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From Potential to Action: REDF's Pay for Success Proposal


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From Potential to Action: REDF's Pay for Success Proposal

  1. 1. From Potential to Action: REDF’s Pay for Success Proposal Haas School of Business Center for Nonprofit and Public Leadership Schwab Charitable Philanthropy Speaker Series Carla Javits President, REDF March 6, 2013© 2013 - PLEASE DO NOT DISTRIBUTE WITHOUT PRIOR PERMISSION FROM REDF
  2. 2. Agenda1. Pay for Success Opportunity2. Program Model3. Cost-Benefit Analysis4. Funder Perspective and Role5. Questions 1
  3. 3. $20M in Pay for Success grants (PFS) are available through thefederal Department of Labor Pay for Success Pilot Projects U.S. Department of Labor Background DOL Pilot Goals • Test a model for government investment • $20M in grants available through the in preventative service delivery models Workforce Innovation Fund that transfers risk to the private sector • The Fund invests in projects that • Learn whether the Pay for Success demonstrate new, innovative strategies concept is feasible in the workforce or replicate effective evidence-based development policy arena strategies which strengthen employment • Determine whether preventative social outcomes services complementing workforce development programming “pays off” • Grants to fund pilots under a Pay for Success(PFS) model • Successful pilots may be scaled-up and replicated by other government agencies • Grant applicant is the state/local/tribal gov. agency 2
  4. 4. The DOL Pay for Success opportunity requires a partnershipstructure* Pay for Success Pilot Projects Details Partnership Structure • State/local/tribal government agency • Intermediary • Investor(s) • Independent outcome validator • Service Provider (i.e. NPA) • DOL *No entity may be both the investor and service provider 3
  5. 5. REDF and social enterprise fit well with Pay For Success• Pay For Success funding from the Workforce Innovation Fund is only available to programs focusing on employment and training outcomes• REDF and social enterprises specifically target employment outcomes and address individuals who struggle to find sustainable employment through traditional workforce development programs• Social enterprises provide structured pathway out of poverty and unique “on-the-job” training• Earned income from social enterprise offsets program costsSamples of organizations REDF has worked with that operate Social Enterprises Juvenile and Adult Offenders Veterans Individuals with Disabilities • REDF works with the Center for • REDF works with Weingart Development • REDF works with Buckelew Programs to Employment Opportunities (CEO) to Corporation to employ people facing provide transitional and part-time employ ex-offenders and replicate its barriers to work, including veterans employment to individuals with mental validated model in San Diego illnessSource: Pay For Success: Investing In What Works 4
  6. 6. The earned income generated by social enterprises reduces the funds required of investors and allows for a higher return Nonprofit Intervention Social Enterprise Social Benefits and Cost Savings Social Benefits and Cost Savings to Government to Government Intervention Intervention Goods & $$$ $ $$ Services Investors Investors Customers Implications• PFS interventions relying on nonprofit models depend solely on investor funding, but social enterprise offsets the amount required with earned income• Even if the enterprise generates a net loss, earned revenues will help fund program costs• However, social enterprise may have higher volatility: profitability will reduce investment required, but long-term losses will increase the amount needed from investors© REDF 2013 – PLEASE DO NOT DISTRIBUTE WITHOUT PRIOR PERMISSION FROM REDF www. 5
  7. 7. Agenda1. Pay for Success Opportunity2. Program Model3. Cost-Benefit Analysis4. Funder Perspective and Role5. Questions 6
  8. 8. Issue area and target populations servedIssue area:• Chronic joblessness for distinct populations of economically disadvantaged individuals• Poverty associated with joblessness leads to increased crime, reliance on public assistance and other costs to the governmentTarget populations:• Low-income individuals who have experienced: - disabilities; in particular, mental illness - histories of incarceration 7
  9. 9. Key aspects of PFS intervention Intervention goals Key activities Expected outcomes • Provide capital to grow high-performing social • 20-30% revenue Goal #1: enterprise business lines growth for targeted Significantly grow social enterprises revenue of social • Increase in people enterprises • Partner with large-scale employed through companies, e.g. KKR revenue growth portfolio to procure from social enterprise • Implement support service program that targets • Higher numbers of Goal #2: placement in permanent people employed Provide support employment through growth in services that focus transitional jobs on a pathway from social enterprise to • Partner with for-profit • Improved outcomes permanent companies to place social from placement in employment enterprise employees in permanent, higher- permanent positions wage jobs 8
