On April 15-17, Housing California hosted its 2014 Annual Conference at the Sacramento Convention Center. The conference featured over 75 workshops and pre-conference institutes, exhibits, and networking events. It is anticipated that more than 1,000 people will attend. We are pleased to have taken part in the conference by facilitating a panel titled “Outlook on Pay for Success/Social Impact Bonds”—a panel that introduced Social Impact Bonds (SIBs) and discussed case studies pertaining to homelessness, recidivism, and workforce development. The panelists for this session included Jennifer LeSar, President and CEO of LeSar Development Consultants; Simonne Ruff, Director of the San Diego Corporation for Supportive Housing (CSH); Caroline Whistler, Co-Founder and Partner of Third Sector Capital Partners; Gary Graves, COO of Santa Clara County, and Zachary Olmstead, Office of Speaker-elect Toni Atkins. Social Impact Bonds (SIBs) are an innovative social investment-financing tool that transfers program performance risk from funder to implementer. Use of SIBs has the potential to increase the effectiveness of government resources spent on social programs, put greater focus on demonstrable results, and incentivize innovation in social outcome delivery. The SIB model is designed to deliver improved and clearly demonstrated results while limiting public expenditures for failing programs. This panel introduced SIBs, discussed case studies pertaining to homelessness, recidivism, and workforce development. Our speakers provided the audience with insight on how SIBs can be utilized for their organizations.

1. LeSar Development Consultants
SESSION MODERATOR
Jennifer LeSar, President and CEO
2410 First Avenue
San Diego, CA 92101
619-236-0612
jennifer@lesardevelopment.com
Outlook on
Pay for Success/
Social Impact Bonds (SIBs)

2. 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

3. 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

4. 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

5. Critiques and Challenges
 Significant Transaction Costs
 Credible Outcome Measurement
 Limited Government Capacity
 Limited Provider Capacity
 Difficulty in “Accessing” Government Cost
Savings

6. 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

7. 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.

8. The Intermediary’s Role
Convene
• Bring parties together.
Structure
• Work with all parties to negotiate: Payment
formula, Intervention, Risk/Return
sharing, Verification mechanisms.
Manage
• Oversee and coordinate service providers, report
progress to investors, implement course
corrections

9. Three Necessary SIB ElementsMeasurableImpact
Target
outcomes
are
meaningful
and credibly
measurable
ValuableImpact
Successful
performance
compensates
for cost plus
risk
NoExcessiveHarm
Program
failure does
not cause
excessive
harm

10. 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

11. SIBs Under Development in the U.S.

12. Jennifer LeSar
LeSar Development Consultants
2410 First Avenue
San Diego, CA 92101
619-236-0612 x 101
jennifer@lesardevelopment.com

13. The Source for
Housing Solutions
Pay for Success /
Social Impact Bonds

14. 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.

15. 15
CSH: Our Work

16. SIB: Key Elements of Success
Take Away: Housing with Services for High Cost
populations assembles these key elements

17. 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
KEY
POPULATIONS

19. Shelter
Jail
Detox
Emergency
Room
Hospital
SNF
Drug
Treatment
Homelessness as an Institutional Circuit

20. 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

21. 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

22. 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)

23. Pay for Performance in Minnesota
 $10 million authorization
 2 pilot projects
 Supportive Housing
 Workforce Development

24. 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

25. 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

26. 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

27. Contact Information
Simonne Ruff
Director
619.234.4102
simonne.ruff@csh.org

28. 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 Whistler
Co-Founder & Partner
caroline@thirdsectorcap.org

29. Key Players in a PFS Deal
29
• Initiates contract and identifies intermediary and/or
provider(s)
• Government pays for successful outcomes
Government
• 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

30. 30
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
employment
Timing
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
provider
Project Budget
$27 million in maximum success
payments from Commonwealth of
Massachusetts
Success Payments
Based on:
• Decreases in days of incarceration
• Increases in job readiness
• Increases in employment
Evaluation Methodology
Independently conducted randomized
control trial confirmed by validator

31. $9 million
Senior Loan
Evaluates
impact
(determines
payments)
$3 million
Up to $27 million
31
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 Cities
Kresge
Foundation
Non-recoverable (but
recyclable!) grants: $6 million
Junior Loan
Defers
15% of
fees Public
Consulting
Group
Verifies outcomes
Investors
Government
Intermediary
Service
ProvidersEvaluator

32. PFS Advisory Process
Government
Feasibility
Landscape
Analysis
Formal
Procurement
2-3 Months 7-9 Months 1+ Months
Phase III
32
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.

33. 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 Analysis
Public education and
landscape analysis of
potential interventions,
providers, and funders.
Completed
Phase 3:
Formal Procurement
and Deal Construction
Identifying 1-2 finalist
service providers, and
negotiate contract terms.
In progress
Phase 4:
Project Launch
Begin service
delivery and
evaluation, pending
board approval.
January 2013 April 2013 August 2013 October 2014
33

34. 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

35. 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

36. 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.

37. Outlook on Social Impact
Bonds
Zack Olmstead
Office of Speaker-Elect Toni Atkins
Housing California Conference
April 17th, 2014

38. 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

39. 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.

40. 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.

41. What’s Next?
• Fate of legislation
• Possible resources within state Budget?
o Pilot programs
o Anti-Recidivism efforts
o Inclusion as an eligible model for existing funds?
• How state can best support local government efforts?