The County of Santa Clara
California

Report
68628

Consider recommendations relating to the Pay for Success Project. (Office of the County Executive)

Information

Department:Office of the County ExecutiveSponsors:
Category:Report

Multiple Recommendations

Possible action:
a. Accept report describing progress made regarding the Pay for Success/Social Innovation Financing Project and the recommendation to move this concept forward into the pilot phase.
b. Approve usage of Board of Supervisors Policy 5.6.5.1(D)(2) - Exceptions to Competitive Procurement - Single Source, relating to Agreement with Third Sector Capital Partners, for completion of Phase III of the Pay for Success work plan, which falls within the exception specified under Board policy because Third Sector Capital Partners is the pre-eminent consultant working in this field at the current time, and they provide advisory and project structuring services for governments, service providers, investors and project intermediaries pursuing Pay for Success and Social Impact bond initiatives.
c. Approve Request for Appropriation Modification No. 36 - $75,000 transferring funds from the Special Programs Reserve to the Office of the County Executive budget relating to completing Phase III of the Pay for Success work plan. (Roll Call Vote)

Body

FISCAL IMPLICATIONS

The recommended action includes a request to allocate $75,000 from reserves to support the work of Third Sector Capital Partners in completing Phase III of the Pay for Success work plan.  This payment is approximately one-third of the proposed budget to complete Phase III, Procurement and Deal Construction for the Pay for Success pilot projects.  The Silicon Valley Community Foundation has pledged $75,000 and we are in the process of identifying a third partner to contribute the remaining $75,000 that would fully fund the projected budget of $225,000 for this work.

 

CONTRACT HISTORY

The County of Santa Clara has not utilized the services of Third Sector Capital Partners (TSCP) in the past.  The County has worked closely with this consultant in order to explore the potential of the Pay for Success/Social Innovation Financing concept.  Up to this point, their effort has been paid for by a Health Trust grant totaling $150,000. Step Up Silicon Valley and Catholic Charities initiated the idea to explore Pay for Success and applied for the disruptive innovation grant from the Health Trust and hired TSCP to conduct the current feasibility analysis. TSCP is the pre-eminent consultant working in this field at the current time.  They provide advisory and project structuring services for governments, service providers, investors and project intermediaries pursuing Pay for Success and Social Impact bond initiatives.  TSCP was selected to facilitate the first Social Innovation Financing effort in Massachusetts and have been working with Cuyahoga County in Ohio to implement the Pay for Success concept in that community as well.

 

REASONS FOR RECOMMENDATION

Pursuant to a referral from the Board, the Administration has been working closely with TSCP and the community in exploring the potential of the Pay for Success/Social Innovation concept.  This report presents the completion of Phase II of this effort and provides information regarding what has been learned to this point.  The results of Phase II are attached for the committee’s review and consideration.  TSCP has summarized the findings and also included additional detail in the appendices included at the end of the report.

In summary, the results of Phase I and Phase II of this effort indicate that there are opportunities for Pay for Success/Social Innovation Financing in Santa Clara County.  For this reason the Administration is recommending that the Board authorize moving to Phase III where we are recommending that two pilot projects be initiated and deals constructed to achieve specific outcomes in the areas of Mental Health and Homelessness.  We are also recommending that the County take on the responsibility of leading this effort by establishing a single source contract with TSCP, the external resource that has completed the feasibility analysis and identification of possible program areas where Pay for Success has the best chance for success.  This recommendation is justified by the work TSCP has done over the past 8 months and their experience in the area of Pay for Success/Social Innovation financing.

As discussed previously TSCP has completed two phases of work in determining if Pay for Success is a viable concept in Santa Clara County.  Initially a landscape analysis was completed of County departments and the programs that might fit into the Pay for Success Model.  This analysis identified 11 different program areas that contained some or all of the key characteristics of Pay for Success.  These characteristics include:

 

ü     Government Leadership

ü     Significant unmet needs and targetable populations

ü     Credible and available data

ü     Interventions that work

ü     Scalable service Providers

ü     Cashable fiscal savings

 

It is important to note that at this point, the Administration felt it was important to introduce the idea of “dual path”.  We believe Pay for Success is worth pursuing even if it may be difficult to produce cashable savings.  While we believe it is important to pursue cashable savings aggressively, it is equally important to pursue projects where significant and desirable service improvements can be made by improving outcomes.  In these cases, the deal will look different in that cashable savings will not be the primary goal.  Instead, we want to make sure that achieving high priority outcomes for target populations is also included as an equally desirable goal.