  10. 10. PFS success depends on the number of people servedREDF intends to increase the number of people served in three distinct waysIncrease in business Current transition Increased transitionrevenue from SE employment through additional support services Total number of• Growth in business • Steady, natural • Targeted support people served revenue increases the “net new” + transition from social employment + services increase transition from social = through REDF intervention over number of people based on previous enterprise into program period employed year’s actuals higher-wage, permanent employment 9
  11. 11. Program Design: service providers • As the intermediary REDF selected 4 service providers (SPs) that will demonstrate impact from the program intervention Cal State San Bernardino Center for Employment Mental Health Systems Day Reporting Center Job Options Inc. (JOI) Opportunities (CEO) (MHS) (DRC) • Formerly incarcerated • Formerly incarcerated • Disabled persons • Disabled persons • Disabled persons Target • Formerly population incarcerated • San Diego • San Bernardino • San Bernardino • San Diego • San Bernardino Geography • San Diego Expected add’l • $300,000 • $1,050,000 • $2,000,000 • $2,100,000 • n/a annual revenue (intervention) Total estimated • 78 participants • 312 participants • 50 participants • 200 participants • 250 population size (in program)1 Investment • Strong evidence of • Implementing CEO • Best in class social enterprise • Expertise in providing thesis cost-effective model transitional jobs model business performance case management • Target business in San Bernardino • Provide capital and connections to and job placement to growth through • Focused on a high- large customers to increase revenue JOI target population County contracts need community • Strong wraparound services1. This is the number of people employed who could be program participants 10
  12. 12. Agenda1. Pay for Success Overview2. Program Model3. Cost-Benefit Analysis4. Funder Perspective and Role5. Questions 11
  13. 13. A cost-benefit analysis of the California context revealsgovernment savings of approximately $3,750-$4,150 per person• REDF engaged two labor economists to calculate the savings generated by formerly incarcerated individuals and persons with disabilities when a transitional employment intervention is used Formerly Incarcerated Disabled IndividualsSavings to criminal $3,113justice system Public program savings $1,193Reduced victim costs $462 Work-related savings $ 2,995Work-related savings $ 203Total Savings per Person $ 3,778 Total Savings per Person $ 4,188 12
  14. 14. If all outcomes are achieved, up to $2.4 million in cost savings willbe achieved Cost Savings Generated Form. Incarcerated Outcome 1: $1,394,250 Reduce recidivism by 5.7% Outcome 2: $79,170 Increase income tax payment by $203 Outcome 3: $675,000 Increase employment tax payments by $2,700 Disabled Outcome 4: $298,250 Reduce SSI / SSDI benefits by 15% $2,446,670 TOTAL 5.8% return • This program can generate a return of up to 5.8% if all the outcomes are achieved and the proposed number of participants are employed • To be conservative, an annualized rate of return of 2.9% is being proposed to investors 13
  15. 15. The target number of people served is 640, which would requirean investment of $1.95M Expected Participants Served and Investment Required Number of Participants Served 640 Investment Required $1.95M• Program elements of REDF’s proposed design would include: ‒ Targeting 1-2 core business areas for scale growth at Job Options Incorporated ‒ Supporting CEO’s San Diego County and DRC’s San Bernardino County operations by growing sales with predominantly government clients ‒ Implementing a “transition-focused” support services program for a subset of social enterprise employees 14
  16. 16. Agenda1. Pay for Success Overview2. Program Model3. Cost-Benefit Analysis4. Funder Perspective and Role5. Questions 15
  17. 17. PFS and SIBs current and future potential 2020? Proliferation of 2013 PFS/SIBS DOL Pay for interventions Success attracting private investment 2010 opportunity First pilot of • Longer term goal for SIBs is to attract social impacts • Current opportunity investors from both from DOL is one of bonds only a few SIB the private and public sectors prospects in the US • Initial UK pilot still in program • SIBs to represent an • Investments in these delivery phase attractive impact- early stages of US driven investment SIBs likely to come from philanthropy 16
  18. 18. Agenda1. Pay for Success Overview2. Program Model3. Cost-Benefit Analysis4. Funder Perspective and Role5. Questions CONTACT Carla Javits 17