A framework to guide nonprofits in effectively assessing risk and opportunity in Pay for Success contracts.
In December 2013 my organization, the Center for Employment Opportunities (CEO), became one of the first nonprofits to launch a Pay for Success (PFS) project in the United States. In this four-year, $13.5 million transaction, CEO will serve high-risk men recently released from prison and returning home to New York City and Rochester, New York. The intervention will provide 2,000 individuals with a program that CEO has proven, through outside evaluation, reduces recidivism. If individuals in the treatment group spend at least 8 percent fewer days in jail or prison than the control group, and show at least a 5 percent increase in their immediate and long-term employment, the federal government and the State of New York will return investors a portion of the savings. Returns for the 44 private investors financing the project can reach as high as 12.5 percent. However, if these targets are not met, investors stand to lose their capital.
At its core, this is a performance-based contract. But instead of focusing on outputs like job placements, it hinges on our organization making an impact on recidivism and long-term employment. And while CEO has experience with performance-based contracts, in size, scope, and complexity, this project is like no other we have taken on in the past. To finalize the project design and contract, we worked closely with the intermediary Social Finance and New York State for more than a year. Mutual interest in the project’s success drove trust and collaboration between all parties. But as the provider, there was no playbook, road map or learning community to guide us through the intricacies of scoping this project or bringing the deal to closure.
The opportunity for CEO is significant: receive unrestricted capital to deliver our core program to the population for whom we make the deepest impact. There are risks. Random assignment evaluation, scaling up, and multi-year, multi-million dollar contracts all require significant preparation and due diligence for nonprofits. Additionally, we had to quickly become familiar with the language and priorities of the investment community. Terms such as “asset class” and “capital stack” were new to our lexicon.
PFS opportunities will continue to have a strong allure for nonprofits into the foreseeable future. Untapped capital, contracts that pay the real cost of services, and the chance to be on the cutting edge of innovation are just some of the attractions. Yet, given the nascent state of the field, there are few deals for nonprofits to use as models. As Tracey Palandijian, co-founder and CEO of Social Finance, has said, “If you have seen one Pay for Success deal, you have seen only one Pay for Success deal.”
There has been plenty written about how the impact investing community assesses risk in this emerging marketplace, but precious little on how the recipients of this investment—in most cases, nonprofit providers—should assess risk. Risk comes in two forms here: reputational and financial. These projects are highly visible; failing on center stage could be damaging to an organization’s future, and some deals may ask for a nonprofit’s financial involvement, which presents a whole other type of risk.
Drawing on our experience in the New York State transaction and early due diligence on a potential project in San Diego County, I have drafted a matrix that can help nonprofits assess the risks in both closing deals and operationalizing projects. Some elements in the matrix will be widely applicable, others specific to CEO. I hope that, where it is specific, there will be ready analogs that practitioners in other fields can swap in based on their own work.
Let me first explain the structure of the matrix. I have selected 12 “deal components” and provided low, medium, and high-risk scenarios.
A few important points before diving in:
- Risk does not correlate to reward. In some cases, the lowest-risk option provides the most benefit and the highest risk the least benefit.
- There are deal breakers. Some of the high- and even medium-risk scenarios are options that would preclude us from participating in a deal. There are places here where CEO wouldn’t go past low risk, other areas where we would take on more risk.
While 12 deal components are included in the matrix, I have selected five below to detail more extensively.