In March of 2013 the Board approved moving to Phase II and engaging community based providers and potential funders in determining interest, concerns and ideas regarding the Pay for Success concept.  Included in that discussion was a more detailed analysis of the 11 program areas that are listed below:

 

1.     Barbara Arons Pavilion (BAP) Utilization

2.     Mental Health Full Service Partnerships

3.     Juvenile Probation

4.     Chronic Homelessness

5.     Child Welfare

6.     Reducing Bench Warrants

7.     Adult Probation

8.     Out of School Suspensions

9.     General Assistance

10. Public Health Outcomes

11. School-Linked Services

 

The result of that analysis was that from an overall perspective, BAP Utilization was the most closely aligned to the key characteristics in the Pay for Success model and we can see a clear opportunity to create cashable savings that could be included in the deal construction.  Recognizing our desire to also focus on high priority outcomes, we are recommending that Chronic Homelessness be included as a pilot project due to the current focus on this issue and the potential for collaboration with neighboring entities to develop solutions to this high profile problem.  Ground breaking work is currently underway to improve our data collection in the homeless area and we are confident that a Pay for Success project will allow us to achieve high priority outcomes for this target population.

 

Phase III Work Plan

Phase III will begin in September 2013 and will likely conclude between November 2013 and May 2014 and will have two primary foci.  The first is the solicitation, screening and selection of service providers and interventions to invite to negotiate with the County on one or more pilot Pay for Success projects.  The second primary purpose will be contract negotiation and construction.

The primary goal of Phase III is to select the service provider(s) and/or intervention(s) with which Santa Clara County hopes to pursue a Pay for Success pilot, and to reach a specific and detailed agreement for the PFS project between all participating parties.

The initial focus of Phase III will be to determine the structure of the contracting process to be used.  TSCP will work with County staff to identify a thorough, efficient and appropriate contracting mechanism to identify PFS participants, including service providers, funders, evaluators, and intermediaries.  Additional components of Phase III would be:

·        Determine the process through which the County would acquire evaluation and data analysis partners.  This would entail determining what solicitation process is best suited for critical segment of the plan.

·        Developing the structure of the solicitation and the specific documents that will be used in obtaining proposals.  The County will obtain examples of all existing Pay for Success/Social Impact Bonds procurements to date and use this information to draft, revise and distribute a final solicitation document.  The County, working with TSCP, will also provide group technical assistance sessions to prospective respondents.

 

The second key focus of Phase III will be the deal construction.  This will be the most time consuming task of this entire effort.  The following tasks will need to be completed and will require a significant level of support from TSCP:

·        An evaluation methodology and outcome metrics to define and measure success (in collaboration with evaluation partners).

·        Analyses of fiscal savings for the County (in collaboration with evaluation partners).

·        Detailed economic models that capture dynamics of provider costs, county savings, and cash flows.

·        Project financing requirements, including identifying fundraising needs, creating prospectus, and assessing investor appetite.

·        Developing a governance structure for the PFS project.

As mentioned previously, this project is expected to cost $225,000 and includes the cost of evaluation and data analysis efforts.  The Administration is recommending that the County share this cost with two or more partners.  The intent is for each partner to contribute $75,000 and this would demonstrate a clear commitment from the County and funders in the community to move this concept forward and actually create two Pay for Success pilot projects.  The Silicon Valley Community Foundation has already committed to be a partner and the County is pursuing other interested parties at this time.

 

CHILD IMPACT

The recommended action will have no/neutral impact on children and youth.

SENIOR IMPACT

The recommended action will have no/neutral impact on seniors.

SUSTAINABILITY IMPLICATIONS

The recommended action will have no/neutral sustainability implications.

