April 29 - May 1, 2015

Pay for Success aka Social Impact Bonds:

Opportunities for United Ways

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

platimore@supportunitedway.org

617-624-8200

Jeff Hayward, Chief of External Affairs

United Way of MA Bay

jhayward@supportunitedway.org

617-624-8150