Let’s start at the top with Capital Source. Here we are asking: Who are the investors in the deal? This matters. One of our interests in participating in a PFS project was accessing new forms of financial support that were previously unavailable to CEO. A high-risk scenario would be if existing government and/or philanthropic support were diverted into a PFS deal. We are loathe to cannibalize existing funders. The low-risk option was attracting entirely new capital to participate in the deal. In future deals, I could envision CEO accepting the medium-risk scenario, but for our first deal, it would have been a deal-breaker to go past the low-risk scenario. CEO Investment Stake: In the New York deal, CEO has no “skin in the game.” We are not an investor. CEO will not share in the windfall if we hit all of our performance thresholds and the investors get their full return. The organization has no direct financial risk. Instead, we will get paid, up front, for each person who enrolls in the project. Other nonprofits have gone in a different direction and have found funding for their stake in the deals. This was not viable for CEO. We wanted to put our organizational emphasis on planning and running the project with excellence and believed that simultaneously raising a substantial investment would interfere. What’s more, we did not feel our reserve could cover our stake if we were not successful in the capital raise. If a third party facilitated our investment (medium risk) or our balance sheet condition improved dramatically (high risk), we would not rule out those options, but these scenarios currently are not viable options. Number of Government Payors: This component addresses the risk of deal closing. PFS projects are complicated enough for just one government entity to wrap their minds around, let alone multiple entities. That said, the work that CEO and other providers perform frequently saves government money across local, state and federal levels. Jail savings, prison savings, and Medicaid savings? It’s likely that we produce them all. The reward of coordinating across these systems would be significant but could present the greatest risk in getting to closure. The varying legal and procurement requirements—not to mention underlying motivations—can make the most ambitious projects higher risk. In CEO’s case, we have both federal Department of Labor and New York State support, which would have put us in the medium-risk category for deal closure. Having both parties in the deal allowed us to extend the project from two to four years. Evidence in Geography: In this domain, CEO was comfortable in the medium-risk scenario. For the New York deal, we are implementing this project in our New York City office, which has already been subject to random assignment evaluation. But we are also including Rochester, New York, which has not been subject to a similarly rigorous evaluation. We were comfortable with this scenario, because only 15 percent of the treatment group participants will be from Rochester and in preparation for the deal we were able to perform a comparison group analysis that showed the Rochester office was performing at a level consistent with CEO’s previous evaluation. Moving forward, there is a possibility that CEO could take on the high-risk option of using PFS to scale into new geographies, but there would have to be a 12-18 month start-up period to ensure that program fidelity was achieved in advance of beginning the project. CEO generally selected options in the low- to medium-risk categories, but we did so as they arose. My intent here is to begin a conversation amongst providers, intermediaries, government, and investors in which the risk/opportunity calculus for the nonprofits is integrated into the deal-making process. This matrix is just a starting point. To make tools like this fully functional, we will need to:
- Add additional components. By no means are the 12 I selected exhaustive. We will need a more extensive listing, divided by “risk for closure” and “risk for operationalizing.”
- Refine by geography and issue area. Providers in early-childhood, health care, and other arenas will have to consider whether these components are too narrow or broad for them to use effectively. Providers working in other states will need to add geographic-specific components
- Develop risk score and proportional weighting. If our efforts in adding and refining the matrix are successful, this tool could become a scoring mechanism to determine whether nonprofits should or should not enter into a PFS deal. For that to happen, we will need to develop a system for assigning weight to individual components and more clearly assigning “deal-breaker” status for those that present untenable risk.
PFS projects have the opportunity to fundamentally change how government works by placing an emphasis on funding high-performing, evidence-based practices. The field will have to scale, and more providers and projects will need to enter the marketplace. As more nonprofits enter this space, it is imperative that they have tools to fully assess the risks and rewards of this new, exciting financing mechanism. Download a PDF of the matrix here.
Stephon Johnson | 7/24/2014, 2:50 p.m.
Formerly incarcerated New Yorkers have a hard time upon re-entry into society. New York Gov. Andrew Cuomo is looking to tackle that problem head-on.
Last week, Cuomo announced the formation of the New York State Council on Community Re-Entry and Reintegration. The council will address obstacles that formerly incarcerated people face when they re-enter society and collaborate with state, local and private agencies and community groups to address issues newly freed people face after serving time, including housing, employment, health care, education, behavior change and veterans’ services.
“We have made great progress toward creating a safer state over the past few years. Our prisons have fewer people in them and crime is down, but we must do more to stop the revolving door of recidivism once and for all,” said Cuomo in a statement. “Reducing the state’s recidivism rate will mean safer communities, stronger families and fewer taxpayer dollars spent on prisons. This Re-Entry Council will strengthen the support that we provide to formerly incarcerated individuals as they transition back into mainstream society and help ensure that those transitions are lasting and effective.”
Members of the Council on Community Re-Entry and Reintegration include Rossana Rosado of John Jay College of Criminal Justice as the board of trustees member (chair); Alphonso David, the deputy secretary and counsel for civil rights for the governor’s office; Anthony Thompson, a professor at New York University School of Law; Elizabeth Glazer, the director of the New York City Office of Criminal Justice; and Thomas Abt, the deputy secretary for public safety for the governor’s office.
According to the Re-Entry Council, their goals include identifying barriers to successful re-entry in New York by examining state laws, regulations and administrative policies pertaining to the formerly incarcerated; soliciting feedback from stakeholders regarding potential policies, laws and practices that could improve outcomes for the formerly incarcerated; assessing existing programs for effectiveness and identifying evidence-based best practices in support of positive outcomes; and developing coordination strategies between state, local, private and community-based groups in support of successful re-entry for the formerly incarcerated.
