This February, on the exact same day, two governors from two very different states — Nikki Haley, a Republican in South Carolina, and Dan Malloy, a Democrat in Connecticut — both announced social impact bonds to promote family care: one for low-income moms, the other for parents struggling with substance abuse. Both of these bonds (also known as “pay for success”) deployed private dollars to fund the scaling of a social program. If the project succeeds in meeting specific, predesigned metrics, the private backers will profit from their investment; if not, taxpayers don’t owe a penny more. Behind both of these innovative, cross-sector partnerships was Tracy Palandjian, CEO of Social Finance, a nonprofit intermediary between all the parties, who helped bring the “pay for success” model to the United States after seeing it first implemented in England in 2010.
NationSwell spoke with Palandjian by phone from Boston about the daily obstacles and excitements that come with rethinking how American social services can reach more people in need.
What’s the best advice you have ever been given on leadership?
I have two. The first one is an African proverb: “If you want to go fast, go alone; if you want to go far, go with others.” Just because one has a great idea and one could often accomplish a lot more, going at it alone is often insufficient if you really want to deliver a movement. That’s hugely evident in our work here. Imagine these very funky public-private nonprofit partnerships with so many stakeholders with very divergent motivations. What motivates a private investor? A sitting governor or mayor? The executive directors of these classic human service providers? We have everyone sit around a table to articulate a common goal — in this case, delivering results to our communities — when they have often conflicting frameworks and very different languages they speak in and very different world-views. Bringing them together around a very common goal among very uncommon stakeholders is something that we have found, yes, it’s challenging, but if we can rally this forth, we see enduring, powerful results coming out of those partnerships.
By way of background for my other one: I didn’t grow up in this country. I’m Chinese, and I grew up in Hong Kong. My grandfather whom I was very close to, his favorite quote was (translated to English): “Distance tests the strength of forces, time tests the hearts of men.” It really is a message about patience. A lot of things take time, and the people who can stay steadfast on that vision could achieve the most. My grandfather was born in 1903 in China. He took his courageous wife — my grandmother — and, at that point, four children, and literally fled the Second Wold War on foot, by boat and by train out of China into Hong Kong and then to Taiwan ultimately. He was a chemical engineer, completely self-taught. He left everything behind when he fled. Along the way, he lost two children. After they made it to safety, he started all over again. He made consumer batteries and completely rebuilt himself, his family and his business. I always think about their lives and what they were able to overcome and what they were able to accomplish. Sometimes, we take three steps backward to take five steps forward.
What’s your favorite book of all time?
One of my favorite books, which I’m proud to say is the namesake of our eldest daughter: a Chinese classic, “Tao Te Ching.” It’s just so poetic and so poignant about how one should live. And it’s full of these non-intuitive sentences like, “It is through being effortless that you can achieve the most.”
What innovations in your field are you most excited about right now?
Taking a step back, social impact bonds are probably the latest and the most recent comer to this broader investing landscape. I agree there’s been a lot of hype, but the reason why people are excited about it is that the impact is so direct. When our investors get their money back and then some, it’s because somebody’s life has been improved. This very articulated, metric-driven all-around life improvement, whether it’s recidivism or job attainment or education attainment or improved health outcomes, these are the metrics of each of our deals. Someone’s life improvement is the source of the return back to the investor, and that connection is really powerful. While the field started off in criminal justice (and still a lot of projects are focused on reducing recidivism), we’re excited to see there are a lot of projects in early education, in early childhood, in health and in workforce development.
How do you try to inspire others?
I just try to be who I am. I believe, as a person, I’m best when I’m aligned as a human being and I’m 100 percent authentic. I don’t try to say something because it will inspire others. I don’t try to do something because, well, that’s what I believe a good leader should do. I try to model good behavior for my colleagues. I’m not perfect, I have lots of limitations. I try to be a good parent and model good behavior for our children. I feel very strongly about this; I feel like there are too many lessons and advice that people give. People just need to be authentic.
What’s your proudest accomplishment?
I am probably most proud of the fact that I really think that I understand two cultures perfectly well. Obviously, I grew up in my own [Chinese] culture. My whole family’s still in that part of the world. You never forget your own culture and your native language. But I also think I’ve worked in America long enough and I’ve worked with enough different sectors and different kinds of people that I really understand how this country and this culture works, too. I think that’s just a huge skill to be able to be empathetic, to be able to step into the shoes of others. I think it’s a really important skill to have, especially for our work, which requires us to talk across sectors and work across disciplines.
What don’t most people know about you that they should?
I’m an artist at heart. That’s what I did as a young kid, all throughout high school and college, I painted a lot, I drew a lot, I experimented with all kinds of mediums. I miss that part of my life. I haven’t done much since I graduated from college. Now, I watch my kids do it, and it makes me very happy.
To learn more about the NationSwell Council, click here.
This interview has been edited and condensed.
Tag: Pay for Success
The Southern City That’s Creating a Diverse, Digital Hub; How the Public Library Provides a Lifeline to the Homeless and More
Is a Different Kind of Silicon Valley Possible?, The Atlantic
Deep in the heart of tobacco country, Durham, N.C. is fostering the next home for digital start-ups. Thanks to free or low-cost office space, business advice, tax credits and financial compensation, more than 400 jobs and $29 million have been added to the local economy. But will this latest tech hub, which is located south of the Mason-Dixon line, find a way to be more diverse than its California predecessor?
