Pay for Success Coming to Cleveland

At the September 11 Office of Homeless Services Advisory Meeting, we heard about a new program to bring investment bankers and additional resources into the struggle to end homelessness.   This is modelled after a program introduced in Boston in 2012 as part of the social impact financing.   Basically, they are asking wealthy investors to finance traditional government services.  Government saves money with a more strategic/flexible use of those funds, and then pays the investor back with the savings.  If there are no savings then the investors do not make any money.  They are doing this around homelessness in many communities.  These so called "pay for performance" projects insulate government from the risk of trying new projects and provide a large infusion of funds all at the same time to try larger scale projects. New York City is also trying the approach to assist in the reform of youth using the prison system.

PBS Newshour took a critical look at these programs back in February with even the title of the article was revealing, "How social impact bonds put private profit ahead of public good."

In the “social impact investing” model, private investors lend to a social service nonprofit with a successful track record. The nonprofit uses the loan to expand their programming, while the investors receive an interest-paying bond in return. Payout of the bond is based on the outcome of the nonprofit’s programming.  And here’s where the third player in this triangular investing model comes into play. A key part of the social service’s success is saving taxpayer dollars.

The New York City program had some of the largest investment banks paying to reduce youth recidivism back to jail.  The profit is made if the program saves tax payers funds with kids not returning to jail.  

In Cleveland, they are pursuing a program called "Pay for Success," which will assist homeless families who have had experience with the foster care system.  They are raising around $5 million dollars to assist around 135 families.  They will pay for keeping kids out of foster care.  There is a trial group who do not get the help to measure the time spent in foster care as a base.  Then the program serves the 135 families and the investors recoup the number of days below the base.  There is a dollar amount that the county pays for each day a child is in foster care, and any days below the standard goes to the investor to pay back the up-front funds.

The question raised in the PBS series was: Is this ethical to give public money back to investors for good government?

Don’t citizens have a reason to be suspicious when those most likely to profit from these new social investment schemes are the ones creating the financing imperative by working to reduce the tax revenues that would otherwise fund the programs in question? The same people, in fact, who in many cases are pushing to create tax breaks for these investment schemes themselves.

This is the first experiment in Ohio, but is smaller than the other programs.  Why not go for a bigger bang for the buck?  According to presenters, the thinking is that it must be successful since it is the first project in Ohio.  I asked why if we were raising $5 million, we could not do a bigger project rather than the 135 families they intend to serve.  There are huge domestic violence victims, all homeless families, sexually based offenders, or all youth who we do not have a good answer for in this community.  All these other populations have a hard time finding housing and are clogging up the shelter system.  The problem is that the emergency services offered to these other individuals are spread out among many government entities from the federal government, state government and then non profits such as MetroHealth, and not direct tax payer funds from the County.  The 135 families served with children in the foster care system are easy to show the decrease in direct County funds.   The government savings by housing a family in the shelter is harder to prove for the investors.   

We will be hearing more about this "Pay for Success" program.  Look for more details in 2015 for Cuyahoga County to present this plan for more public scrutiny.   We applaud the effort and hope that this leads to expanded programs that can augment the services to low income and homeless people in our community.  It will force the non-profit community to take responsibility for successful care of those they take on as clients. 

Brian Davis

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