determining scalability. She points out that social impact investments can be directed toward small-scale policy experiments as well as proven interventions on a large scale.

Financing is highly influential innovation, notes Palandjian. PFS is a means to an end, namely, a desired social outcome. The partnership market is experiencing substantial growth.

Kristin Misner, Chief of Staff to the Deputy Mayor for Health and Human Services

Bringing Social Impact Bonds to New York City

Kristin Misner, Chief of Staff to New York’s Deputy Mayor for Health and Human Services, is recognized as one of the chief architects of the first SIB in the United States. Social innovators in New York, faced with constrained government spending and a fiscal environment averse to policy experimentation, see the Social Impact Bond as a model for funding prevention services for complex social issues financed with private investment dollars in order to access new sources of capital for effective social programs.

The New York City SIB – titled ABLE, for Adolescent Behavioral Learning Experience – is an evidence-based, cognitive behavioral therapy intervention for 16- to 18-year-olds detained at Rikers Island. The recidivism rate for adolescents released from Rikers is striking; nearly one half of youth released are reincarcerated within one year. The goal is to reduce participants’ recidivism rate at least 10 percent by improving social skills, problem solving abilities, self-control, and impulse management. The budget: $2.4 million annually for four years.

Goldman Sachs funds delivery and operations through a $9.6 million load to MDRC, the social policy research organization that designed the program and oversees day-to-day implementation. Working with the New York City Mayor’s Office and the Department of Corrections (DOC), MDRC manages the two nonprofits delivering the intervention, the Osborne Association and Friends of Island Academy. Bloomberg Philanthropies provides a $7.2 million grant to guarantee a portion of the investment. The Vera Institute of Justice, serving as an independent evaluator, measures whether the targeted reductions in reincarceration have been achieved for this project.

Rikers Island was chosen because of a directive from Mayor Bloomberg’s Young Men’s Initiative, which seeks to find new ways to address across-the-board disparities affecting young men of color in New York City. The city spends $167,000 per Rikers inmate annually. More than 2,000 adolescents are housed there.The cognitive behavioral therapy approach was chosen because several meta-analyses demonstrates its effectiveness of in reducing recidivism, which ABLE measures as bed days.

Over the course of the experiment, program evaluator Vera will compare the recidivism bed days (RBDs) for cohorts of participating youth to cohorts who entered DOC custody prior to the start of the program. Information on this comparison group comes from DOC archival data on jail admissions and length of stay. RBDs will be measured at 12 and 24 months following a youth’s initial release, when he is most at risk for reincarceration. If RBDs are reduced by nine percent or more, the program will continue; if not, investors may withdraw.

“We are taking a narrow view because we want this to work,” says Misner of the project that represents less than one percent of New York City’s corrections budget. Service providers are eager to increase funding, but the cost of ABLE is capped. “We want a big impact, but this is about risk. There are plenty of other opportunities.”

Maryanne Schretzman, Center for Innovation through Data Intelligence (CIDI), Office of the Deputy Mayor for Health and Human Services

CIDI Overview and SIB Involvement

Maryanne Schretzman remembers when evaluating New York City’s human service programs based on data was hot stuff, and when savings could be diffused into more programs. That was more than a decade ago, before the budget crisis of 2007-2009 threatened the reinvestment potential of cost savings. “All our great ideas about reinvestment were at risk,” says Schretzman, “so we had to invent new strategies.”

The result is the Center for Innovation through Data Intelligence (CIDI), established in 2011 within the Office of the Deputy Mayor’s for Health and Human Services (HHS). It aims to use cross-agency administrative data to address program and policy issues beyond the scope of the nine city agencies providing health, criminal justice, and social services. Schretzman is the Executive Director.

Clients often utilize services from multiple HHS agencies – children involved in both foster care and juvenile justice, for example – and CIDI provides the legal foundation for access to data from all those agencies. Working within Health Insurance Portability and Accountability Act (HIPAA), Family Education Rights and Privacy Act (FERPA), and its own internal guidelines, CIDI examines patterns of utilization across programs and services, as well as program costs, benefits, and outcomes for participants and system users. CIDI’s research helps agency leaders make better, evidence-based decisions.

CIDI also supports social impact investment by using administrative data to assess New York City’s ability to analyze stated outcomes and calculate the cost effectiveness of programs. To be considered feasible, a SIB must be:

  1. Measurable and accessible by city agency data and with enough participant information to link to city databases at the individual level.
  2. Linked to specific cost savings for city agencies in order to directly impact service usage through the program logic model at specific city agencies.

Schretzman underscores the need for an integrated data system to access data across several agencies and allow this data to be efficiently analyzed in order to describe cost savings for New York City. “We establish a work group for each project – we really get down in the weeds – but small sample size is a challenge. Being able to access data in several domains in essential to capturing the full potential for innovative impact investment.”

Kathy Stack, Deputy Associate Director for Education, Income, Maintenance, and Labor; US Office of the Management and Budget

Federal Budget Boosts Social Impact Investment

As the Advisor for Evidence-Based Innovation at the U.S. Office of Management and Budget (OMB), Kathy Stack is eager to move forward on the PFS model. She is convinced that social financing backed by integrated data is the key to innovation at every level of government.

“Pay for Success addresses problems we’ve had for decades,” says Stack, noting that integrated data helps overcome the obstacles of silo thinking, lack of meaningful metrics, and evaluations too slow or retroactive to inform policy. With administrative data, OMB can direct funding to projects with the greatest impact, boosting confidence among private and philanthropic investors and increasing the capacity for learning.

In the fiscal year 2014 budget, the Obama administration proposes a nearly $500 million investment that significantly expands the Pay for Success model, including:

  • A $300 million PFS Incentive Fund at the Department of Treasury to help state and local governments implement PFS programs with philanthropies, nonprofits, and other nongovernmental organizations.The fund will provide credit enhancements for philanthropic investments and outcome payments for successful, money-saving services.
  • A reserve of up to $185 million in the areas of job training, education, criminal justice, housing, and disability services.
  • Reinvestment of up to 5 percent of proceeds from the sale of excess Federal property for innovative homeless programs.

Performance measurement was previously separate from random assessment, but PFS projects generate timely data, so stakeholders can make valuable strategic adjustments. Integrated data helps researchers and policymakers identify the best targets on which to spend marginal dollars.

“Pay for Success is the right package that gets the right conversation going,” says Stack. “It brings everyone together to get things done – researchers, data analysts, program providers, investors, and policymakers. It’s very hard to move government decision makers, but evidence-based data get their attention.”

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