According to the governor’s office, the council will submit recommendations for review and potential implementation, with Marta Nelson, the executive director for the New York City Office of the Center for Employment Opportunities, serving as the executive director of the council. Alexander Rose will serve as special assistant to the council.
Oklahoma has one of the highest incarceration rates in the country. Each year, the state releases roughly 8,000 people from prison, and many of them are looking for work. One organization now hires ex-offenders to help rebuild and restore tornado-struck towns.
Reuben Ramirez cuts wood for trusses at the Habitat for Humanity offices in Oklahoma City. Kate Carlton Greer Oklahoma Tornado Project
When Reuben Ramirez was released from prison three months ago, it was hard for him to adjust. Ramirez spent a total of seven years behind bars, so getting used to the outside world wasn’t always easy.
“It’s been somewhat overwhelming at times just for the simple fact that I’m learning to adapt out here,” Ramirez said.
He knew he needed establish himself as a loyal, hardworking man instead of just an ex-convict. So two months ago, he started working for a non-profit called the Center for Employment Opportunities, or CEO. It’s a national program to help people with criminal records get back on their feet after they serve time by providing employment services.
Pat Viklund is the organization’s Oklahoma City director. He says they had planned on expanding beyond the state’s Tulsa office in October or November of last year.
“But when the tornadoes came through in May, we realized that our services could definitely be used to help the city of Moore and the South Oklahoma City community recover from that,” Viklund said.
It was a big task, but it wouldn’t be CEO’s first time assisting cities suffering from severe weather.
“It was something we had done with Hurricane Sandy in New York, so we were experienced at providing disaster relief, and so we opened up two crews in August of 2013.
Participants are split between the City of Moore and Habitat for Humanity. They spend 4 days each week clearing debris, planting trees and building houses for tornado victims. Habitat’s Ann Felton says that has been extremely beneficial.
“For us, it’s been a godsend because we have an extra pair of hands out there, and they have been building trusses for our houses,” she said.
Those trusses save Habitat for Humanity roughly $1,000 per home.
Mike Johnston is a site supervisor for the Center for Employment Opportunities’ Habitat for Humanity program. For him, assisting tornado survivors has left a lasting impact. He remembers one day when he and his crew were helping pick up debris from a church lawn.
“When we were back there cleaning up, the pastor actually came out to thank us. He had tears in his eyes and he said that we were doing what they were supposed to do. One of my participants stepped up and said, ‘No, sir. You did your part. Now let us do ours,’” he said.
Johnston says this kind of work – the kind that involves helping other people who have lost everything – impacts the CEO participants in a way few other things do.
“There is a connection there. These guys are having to rebuild their lives, and their helping other people rebuild theirs,” Johnston said.
That’s something Reuben Ramirez, the man just released from prison, completely understands. It’s why he enjoys working on the Habitat for Humanity crew.
“It’s something that I definitely look forward to, helping others that don’t have nowhere else to go, because I know the feeling to not have anything.”
There’s a kinship there, he says. And Ramirez knows that one day, his life will return to normal, just like the lives he has helped rebuild along the way.
By Lindsey Allen
Posted Jun. 19, 2014 @ 8:00 am
The City of Shawnee, beginning in July, will utilize parolees to compensate for a staffing shortage in the parks department.
The $175,000 agreement with the Center for Employment Opportunities is set to provide the city a supervisor and six crew workers, five days a week. City Manager Brian McDougal noted the city’s only real requirement is to supplement work.
“This is basically an organization that comes in, takes care of all of the human resources, workers’ compensation and majority of the equipment that they’ll use out there in the field,” McDougal said.
He explained the program aims to make people productive members of society.
“For the most part, these guys are just looking for a paycheck so they can get back on their feet, and that’s what this program is designed to do,” McDougal said. “Also, it has the added benefit of helping beautify our city.”
The organization primarily focuses on parolees ages 18 to 25 and does not work with sex offenders. Commissioner Pam Stephens described the difficulty this group has finding employment and spoke to safety concerns.
“People are going to say, ‘Oh no, you don’t want parolees in your neighborhood, out there doing stuff,’” she said. “Well they’re there anyway, so why not be employed? Why shouldn’t we take advantage and make our community better and more beautiful?”
Stephens said the labor is a good thing, so long as the city manages it well and assures that citizens are provided a service.
