This post was originally produced for Forbes.
It seems that hardly a day passes without headlines about unarmed black men being killed by police in our country. If there isn’t a new case, we’re trying an old one either in court or in the media.
Ben Hecht, the CEO of Living Cities, a nonprofit group that makes and facilitates impact investments in cities around the country, including my own here in Salt Lake City, explains the broader problem:
US cities are places of great opportunity, hope, change, resilience and energy. Unfortunately, they are also places of great inequality. Home to more than 80% of the population, cities reflect the incredible income, wealth and educational disparities between rich and poor, white and people of color. These disparities not only threaten to hold back the economic prosperity of the nation but threaten our democracy.
Hecht’s colleague, Eileen Neely, Director of Capital Innovation, heads up the Pay for Success program efforts for Living Cities.
Neely says, “We need to blend all types of money–government, philanthropic and private sector capital–together to address growing social disparities and economic inequality in the United States.”
Pay for Success programs focus on paying for results rather than activities and typically are oriented toward prevention rather than remediation. Salt Lake County Mayor Ben McAdams has likened it to building guardrails at the top of the cliff rather than operating a hospital at the bottom.
Neely explains further, “While preventative programs that tackle issues like youth recidivism and chronic homelessness can make a real difference, these programs lack the funding needed to reach all the populations that need them. We need to attract private capital to help expand and scale programs that work.”
She adds, “Financing vehicles such as Pay for Success (PFS) can offer competitive rates of return, which is more attractive to private investors, and can help move impact investing into the mainstream.”
Neely explains the basic economics of a PFS deal structure: “In a PFS deal, philanthropic and private investors provide funding for social programs and government only pays them back if the project meets certain agreed-upon outcomes. This means that government resources and taxpayer dollars are only spent on effective programs that measurably improve the lives of community members.”
One of the big challenges with the model is the cost to put a program together. Bringing all of the parties together, organizing metrics for measurement, finding program providers, contracting among the local government, the investors and the program providers and all of the people working on the deal takes time and money.
Living Cities, she says, is “now striving to increase the scalability of the model with our recently announced Pay for Success Construction Loan. The Construction Loan covers the upfront costs necessary for service providers, project managers and evaluators to construct a PFS project, which had traditionally been a grant fund and a barrier preventing the PFS field from growing more rapidly.”
Neely says she would like to see more PFS deals done so that the model can be fine-tuned so it can be applied more efficiently across the country.
Hecht’s vision for cities is nothing short of a complete overhaul of tradition.
This will take overhauling outdated models of citizen engagement and cumbersome bureaucratic structures. I believe that governments will cease investing precious resources and energy into programs that don’t work, and start scaling the programs that are making real impact in the lives of low-income people. Finally, I see experimentation and commitment to harness both philanthropic and private capital to make a material difference in underserved communities and to invest not just in physical infrastructure, but also in human capital.
On Thursday, January 28, 2016 at noon Eastern, Hecht and Neely will join me here for a live discussion about the role that impact investing and Pay for Success can play in addressing the challenges of America’s inner-cities, including especially the concerns of the #blacklivesmatter movement. Tune in here then to watch the interview live. Post questions in the comments below or tweet questions before the interview to @devindthorpe.
More about Living Cities:
Living Cities harnesses the collective power of 22 of the world’s largest foundations and financial institutions to develop and scale new approaches for creating opportunities for low-income people and improving the cities where they live. Its investments, research, networks, and convenings catalyze fresh thinking and combine support for innovative, local approaches with real-time sharing of learning to accelerate adoption in more places.
Ben Hecht was appointed President & CEO of Living Cities in July, 2007. Since that time, the organization has adopted a broad, integrative agenda that harnesses the collective knowledge of its 22 member foundations and financial institutions to benefit low-income people and the cities where they live. Living Cities deploys a unique blend of more than $140 million in grants, loans and influence to re-engineer obsolete public systems and connect low-income people and underinvested places to opportunity.
Prior to joining Living Cities, Mr. Hecht co-founded One Economy Corporation, a non-profit organization focused on connecting low-income people to the economic mainstream through innovative, online content and increased broadband access. Immediately before One Economy, Mr. Hecht was Senior Vice President at the Enterprise Foundation.
Mr. Hecht received his JD from Georgetown University Law Center and his CPA from the State of Maryland. For 10 years, he taught at Georgetown University Law Center and built the premier housing and community development clinical program in the country. Ben is currently Chairman of EveryoneOn, a national initiative founded by the Federal Communications Commission to connect low-income Americans to digital opportunity. He also sits on the National Advisory Board for StriveTogether and Duke University’s Center for Advancement of Social Entrepreneurship (CASE) Advisory Council.
Eileen Neely joined Living Cities in December 2012 as the Associate Director of Capital Formation. She was named the Director of Capital Innovation in May 2014. Prior to joining Living Cities, she was the Director of Strategic Planning at the District of Columbia Housing Authority since May 2011. In this position, Eileen oversaw the development, implementation and measurement of the Agency’s Strategic Plan and Moving to Work Plan.
Previously Eileen was the Chief Operating Officer of the Fresno Housing Authority in Fresno, California. Eileen assisted the Executive Director in the transformation of the Housing Authority – changing the corporate culture, establishing a broader role within the community, modernizing business practices, tightening financial controls, and expanding their programs to serve more low- and moderate-income families. She was responsible for all the internal operations of the Housing Authority, including Accounting and Finance, Information Technology, Human Resources, and Communications and Public Relations.
Prior to moving to Fresno, Eileen was the Director of Public Entity Lending at Fannie Mae in Washington, DC. At Fannie Mae she provided technical assistance and financing to cities, counties and housing authorities throughout the country to help them address their pressing housing needs. Eileen started at Fannie Mae as the Manager of Economic Forecasting where she developed the company’s forecast for the economy, including interest rates, housing indicators, and other measures of the economy.
Eileen has her Master’s Degree in Economics from Carnegie Mellon University in Pittsburgh, PA, and her Bachelor’s Degree in Mathematics and Economics from Hiram College in Hiram, OH.