Social Impact Bonds: All the Rage Are They for You?

1. Social Impact Bonds: All the RageAre They for You? Community Leaders Conference - May 13, 2014 - 4:00pmPresented by: Jeff Hayward, Chief of External Affairs, United Way of MA Bayjhayward@supportunitedway.org

2. What are they? Aren’t they the same thing? • No! They aren’t the same thing, but often confused. • Pay for Success Contracts (PFS): • Contracts for services where government ONLY pays if success is achieved • Social Innovative Financing (SIF): • Any non-traditional financing mechanism • Social Impact Bonds (SIB): • An example of SIF, but not really a traditional bond What is driving this movement? • Frustration…growing desire to invest in “what works” • most programs are not effectively evaluated • no real idea how effective government spending is, but • we do know chronic, nagging problems not going away • Prevention not viewed as a priority; Tight budgets often prioritize remediation

3. Worldwide and US Activity • 2010 First “SIB” launched in Peterborough, England (prison recidivism) • NYC launched first US “SIB” (youth recidivism @ Riker’s Island) • 2012 MA solicits two PFS contract proposals (youth recidivism & homelessness) • Legislates creation of $50M Trust Fund for “SIBs” • NY solicits proposals for two PFS contracts; Authorizes $30M in “SIBs” • Harvard / Kennedy School SIB Lab has national competition for tech. assist. • 2013 Canada, New Zealand, Australia all pursue “SIB” opportunities • CA, CO, IL, MI, SC, UT & others begin RFI or RFP process • 2014 MA begins process for third “SIB” (adult basic education) • Most SIBs have focused on: • * adult / juvenile recidivism * chronic homelessness • * early education * adult basic education 3

4. Models Vary…a “basic model” Private Funders Philanthropy 1. Private Investment & Philanthropy 7. Principal & ROI paid back Government Entity Intermediary 6. Performance- based payments 2. Working capital 5. Outcomes & budget savings Service Providers Independent Evaluator 3. Intervention Applied Target Population 4. Outcomes Verified & Reported

5. UWMB Opportunities and Advantages – Risk Mitigated Principal player / Investor Investor Partnering with major corporate investor Significant media coverage anticipated Positions UW as leader in innovation; breaks the “old model” view Management of Intermediary (L.L.C.) Provide fiscal agency and back office support to LLC Fees for services provided to UW for fiscal management of Intermediary Lead fundraiser Leverage United Way brand to raise dollars for project Bring partners /other investors to innovative project Grant administration Approximately $3M of payments will be recognized in UWMB, Inc. financial statements as grant revenue and expenses Risk Mitigation Pro bono counsel from Weil, Gotshal and Manges, LLP 100% of L.L.C. owned by partner agency…no debt on UW balance sheet UW representative serves on L.L.C. Board UW is not a signatory to contract with State or Providers

6. Considerations • Top Quality Pro Bono Legal Counsel and Financial Counsel is Essential • Unchartered legal territory; few precedents; expertise is limited • Treatment of revenue, expenses and debt significantly impacts balance sheet • Risk mitigation is non-negotiable • Certain Roles Bring Certain Advantages • Investors have received significant media attention • Guarantors have gained little attention for brand • Fiscal Agency allows for the realization of fees for services • Grant Administrator allows for realization of grants as top-line revenue • Deals Require Significant Lead Time and Staff Investment • MA deals have taken an average of two years between RFR and Execution of Contract • Hundreds of hours invested in design, negotiations, Board stewardship, etc. • Board Support is a Must • Engaging and keeping Board fully informed can be difficult because field is nascent • Advice and insight of Board will set stage for negotiations Questions?