“I think it’s a great program,” she said. “I’m really excited to see what they do in our community.”
In the past three years, state prisons have been releasing an increasing number of those sentenced to life behind bars. Governor Jerry Brown has approved about 80 percent of the parole board’s recommendations for release, angering victims rights groups. What does this change mean for lifers who suddenly find themselves having to adapt to life outside prison walls? And for crime victims?
Host: Scott Shafer
- Bill Heiser, California director of the Center for Employment Opportunities, which recently got a contract with CalTrans to employ felons
- Christine Ward, executive director of Crime Victims Action Alliance
- David Hillary, former lifer and counselor at Options Recovery Services
- Robert Weisberg, professor of law at Stanford and co-director of the Stanford Criminal Justice Center
- Tom Gorham, program director for Options Recovery Services, a Berkeley-based addiction recovery program that employs former felons
The votes are in, all 191,000-plus of them: Google will give four San Francisco Bay area nonprofits, the winners of the search giant’s fourth Impact Challenge, grants of $500,000 each. Six more nonprofits will each get $250,000 grants, and 15 will receive $100,000 each.
Voters chose Hack the Hood, Center for Employment Opportunities, The Health Trust and Bring Me A Book out of a total pool of more than 1,000 proposals. Between May 22 and June 2, 191,504 people casted votes for the 10 finalists. Six community advisers, including Google.org Director Jacqueline Fuller and former major league pitcher Barry Zito (most recently of the San Francisco Giants), chose the top 25 proposals based on community impact, ingenuity, scalability and feasibility, according to a Google spokesperson.
The Bay Area challenge is the fourth since the program began in the United Kingdom last year. It then expanded to India and Brazil, and will next return to the U.K this summer. Google has granted $16.5 million through Impact Challenges.
“The aim of the Challenge was to search for the most innovative ideas for making Bay Area communities an even better place to live,” according to a release from The Health Trust, based in San Jose, Calif. “The Health Trust was chosen as a finalist for our inventive approaches to make affordable, quality, nutritious food accessible in low-income neighborhoods.”
The Health Trust will use its grant to expand healthy food distribution to low-income areas. It plans to distribute 50,000 pounds of food to 10,000 people over the next two years through its Good. To Go. campaign. Hack the Hood of Oakland, Calif., will expand its summer camp training program for high school students over two years. It will offer the program year-round instead of six weeks, and will expand access to the program from 20 students to 5,000.
Digital literacy and e-books are the Mountain Lakes, Calif.-based Bring Me A Book’s focus for its grant. The organization will expand its Digital4Literacy program to distribute tablets packed with e-books and learning apps to 432 preschoolers over three years.
“This Google challenge will help bring the innovative edge into the preschool sector and help us think about how we use media to support preschoolers and their families in having better access to books,” said executive director Mialisa Bonta. “We’re really excited about it and I think it’s a game changer for Bring Me A Book and for digital literacy. Our total operations budget hovers in the realm of $1 million so a grant of this size is definitely transformational. I would call it a tipping point.”
The Center for Employment Opportunities (CEO), which provides transitional and full-time jobs for the recently incarcerated, will expand into the city of San Jose and Santa Clara County while implementing new technology aimed at increasing the efficiency of the work crews and its own processes over two years, said California director Bill Heiser. CEO is headquartered in New York City and based locally in Oakland, Calif.
The technology platform will be “wholly new, and we’re really excited about it,” said Heiser. “It’s got the possibility to be a new frontier for us in terms of how we integrate the behavioral lessons we’re trying to achieve as well as provide greater feedback while (workers are) on the crews. It will also help us improve our efficiencies.”
In addition to the grants, all 25 grantees will receive one year of technical support from Google and one year of support from Impact Hub SF, a shared workspace and nonprofit community. Bonta and Heiser said grant details and a distribution timeline have not been worked out yet, and a Google spokesperson said the timelines depend on the nature of the project, the community and the organization.
Four nonprofits active in nutrition, literacy, and job training and placement will collect $500,000 each from Google to expand or implement new projects after coming out on top in online voting for the firm’s Bay Area Impact Challenge contest, technology-news site TechCrunch writes.
About 200,000 votes were cast in the 10 days after Google announced 10 finalistsin the competition, which overall is divvying up $5-million in grants among some two dozen groups chosen by a jury of community leaders and celebrities from more than 1,000 applicants.
