1. From Potential to Action: REDF’s Pay for Success
Proposal
Haas School of Business
Center for Nonprofit and Public Leadership
Schwab Charitable Philanthropy Speaker Series
Carla Javits
President, REDF
March 6, 2013
© 2013 - PLEASE DO NOT DISTRIBUTE WITHOUT PRIOR PERMISSION FROM
REDF

2. Agenda
1. Pay for Success Opportunity
2. Program Model
3. Cost-Benefit Analysis
4. Funder Perspective and Role
5. Questions
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3. $20M in Pay for Success grants (PFS) are available through the
federal Department of Labor
Pay for Success Pilot Projects
U.S. Department of Labor
Background DOL Pilot Goals
• Test a model for government investment
• $20M in grants available through the
in preventative service delivery models
Workforce Innovation Fund
that transfers risk to the private sector
• The Fund invests in projects that • Learn whether the Pay for Success
demonstrate new, innovative strategies concept is feasible in the workforce
or replicate effective evidence-based development policy arena
strategies which strengthen employment
• Determine whether preventative social
outcomes
services complementing workforce
development programming “pays off”
• Grants to fund pilots under a Pay for
Success(PFS) model • Successful pilots may be scaled-up and
replicated by other government agencies
• Grant applicant is the state/local/tribal
gov. agency
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4. The DOL Pay for Success opportunity requires a partnership
structure*
Pay for Success Pilot Projects Details
Partnership Structure
• State/local/tribal government agency
• Intermediary
• Investor(s)
• Independent outcome validator
• Service Provider (i.e. NPA)
• DOL
*No entity may be both the investor
and service provider
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5. REDF and social enterprise fit well with Pay For Success
• Pay For Success funding from the Workforce Innovation Fund is only available to programs focusing
on employment and training outcomes
• REDF and social enterprises specifically target employment outcomes and address individuals who
struggle to find sustainable employment through traditional workforce development programs
• Social enterprises provide structured pathway out of poverty and unique “on-the-job” training
• Earned income from social enterprise offsets program costs
Samples of organizations REDF has worked with that operate Social Enterprises
Juvenile and Adult Offenders Veterans Individuals with Disabilities
• REDF works with the Center for • REDF works with Weingart Development • REDF works with Buckelew Programs to
Employment Opportunities (CEO) to Corporation to employ people facing provide transitional and part-time
employ ex-offenders and replicate its barriers to work, including veterans employment to individuals with mental
validated model in San Diego illness
Source: Pay For Success: Investing In What Works
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6. The earned income generated by social enterprises reduces the
funds required of investors and allows for a higher return
Nonprofit Intervention Social Enterprise
Social Benefits and Cost Savings Social Benefits and Cost Savings
to Government to Government
Intervention Intervention
Goods &
$$$ $ $$ Services
Investors Investors Customers
Implications
• PFS interventions relying on nonprofit models depend solely on investor funding, but social enterprise offsets the
amount required with earned income
• Even if the enterprise generates a net loss, earned revenues will help fund program costs
• However, social enterprise may have higher volatility: profitability will reduce investment required, but long-term
losses will increase the amount needed from investors
© REDF 2013 – PLEASE DO NOT DISTRIBUTE WITHOUT PRIOR PERMISSION FROM REDF www. REDF.org 5

7. Agenda
1. Pay for Success Opportunity
2. Program Model
3. Cost-Benefit Analysis
4. Funder Perspective and Role
5. Questions
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8. Issue area and target populations served
Issue area:
• Chronic joblessness for distinct populations of economically disadvantaged individuals
• Poverty associated with joblessness leads to increased crime, reliance on public assistance
and other costs to the government
Target populations:
• Low-income individuals who have experienced:
- disabilities; in particular, mental illness
- histories of incarceration
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9. Key aspects of PFS intervention
Intervention goals Key activities Expected outcomes
• Provide capital to grow
high-performing social • 20-30% revenue
Goal #1: enterprise business lines growth for targeted
Significantly grow social enterprises
revenue of social • Increase in people
enterprises • Partner with large-scale
employed through
companies, e.g. KKR
revenue growth
portfolio to procure from
social enterprise
• Implement support service
program that targets • Higher numbers of
Goal #2: placement in permanent people employed
Provide support employment through growth in
services that focus transitional jobs
on a pathway from
social enterprise to • Partner with for-profit • Improved outcomes
permanent companies to place social from placement in
