Bridging the Disconnect between Housing & Services: Social Impact Financing Tom Davis , Recap Real Estate Advisors, Boston, MA tdavis@recapadvisors.com 617-502-5939
Introduction to Recap • Affordable housing consulting firm Transactional project management for over 1,000 Section 8, public • housing and LIHTC multifamily housing recapitalizations Portfolio strategy and redevelopment planning • Policy analysis and program development • Capital needs assessments & energy audits by On-Site Insight • • Health and Housing Experience Program design and seed fundraising for service pilots • Social impact finance modeling for Enterprise, Cathedral Housing, • National Church Residences, Massachusetts Housing Partnership and the Massachusetts Department of Housing and Community Development
Health vs. Housing Budgets • Neither system pays for prevention Medical system doesn’t typically reimburse non-medical services; • housing system doesn’t typically pay for enhanced facilities Delayed nursing home care for dual eligible (Medicare & Medicaid) • elderly saves public funds and improves elders’ quality of life Service-enriched elderly housing delays nursing home admissions • • Pilot programs to access health dollars to fund service-enriched elderly housing Medicaid Waivers • Social Impact Financing, also known as Social Impact “Bonds” •
Social Impact Finance • Social Impact Finance (or “Bonds”) can fund service-enriched elderly housing Focuses on outcomes through Pay for Success (P4S) contracts, allowing • government to get past concerns about which funds pay for what Imposes accountability for results on the service provider, who decides • which interventions will achieve the desired outcome • Elderly are a particularly good target population for the SIF/SIB concept Large, high-cost population that is already physically clustered in • senior housing communities
Social Impact Finance Structure Overview Sponsor & Service Provider: Structures Transaction & Delivers intervention Government Impact Investor: Agency: Customer: Provides Capital Provides Payment for Elderly Residents Repaid in 5-10 Years Successful Outcomes Auditor: Measures Success
Sponsor & Sponsor & Service Provider Service Provider Impact Elderly Government Investor Customer Agency Auditor • Sponsor structures the transaction and is the party ultimately accountable for success • Service provider – also known as the Program Intervention Provider (PIP) – implements the service delivery model. (It could be a vendor to the Sponsor.) • Customer base must be clearly defined, relatively constant over time, likely to respond to the intervention and currently expensive. Perceived as “deserving” helps.
Sponsor & Sponsor & Service Provider Service Provider Impact Elderly Government Investor Customer Agency Auditor • Service-enriched housing is an ideal environment for SIFs Manage chronic health conditions in a context as independent as possible • Offer health status monitoring (24 hour staff, medication administration, • emergency response) Assist with daily activities (food service, housekeeping, laundry) • Structure social supports (communal meals, activities, transportation) • • NCR study documented $2,223 per month per person savings compared to nursing home care
Government Sponsor & Service Provider Agency Impact Elderly Government Investor Agency Customer Auditor • Pay for Success (P4S) Contract Government pays for results rather than activities • Government needs to resist the temptation to dictate means and methods • Contract allocates a percentage of actually realized savings to Sponsor • Savings is measured by comparison to similarly frail elderly • • Recap model indicated that every 200 service-enriched elderly housing units could save Ohio over $1M per year Recap modeled a payment of 75% of savings to the Sponsor as a success • fee over a 10-year PS4 contract.
Impact Sponsor & Service Provider Investor Government Impact Elderly Investor Customer Agency Auditor • Impact Investor lends to or invests in Sponsor’s work Debt or equity bridges the Sponsor’s cash needs until receipt of P4S • governmental payment Lenders or investors will impose credible return expectations • Initial lenders or investors are likely to be philanthropies until there’s • more comfort on how to underwrite the probability of achieving results Alternatively, philanthropies could provide a guaranty or other credit • enhancement Syndicators or brokers could create funds to spread investor risk •
Impact Sponsor & Service Provider Investor Government Impact Elderly Investor Customer Agency Auditor • Recap modeled a $15.5M investment $77,500 per unit in construction (including common areas) • $22,020 per unit in annual operating costs • Operating costs paid from a sinking fund capitalized by the investment • • Investor would receive an 8% priority return and 95% of residuals over a 10-year period • Sponsor would receive a services management fee, a transaction fee and 5% of residuals
Sponsor & Service Provider Auditor Impact Elderly Government Customer Agency Investor Auditor • Auditor – a neutral third party – determines whether success has been achieved. No appropriations risk. • Multi-lateral contract among sponsor, government agency, lender/investor & auditor governs outcome measurement • Savings is measured by comparing the nursing care costs or general Medicare/Medicaid costs of the participants and the statewide comparison group of similarly frail elderly (normalized, for example, by RUG scores)
Detailed Structure Social Impact Financial Instrument Raises Money Expenditure Interval of time Payback to provide SIB repayments Sponsor implements Success Sponsor uses SIF/SIB Yields P4S proceeds to deliver services Pay-for-Success contract Payment to Capital retrofits & making payments under a Repay an intervention program and delivers SIF/SIB Place-Based Locus for services to Government agency services Instrument or engages that result in a The Customer to provide which Observable results A 3 rd party services to creates with quantifiable service provider metrics
Summary Sponsor & Service Provider: Structures Transaction & Delivers intervention Government Impact Investor: Agency: Customer: Provides Capital Provides Payment for Elderly Residents Repaid in 5-10 Years Successful Outcomes Auditor: Measures Success Sponsor selects the customer, the service provide and the service delivery model Sponsor executes Pay for Success (P4S) contract with governmental agency Sponsor raises capital to implement the service delivery model from impact investors Auditor determines final payment under P4S contract
Thank you Please feel free to contact me with questions Tom Davis tdavis@recapadvisors.com 617-502-5939
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