BACKGROUND

Pay for Success creates performance-based contracts between the County and providers of preventative, cost-effective social services.  The contracts leverage philanthropic or impact investor dollars by providing up-front financing for service providers.  Under PFS, the County only pays after pre-determined results are achieved and validated by an independent partner, and investors (not taxpayers) bear the risk of nonperformance.  If a project meets its outcome goals and is reimburse by government, investors may recover their capital with moderate interest or reinvest it in the program.

The County’s exploration of Pay for Success is the result of a referral made by the Board in 2012 to work with Catholic Charities and Step Up Silicon Valley that engaged Third Sector Capital Partners to develop a work plan to determine if Pay for Success could be successful in Santa Clara County.

 

Meeting History

Aug 27, 2013 9:00 AM Video Board of Supervisors Regular Meeting

Four speakers spoke in support of the project.

Supervisor Cortese requested that Administration link and share data with the Step Up Campaign partners relating to the mental health and the homeless priority for the pilot program, particularly in the area of homelessness, to prevent duplication of efforts among agencies.

RESULT:APPROVED [UNANIMOUS]
MOVER:Dave Cortese, Supervisor
SECONDER:S. Joseph Simitian, Supervisor
AYES:Mike Wasserman, Cindy Chavez, Dave Cortese, Ken Yeager, S. Joseph Simitian

Transcript

Aug 27, 2013 9:00 AMVideo (Windows Media) MP4 VideoBoard of SupervisorsRegular Meeting

 
11:10 AMOptions but I think it's important to state for future board members that certainly this could be changeod any vote, but because of the magnitude of this issue and the problems that we will face as a county I am comfortable enough to make it into an ordinance, but believe that we need the wording for "f" so with that if we could then vote on the motion that is on the floor. And we will see what the vote is. And that motion failos a 2-3 vote. I will now entertain --
So moved.
Second.
I will move the recommended action as contained in our agenda packet page -- [inaudible]
As soon as lynn clears this I will put it back on.