employment enterprise employees in permanent, higher-
permanent positions wage jobs
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10. PFS success depends on the number of people served
REDF intends to increase the number of people served in three distinct ways
Increase in business Current transition Increased transition
revenue from SE employment through additional
support services
Total number of
• Growth in business • Steady, natural • Targeted support people served
revenue increases
the “net new”
+ transition from
social employment
+ services increase
transition from social
= through REDF
intervention over
number of people based on previous enterprise into program period
employed year’s actuals higher-wage,
permanent
employment
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11. Program Design: service providers
• As the intermediary REDF selected 4 service providers (SPs) that will demonstrate impact from the program
intervention
Cal State San Bernardino
Center for Employment Mental Health Systems
Day Reporting Center Job Options Inc. (JOI)
Opportunities (CEO) (MHS)
(DRC)
• Formerly incarcerated • Formerly incarcerated • Disabled persons • Disabled persons • Disabled persons
Target
• Formerly
population
incarcerated
• San Diego • San Bernardino • San Bernardino • San Diego • San Bernardino
Geography
• San Diego
Expected add’l • $300,000 • $1,050,000 • $2,000,000 • $2,100,000 • n/a
annual revenue
(intervention)
Total estimated • 78 participants • 312 participants • 50 participants • 200 participants • 250
population size
(in program)1
Investment • Strong evidence of • Implementing CEO • Best in class social enterprise • Expertise in providing
thesis cost-effective model transitional jobs model business performance case management
• Target business in San Bernardino • Provide capital and connections to and job placement to
growth through • Focused on a high- large customers to increase revenue JOI target population
County contracts need community
• Strong wraparound
services
1. This is the number of people employed who could be program participants
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12. Agenda
1. Pay for Success Overview
2. Program Model
3. Cost-Benefit Analysis
4. Funder Perspective and Role
5. Questions
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13. A cost-benefit analysis of the California context reveals
government savings of approximately $3,750-$4,150 per person
• REDF engaged two labor economists to calculate the savings generated by formerly incarcerated
individuals and persons with disabilities when a transitional employment intervention is used
Formerly Incarcerated Disabled Individuals
Savings to criminal
$3,113
justice system Public program savings $1,193
Reduced victim costs $462
Work-related savings $ 2,995
Work-related savings $ 203
Total Savings per Person $ 3,778 Total Savings per Person $ 4,188
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14. If all outcomes are achieved, up to $2.4 million in cost savings will
be achieved
Cost Savings Generated
Form. Incarcerated
Outcome 1:
$1,394,250
Reduce recidivism by 5.7%
Outcome 2:
$79,170
Increase income tax payment by $203
Outcome 3:
$675,000
Increase employment tax payments by $2,700
Disabled
Outcome 4:
$298,250
Reduce SSI / SSDI benefits by 15%
$2,446,670
TOTAL
5.8% return
• This program can generate a return of up to 5.8% if all the outcomes are achieved and the
proposed number of participants are employed
• To be conservative, an annualized rate of return of 2.9% is being proposed to investors
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15. The target number of people served is 640, which would require
an investment of $1.95M
Expected Participants Served and Investment Required
Number of Participants Served 640
Investment Required $1.95M
• Program elements of REDF’s proposed design would include:
‒ Targeting 1-2 core business areas for scale growth at Job Options Incorporated
‒ Supporting CEO’s San Diego County and DRC’s San Bernardino County operations by growing
sales with predominantly government clients
‒ Implementing a “transition-focused” support services program for a subset of social
enterprise employees
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16. Agenda
1. Pay for Success Overview
2. Program Model
3. Cost-Benefit Analysis
4. Funder Perspective and Role
5. Questions
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17. PFS and SIBs current and future potential
2020?
Proliferation of
2013
PFS/SIBS
DOL Pay for interventions
Success attracting private
investment
2010
opportunity
First pilot of • Longer term goal for
SIBs is to attract
social impacts • Current opportunity
investors from both
from DOL is one of
bonds only a few SIB
the private and
public sectors
prospects in the US
• Initial UK pilot still
in program • SIBs to represent an
• Investments in these
delivery phase attractive impact-
early stages of US
driven investment
SIBs likely to come
from philanthropy
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18. Agenda
1. Pay for Success Overview
2. Program Model
3. Cost-Benefit Analysis
4. Funder Perspective and Role
5. Questions
CONTACT
Carla Javits
cjavits@redf.org
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