Justin Milner
Urban Institute
Associate Vice President, Research to Action Lab; Director, Pay for Success Initiative and Evidence-Based Policymaking Collaborative

SIPPRA NOFA: An investor’s perspective

An interview with the Community Outcomes Fund’s Managing Partner, Andrea Phillips
March 6, 2019 - 4:07pm

Pay for success (PFS) projects bring together a host of stakeholders aimed at improving outcomes for a specific population. Today we highlight the role of one of the key stakeholders: private investors. Earlier this week, Justin Milner, director of the Urban Institute's Pay for Success Initiative, interviewed co-founder and managing partner of the Community Outcomes Fund, Andi Phillips , to explore how private investors in the pay for success space are thinking about the Social Impact Partnerships to Pay for Results Act (SIPPRA) and the new Notice of Funding Availability (NOFA).

The Community Outcomes Fund at Maycomb Capital focuses on outcomes financing—sometimes called PFS or social impact bonds—to fund the expansion of high-quality social services for low-income people, families, and communities in partnership with state and local government. Phillips helped pioneer the model in the United States when she managed the Goldman Sachs Social Impact Fund. Its investment in the Rikers Island project marked the first such transaction executed by a financial institution in the country. Phillips has been the principal investment professional for several other transactions in the United States, including transactions that financed early childhood education in Utah and Chicago, Illinois.

Milner: You have been involved in the PFS space as long as anyone. You led the investments in the first four deals in the United States out of the Urban Investment Group at Goldman Sachs, and now you’re heading up the Community Outcomes Fund, a dedicated pool of private capital to invest in PFS projects. From an investor perspective, what excites you most about SIPPRA?

Phillips: There has been an ongoing conversation among government and community leaders about how to track and improve the performance of human services for low-income families. SIPPRA reflects the growing momentum behind that movement toward data-driven policymaking. At its core, SIPPRA reinforces the understanding that by linking payment to outcomes, incentives are aligned—government, providers, and community stakeholders are all working toward getting better outcomes for communities in need. Finally, the funding set aside by SIPPRA at the federal level will catalyze new outcomes financing projects among government leaders who might otherwise have been hesitant to make this transition.

Milner: For our readers who may be less familiar, how do you describe the role of the investor in outcomes financing projects?

Phillips: When a local government asks a service provider to deliver services today but pays based on future outcomes that aren’t realized for several months or even years, that service provider has a working capital need. The investor provides working capital up front to the service provider or project manager to cover the costs to run a high-quality program. In turn, the service provider uses the proceeds from the outcomes-based contract that they hold with the local government to pay back that investment. The investor also takes on the risk of impact. If certain target outcomes are not achieved, the service provider may not earn the full amount of outcome payments, and the investor forgives that portion of the loan.

Milner: What else do investors bring to the table?

Phillips: As investors, we also contribute other resources that we have developed as a repeat player in the space to help get projects off the ground. We have developed template termsheets (i.e., an agreement that defines the terms and conditions for an investment), financial models, and contracts that can help make the project start-up as efficient and cost-effective as possible. And as a project unfolds, we bring with us the wisdom and leadership of our network of stakeholders; we often draw on their expertise to strengthen the project and improve the outcomes for the community.

Milner: Since the US Department of Treasury issued the SIPPRA NOFA, our blog series has focused primarily on what it means for local and state governments and what the federal government wants to see in proposals. Investors are also really important stakeholders. What do they look for in an outcomes financing—or PFS—investments?

Phillips: As investors, we look first and foremost to finance an intervention that addresses a critical community need and that is a priority for residents and local leaders. Second, we want to see that the intervention has a strong evidence base and a track record of leading to meaningful outcomes. Third, we look to finance effective service providers and partnerships that have the capacity to both manage and expand their service delivery over the long term. Finally, all of these elements must rely on a strong partnership with government and local community leaders. We look to support leaders who are aligned with an outcomes-based approach to human services and value evidence-based program design, data collection, and performance management.

Milner: The NOFA lists 21 outcome areas that qualify for SIPPRA funding, ranging from employment, to health, to criminal justice. Based on your experience in the field, what types of projects are most ripe for this type of outcomes-based structure?  

Phillips: From our research and field experience, early childhood education and workforce development projects are particularly well-suited for an outcomes-based approach, whether in the context of SIPPRA funding or more generally, because they have the following characteristics:

  • Critical need and policy priority – There is a clear community need for the service and, in turn, leaders have identified them as top policy priorities. For example, approximately 59 percent of 4-year-olds are not enrolled in publicly funded preschool programs, despite the strong evidence base showing its importance for long-term well-being and success.
  • Evidence-based models with positive outcomes – For example, high-quality workforce development services have been proven to change the economic and social trajectory of an individual and their family.
  • Clear outcomes with readily available data – Indicators of these policy areas can be measured in real time and are highly correlative to long-term impact. For example, wage data is regularly collected by government and can be used to demonstrate workforce outcomes through increased earnings.
  • High-quality service providers with strong management teams that have tested, measured, and proven that their program designs can produce reliable outcomes. They are often locally or regionally based and adhere to a generally accepted set of national best practices.
  • Flexible resources available for outcome payments – Jurisdictions are getting creative and considering allocating funds from other federal sources to pay for outcomes in these two issue areas, including from the Workforce Innovation and Opportunity Act. Some jurisdictions are also putting up flexible local dollars.

In addition to workforce development and early childhood education, we have seen a diverse set of other issues that contribute to persistent poverty that can form the basis of potential projects, including wraparound services for people experiencing chronic homelessness, community health and asthma prevention, and pre- and post-natal care.

Milner: Any concluding thoughts?

Phillips: I would just emphasize that SIPPRA is only one piece of this broader movement toward focusing on outcomes and impact. We are actively looking for projects in which we can invest. Whether applicants are successful with the SIPPRA application or not, we’d love to have a conversation about financing a project in your community. Thanks, Justin!


The views expressed in this Q&A should be attributed to the interviewee alone, and not to Urban PFSI or the Urban Institute.

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