Humanizing Homelessness at the San Francisco Public Library, CityLab
Those in the Bay Area without a roof over their heads don’t head to the library to check out the latest page turner. They head to the public building to meet with Leah Esguerra, the library’s social worker — a first of her kind. Connecting at-risk patrons with social programs and outreach services including housing and medical care, Esquerra has provided assistance to almost 1,000 people. She’s also a trend setter: inspiring 24 libraries nationwide to hire their own social workers.
A New Twist on ‘Pay for Success’ Programs, Governing
Governments and the private-sector partnering to fund social programs (an agreement known as social impact bonds, or SIBs) is the latest — and one of the most buzzed about — types of investing. These “pay for success” contracts are risky since investors only receive their money back if the operation achieves its goals. A new model, the social impact guarantee, is more enticing to potential investors while also eliminating some of the traditional complications that accompany SIBs.
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New York Enlists Venture Capitalists To Help Keep People Out of Prison
A surprising initiative in New York City has wealthy investors opening their wallets not to start-ups in Silicon Valley, but instead to a program that prevents recidivism for people just released from prison.
Last December, Governor Andrew Cuomo introduced New York’s Pay For Success Program, which links private investors with social programs that need funding. Investors can expect returns if the programs meets specific performance standards, according to the National Journal.
One such program receiving funds through Pay For Success is the Center for Employment Opportunity (CEO). This organization trains recently-released prisoners to search for jobs, find temporary paid work, and hold down steady employment. CEO has reduced the recidivism of its participants by up to 22 percent, according to a recent study by MDRC, a non-partisan social policy research organization.
Through Pay For Success, investors have put up enough money for CEO to serve an additional 500 people every year. If CEO reduces recidivism among its clients by at least 8 percent, or increases employment by at least 5 percent, then investors get their money back, or even more if the program does better. Part of the investor payout will come from the Labor Department, and part will come from New York State.
Pay for Success is a way to reform public spending so that it aligns with the public good. New York spends about $60,000 per inmate per year, and 3.6 billion dollars a year on its prisons, according to The National Journal. By funding CEO, New York state officials hope that public money can be used to prevent citizens from returning to prison.
The outcomes of the program look pretty good: Investors are motivated to have social programs work efficiently and effectively, and social programs have more money to do their work. And in addition to financial profits for investors, there’s another bonus: Tracy Palandjian, CEO of Social Finance, says, “They all say what excited them is this is a vehicle that will allow them to invest in people’s lives actually improving, and that’s a source of return.”
This State May Have Discovered the Secret to Saving Tax Dollars While Doing Good
In Massachusetts, Governor Deval Patrick has launched a $27 million initiative that he hopes will keep at-risk youth out of jail, reduce crime, and promote safer communities. That may sound like a tall order — after all, it’s more difficult than ever to get funding for social services these days — but the government isn’t fronting the cost, and neither are the taxpayers. Instead, the Massachusetts Juvenile Justice Pay for Success Initiative will be funded by organizations like Third Sector Capital Partners, New Profit Inc., Living Cities, the Laura and John Arnold Foundation, and Goldman Sachs, among other private and nonprofit investors, through the largest social impact bond ever created in the U.S.
Social impact bonds are a new type of philanthropy that involves a partnership among the government, nonprofit organizations and private-sector investors. Here’s how they work: a government identifies a social problem in the community and contracts with private investors who raise money to fund a solution and (hopefully) achieve a pre-determined goal. Participating nonprofits manage the project — in the case of the Massachusetts’s initiative, Third Sector Capital Partners, a nonprofit advisory firm, will serve as the project intermediary, while Roca, a local charity that aids high-risk young men, will provide the services — while a third party conducts a rigorous independent evaluation at the conclusion to determine if it achieved the desired outcome. Only then will the government (and taxpayers) pay the investors back. Therefore, Social impact bonds (otherwise known as Pay for Success initiatives) is a minimal risk to taxpayers, while allowing nonprofits to use their already-established resources to make a significant societal change.
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In Massachusetts, the new Pay for Success initiative will allow Roca to provide job training, counseling and other services to 929 at-risk young men between the ages of 17 and 23, all of whom are currently in the juvenile justice or probation system. Roca has a specific model that it uses to keep its participants out of jail and employed. Its four-year program consists of two years of intensive support from a youth worker, followed by two years of follow-up, and has a proven track record. Out of 115 young men participating in the final two years of the program, 89 percent had no new arrests, 69 percent retained employment for three months and 95 percent had no new legal violations, according to Fast Company. The social impact bond’s success will be determined by Roca’s ability to reduce the number of days participants spend in jail by 40 percent, and improve these young mens’ employment options. If Roca’s services are proven to produce these positive outcomes — in turn saving Massachusetts millions — the government will begin making “success payments” to the investors. “By working with our partners at Roca, the Pay for Success initiative will allow us to marry smart financial solutions with programs proven successful in helping high-risk youth become employed, stay employed, and break the cycle of violence,” Patrick said in a press release.
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Massachusetts recently received an $11.7 million grant — the first of its kind — from the Department of Labor to help fund this Pay for Success initiative. The additional funding will help with success payments and enable the state to extend the project, should it be successful, to an additional 391 young men, thereby serving a total of up to 1,320 young men over nine years. On a larger scale, these social impact bonds are an innovative way for governments to try to fix some of the largest social issues facing the nation, without risking taxpayer backlash. Colorado, New York, Ohio, South Carolina and other states are pursuing Pay for Success initiatives. The only question is: which state will be next?
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