11:11 AMAll right. and that passes 5-0. Okay. We now move onto -- I believe item 12. This is to consider recommendations relating to the pay for success project. I know that we have several speakers, but given how many more items that we have before us I think we're going to ask for shorter staff reports on some of these items.
Okay. I will make it very brief. What you have in front of you is a recommendation to move the pay for success project forward into a phase three, and the recommended actions are three fold. Accept the report and what you have included in your packet is a full report describing the progress to date. I won't go through that obviously. The second recommended action is to approve an exception to our contracting process and to approve a single source contract with third sector capital partners based on inc. -- information on that action and the third is approve $75,000 and effect have the county take control from a funding perspective for the pay for success project. The project budget for phase three is approximately $225,000. We are requesting $75,000 to fund 1/3 of that. 1/3 has been include committed by the community -- silicon community foundation and we're in talk with a third partner to make up the other $75,000. Very briefly we're I think very optimistic in terms of the potential outcomes for the pay for success /social impact financing social impact bonds. This is a process that has taken place over the last year with lots of community involvement including step up sillion valley catholic charities and health trust that funded the initial study per pay for success. We identified two projects that we think can provide us with the information, and feedback that could in fact allow us to extend this beyond the two areas. The two areas that we identified is a homelessness project and with mental health specifically with [inaudible] pavilion that are described in the report. They have been involved from the beginning and providing us with invaluable assistance. They are really the leading consultant in this area. They have been involved with successful projects in massachusetts, cleveland and another locations. They really understand how this works and the third phase will really be about taking these two identified projects and developing specific or constructing specific deals with the funding community, and also providers to create the most -- the projects that will have the most potential for success, so with that I would be happy to answer any questions.
11:14 AMAll right. why don't we hear from the public first? We have a number of speakers who have been patient and learned more than they needed to know. [calling speaker names] good morning and it's still morning.
11:15 AMThank you very much. I really want to thank gary. You did a great job in leading this effort with the county. I think this is incredible complicated concept in terms of new financing model. I sent you all an email earlier today with our communities so i'm not going to review them all and just make one comment in relation to the barbara's pavilion and encouraging the county to broaden the conversation among ourselves and the clients that go there the other local hospitals have the same issues how they step down the mentally ill when looking at long-term placement and in looking at health care reform it's something that we design and others May invest in and I talked to gary about that and I wanted to bring that up today. This is a process take one step by step and we're not endorsing for all nonprofits and ways to provide services but we're willing to work you as you roll this out through the processes. 0001-01-01t00:00:00. 0000000 thank you.
11:16 AMAnd the next speaker whoever was called up. There you go.
Good morning. I am eleanor glass and serve as the chief officer of silicon valley community foundation. I have been a keen observer of the exblowation phases of the pay for success program and I benefited from the health trust and catholic charities bringing private and public partners to the table to understand the social impact bond or pay for success model and to assess its variability as a tool to provide more effective delivery of health and human services. We saw through the due diligence process the thorough due diligence process and became increasingly impressed with the leadership of the project especially the county ceo, gary graves and we learned from the sector and capital partners and cutting edge programs in the country and can greatly assist us. We have been assessing the opportunity for silicon valley community foundation to partner and we stand ready to work with you. If you give the green light to phase three. Thank you.
11:17 AMGreat thank you.
Good morning. thank you. sindy it's good to have you. Welcome. I am elma and the manager director per silicon valley at catholic charities and thank supervisor cortese for the leadership and has been a part of this from the beginning. Many of us have worked on the issue. I want to thank the health trust and their funding between 2012 and 13 to get where we are today. We have a vision for the community and we have been working on for a very long time and I ask you to support gary graves to take this on and once he does we can claim success and for pay for success to work the county has to own it and by owning this you are claiming we are affecting the system. We don't know what the results will be but I think it's a great beginning. We are innovating [inaudible] working on this and end up doing the same thing and I thank you and for your support.
11:18 AMThank you.
11:19 AMGood morning greg caply ceo of catholic charities. I thank the board of supervisors for considering this and for administration for supporting it. It's important as a county here in silicon valley we're focused on finding innovative solutions to reducing poverty. We can't endure the poverty in our midst and I thank the health trust for moving this and for the county being smart enough we can test a small pilot and if can we caught partnerships together and can we look at the results -- can we pay for the results rather than just outputs and bring the private sector into play and investors and filand to pee for this model and I appreciate your support.
Thank you. supervisor cortese.
Just -- actually I will make a motion but before I do I want to just thank all the speakers for their engagement in this. I want to thank catholic charities because it was catholic charities and the step up program almost concurrently with our public defender, molly o'neal, and came together in parallel universes with consultants to talk about the idea of referral to get this going, and of course the county county executive's office and gary picked up the ball from there and here we are. It's important -- I actually want to move -- let me go right to the motion now. Move the item but ask as part of the motion that as this goes forward given that we're narrowing down to the mental health priority and the homeless priority for the pilots that particularly in the area of homelessness that we continue to link data and share data with the step up campaign because they too are trying to bring people out of poverty, and a great number of those are in that same homeless population, so it's important that we know we're not duplicating efforts. Just with that clarification I will move.
11:21 AMSecond the motion.
All right. both you gentlemen want to put that on the screen. Supervisor simitian.
Thank you. I really think this is an exciting model. I think the potential here is extraordinary. I do think however there are two critical requirements to make this a success. If the model is pay for success then of course the first question you have to ask yourself what is the definition of success? So to fully realize the benefits of this approach I think you need to set the bar high otherwise it's not a pay for success model and that's the first thing we have to do is resist the temptation and have a lowest common demograph .
11:22 AMDenomar looks like and make sure the evaluation is as rigorous and we are really paying for success. I think if we do those two things the potential here is quite extraordinary so I am quite hopeful, but I say it will depend on those two things and I want to encourage staff in that direction.
All right. we are looking for the supervisors to vote. Supervisor chavez. And that passes unanimously.

11:22 AMAll. Thanks also for joining us. That make us move to item 14. This is the first of I believe it's four grand jury reports, and you will notice that I am trying to move things along here. On the item if the motion is for the particular report then we need item "a" and "b" that is accepting the response that administration has provided and then frd forwarding it onto the superior court. If we don't like or want to change staff report then we would go with item "c" but maybe we can move through reportly and go to item 14 and a report on the food truck operators.
11:23 AMMove approval.
So we will be doing 14a and b.