Pay for Success Working Group 5-Year Roadmap

1. Pay for Success Working Group 5-Year Roadmap

3. Goal Strategy

4. Rate of return on investments in human capital by age… Programs targeted at earliest years Preschool programs Primary, secondary schooling and college Job training

5. Takes

8. “Pay for Success” Government, Philanthropy and Private Investors $$ Lead Contractor (PFS Lead) Distributes $$ In High Quality Early Care Programs Early Care Programs Produce Measurable Benefits for Government Government Pays Lead Contractor “Success Payments” based on these Measurable Benefits Lead Contractor Pays Investors with funds from “Success Payments”

9. Monetizable benefits • Measureable • Capturable for pay-back • Payback in under 10 years. • Such as: special ed cost avoidance or infant intensive care costs Non-Monetizable Benefits • Good, but not measureable • Good by not capturable for pay-back • Take more than ten years

10. Cost Avoidance = $$$

11. Improved Outcomes $$$

12. Saving Money: As intervention costs go up, ability to finance pre-k improves (Cost Ratio ) Number of Children in School Program

13. Saving Money: As pre-k reduces need for later school interventions (special ed), ability to finance Pre-K goes up (Effect Ratio) Special education cost Without PFS Financing Special education cost With PFS Financing

14. Fixed-Debt: Fixed, guaranteed payments on loan or bond with fixed end-point, like five years. Lower Risk to Investors. Pass-Through: Investors receive annual payments consisting of a percentage of the Success Payments. Annual payment vary based on success payments. Higher Risk to Investors.

15. Financial Model Projection Results Variations

16. State PFS Social Impact Finance Law and Regulations Investor Terms & Conditions PFS Lead and Service Provider Contract Intermediary Gov. Agency Contract Evaluator Contract(s) with Government, PFS Lead & Provider

17. 18-24 Months to build system and pass new state laws.

18. Up to 62 Months from Investment to Payback • 3-5 months for prenatal health • 2-3 years for pre-k

19. “Pay for Success” Government, Philanthropy and Private Investors $$ Lead Contractor (PFS Lead) Distributes $$ In High Quality Early Care Programs Early Care Programs Produce Measurable Benefits for Government Government Pays Lead Contractor “Success Payments” based on these Measurable Benefits Lead Contractor Pays Investors with funds from “Success Payments”

20. More to Learn…. • Standard error estimates of the distribution of returns on PFS assets. • PFS project capital structures, risk, subordination and loss absorption. • Sensitivity analysis of returns to variations in parameter values and financial structures. • Pre, concurrent and post intervention data needed to evaluate near-term financial returns and longer-term all-in outcome improvements. • Research methodologies to use when needed data are limited.

21. www.ReadyNation.Org/PFS Sign Up for Our List Serve Planning a Technical Assistance Institute in 2014

22. Slides for Q&A responses

23. Main Participants in a Pay for Success Project Private, Philanthropic, Government & Provider PFS Organizers Third Party PFS Project Evaluation and Certification Third Party Feasibility Research Step 1: Organizers study Feasibility Research and decide whether to move forward Government Health or Education Agency Early Childhood Pay for Success Investment Intermediary Early Health or Education Service Providers

24. Flow of Funds in a Pay for Success Project (arrows) Private, Philanthropic and Government PFS Investors Third Party PFS Project Evaluation and Certification Third Party Feasibility Study 1. Investors acquire PFS assets and provide working capital 5. Intermediary Issuer repays investors 2. Operating funds paid to to Service Providers Government Health or Education Agency Early Childhood Pay for Success Investment Intermediary Early Health or Education Service Providers 4. Success Payment for Outcome Improvement or Cost Avoidance 3. Cost Avoidance or Outcome Improvement Achieved

25. Pay for Success Statute and Contract Agreements (ovals) State PFS Social Impact Finance Law and Regulations Private, Philanthropic and Government PFS Investors Third Party PFS Project Evaluation and Certification Investors PFS Asset Investor Terms & Conditions Evaluator Contract with Government, Intermediary & Provider Government Health or Education Agency Early Health or Education Service Providers Early Childhood Pay for Success Investment Intermediary Intermediary Government Agency Contract Intermediary and Service Provider Contract

26. Putting it all together -- A Pay for Success Project Private, Philanthropic and Government PFS Investors State PFS Social Impact Finance Law and Regulations Third Party PFS Project Evaluation and Certification Third Party Feasibility Study 1. Investors acquire PFS assets and provide working capital PFS Asset Investor Terms & Conditions 5. Intermediary Issuer repays investors Evaluator Contract with Government, Intermediary & Provider Intermediary Government Agency Contract Intermediary and Service Provider Contract Government Health or Education Agency Early Childhood Pay for Success Investment Intermediary Early Health or Education Service Providers 4. Part of Government savings paid to Intermediary 2. Operating funds paid to to Service Providers 3. Cost Avoidance or Outcome Improvement Achieved

27. “Success Payment” • “Success Payment” is the portion of the government operating cost reduction paid to the Intermediary for successfully reducing the operating costs of the Government, or a payment for achieving specific outcome improvements • Intermediary uses the success payments to • pay interest and principle to investors • pay bonuses to providers who exceed expected performance levels