The top winners are Hack the Hood, a summer program teaching technical skills to at-risk youths; Health Trust, which operates food carts offering nutritional snacks as an alternative to convenience stores; reading charity Bring Me a Book; and the Center for Employment Opportunities, which helps ex-convicts find employment
Jun 5, 2014, 2:43pm PDT
Eric Van SusterenDigital Producer-
Google Inc. named the nonprofits that won its first Bay Area Impact Challenge, a philanthropic program that channels a total of $5 million to 10 Bay Area nonprofits.
Four of the nonprofits — Hack the Hood, Center for Employment Opportunities, the Health Trust and Bring Me a Book — each will receive $500,000. The six remaining finalists will each receive $250,000, and 15 additional nonprofits will each receive $150,000.
Google received 191,504 votes during the competition.
Google.org, Google’s nonprofit wing, has announced that four nonprofits participating in its Bay Area Impact Challenge will receive grants for $500,000 later this year. Hack the Hood, The Health Trust, Bring Me A Book, and Center for Employment Opportunities came out on top after a 10-day voting period and 200,000 votes cast.
Last month, Google.org selected 25 Bay Area nonprofits from over 1,000 entrants to receive technical support, free co-working space in San Francisco for a year, and grants starting at $100,000. From the 25, it selected the “Bay Area Top 10″ on May 22. For 10 days, the company let anyone vote for their favorite four among the group. Last night, Google revealed its top finalists, who will each receive grants from $500,000. The remainder of the 10 will receive grants for $250,000.
The top-four nonprofits run the gamut from giving at-risk students in the Bay Area technical skills to offering kids healthy, affordable snack options on their walks to and from school:
Hack the Hood – Hack the Hood is a six-week summer program that teaches at-risk students technical skills and puts them to work for local businesses who can’t afford to hire technical employees full-time. The students receive $1,000 for their participation. With Google’s grant, they plan to expand the program from 20 to 100 students and let the nonprofit offer the program year round.
Health Trust – Among its efforts to enable healthier living, Health Trust operates food carts in SF that are strategically placed to let kids pick up healthy fruits and vegetables on their way home from school instead of stopping by a 7-Eleven and picking up a snack. With studies showing that nearly one-fourth of kids is malnourished, Health Trust’s goal is to double the number of youth it reaches through its cart program by increasing the number of carts and strategically placing them on common routes between schools and residential neighborhoods.
Bring Me A Book - One of the biggest keys to improving life-long academic success is instilling a love of reading at a young age. Bring Me A Book plans to use the grant from Google to provide libraries in the Bay Area with high-quality children’s books and read-aloud workshops for disadvantaged children.
Center for Employment Opportunities - CEO helps those who have been incarcerated break from the vicious cycle of the penal system and unemployment by providing “transitional employment” and job placement. With the grant from Google, the nonprofit plans to expand its employment program to 300 employees in Oakland and 200 in San Jose over the next two years, as well as place another 280 into paid jobs.
Wednesday, June 04, 2014
Ten days ago, voting opened for Google’s first Bay Area Impact Challenge, and now the tally is in. On the ballot? Ten amazing nonprofit proposals to make a difference in our community.
Between May 22 and June 2, nearly 200,000 votes poured in (191,504 to be exact)—adjusted for population, that makes it the highest voter turnout we’ve had in a Challenge to date. Now we’re unveiling the winners. Each will receive $500,000 in funding and support from Google:
- Hack the Hood will address digital equity by training low-income youth to build websites for local small businesses, actively supporting them to launch their own tech careers.
- Center for Employment Opportunities will develop a tech platform to prepare formerly incarcerated people for employment in a digital world.
- The Health Trust will create new distribution channels for people to get affordable produce, expanding options for street vendors, corner stores, and farmers’ markets for underserved areas.
- Bring me a book will give kids access to digital books, in multiple languages, while creating a supportive online community for parents and caregivers.
But everyone wins in this competition: The six remaining finalists will each receive $250,000, and we also gave an additional 15 nonprofits around the Bay Area $100,000 each.
Finally, all 25 Google Impact Challenge nonprofits will receive one year of accelerator support at our first-ever impact lab, a co-working space launched in partnership with Impact Hub SF, a shared workspace for entrepreneurs committed to positive social and environmental change.
Nonprofits will have access to networking events, meeting space, and development workshops in the Impact Hub SF, as well as membership to all U.S. Hub locations. We also plan to host community events for the Bay Area nonprofit community throughout the year—so check out our website or follow us on Google+ to stay in the loop.
Now the work really begins, and we’re excited to continue to build on our ongoing efforts to give back to the community.