Nonprofit Innovation through Pay-for-Performance Funding - USA

Competition Finalist

This entry has been selected as a finalist in the
Powering Economic Opportunity: Create a World that Works competition.

The mission of Twin Cities RISE! is to provide employers with skilled workers, primarily men from communities of color, by training under- and unemployed adults for skilled jobs that pay a living wage of at least $20,000 annually plus benefits. TCR! helps those who face the greatest challenges to employment achieve long-term economic independence. This is accomplished through an intensive work skills training program that includes Personal Empowerment, coaching, skills classes, internships and employment placement.

In addition to advancing this program to eradicate poverty in Minnesota, TCR! is dedicated to an outcomes-driven model. Through the Pay-for-Performance (PFP) contract with the State of Minnesota, TCR! meets benchmarks and tracks participant success in exchange for funding.

About You

Organization: Twin Cities RISE! Visit websitemore ↓↑ hide↑ hide

About You

First Name

Cathy

Last Name

Lawrence

About Your Organization

Organization Name

Twin Cities RISE!

Organization Website

Organization Country

United States, MN, Hennepin County

Country where this project is creating social impact

United States, MN, Hennepin County

Is your organization a

Non‐profit/NGO/citizen sector organization

How long has your organization been operating?

More than 5 years

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Innovation

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Entry Form title

Nonprofit Innovation through Pay-for-Performance Funding - USA

What change do you want to bring to the world?

The mission of Twin Cities RISE! is to provide employers with skilled workers, primarily men from communities of color, by training under- and unemployed adults for skilled jobs that pay a living wage of at least $20,000 annually plus benefits. TCR! helps those who face the greatest challenges to employment achieve long-term economic independence. This is accomplished through an intensive work skills training program that includes Personal Empowerment, coaching, skills classes, internships and employment placement.
In addition to advancing this program to eradicate poverty in Minnesota, TCR! is dedicated to an outcomes-driven model. Through the Pay-for-Performance (PFP) contract with the State of Minnesota, TCR! meets benchmarks and tracks participant success in exchange for funding.

What are the primary activities of your project?

TCR! recognized that a funding mechanism that provided an outcomes-based payment to training providers assisting the hardest to employ would have strong political support. It made this case nearly fifteen years ago, working with the state to demonstrate that a successful graduate has $31,000 of Net Present Value to taxpayers. So it requested that the state share this benefit with TCR! in the form of a performance payment for each successful outcome. The state agreed to pay TCR! $9,000 when the program demonstrates that it has placed one of its graduates in a job that pays at least $20,000 annually with benefits. TCR! qualifies for another $9,000 payment if the graduate remains in that job for one year. This effort resulted in a PFP funding model in partnership with the State of Minnesota that has the potential to be replicated in other states and may create a solution for those searching to provide an adequate level of training and related services to participants despite diminishing federal funding.

The economic value to the state, turning tax users into tax payers in a win-win funding arrangement, is what drove the creation of this model and provides the opportunity for replication in other states. Over the last 15 years the model’s economic outcomes continued to improve, and bipartisan legislatures have supported this legislation. The appropriation has grown steadily, due to demonstrated returns to the state. Since its creation, the state of Minnesota has received $7.24 for each $1 it has paid out.

What is innovative about your initiative? How is it a new contribution to the field?

The PFP method has proven to be both innovative and advantageous to all parties. Because it pays only for success at a very high standard, TCR! is forced to do the best work possible, not only for the benefit of participants, but also to receive support from the state. No payments are made for dropouts or partial successes, putting the emphasis on meaningful improvements. Half the payment is made only after one year in the job (TCR! average is 82% retention) emphasizing longer retention. New funding has been provided to the workforce system; targeted funding has been made available for the hardest to employ. The State’s return on its investment is very high and more than self funds the program. Due to PFP success, some philanthropic foundations that support TCR! also fund TCR! based upon PFP principles. All funders have greater confidence that their support is better spent knowing that TCR! is required to achieve success with participants. PFP has enabled TCR! to finance part of its program with state support that would not otherwise be available. It has garnered support from all over the political and economic spectrum due to its investment in the hardest to employ and its demonstrated financial accountability for that investment. TCR’s innovative approach has gained interest at the federal level and there is work to include language in federal law that would establish PFP payments for similar populations. Economic analysis of the federal benefit far exceeds the state’s gain because tax receipts and subsidy payments are higher for the same gain in income.

What stage is your project in?

Operating for more than 5 years

Tell us about the community that you engage? eg. economic conditions, political structures, norms and values, demographic trends, history, and experience with engagement efforts.

TCR! serves a population in the Twin Cities that is typically very poor, unemployed, and has not had success in long-term employment relationships. To qualify for the program, individuals must satisfy all of these criteria:

• must have earned less than $20,000 in the prior year
• must own less than $7,000 in assets
• must not be enrolled in or taking other training or college classes
• must not have a 4-year degree from a US institution
• must not currently be chemically dependent or have a sexual criminal or arson conviction.

Participants are recruited into the program at local welfare offices, drug courts, halfway houses, correctional facilities, and in neighborhoods where there are people who might be suitable and would benefit from this program. Eighty-four percent were unemployed at program start in 2010. For those who did report earned income, the average annual wage was $7,125. Participants also had an average of 3 barriers to long-term employment. These barriers include unstable housing, mental health or other serious health issues, learning disabilities, unemployment for 12 months or longer, unstable or no child care arrangements, and history of physical or emotional abuse. In addition, approximately 59% had prior criminal convictions.

Nearly 67% of participants in 2010 were male. Participants were predominantly African American (56%), but also represented other groups Caucasian (21%), Multi-racial (3%), and others (20%, which includes Asian, African, Native American, and Latino). Forty-four percent of participants had a history of substance abuse, and 9% were immigrants or refugees in 2010.

Share the story of the founder and what inspired the founder to start this project

TCR! began in 1993 as the brainchild of Steve Rothschild, an Executive Vice President at General Mills and board member of its foundation. Steve focused on the link between race and poverty. "I thought about being 23, a black man, a dropout, with kids out of wedlock, with a history of incarceration…who had hit the wall and wanted to do more with his life,” Steve said. “If I were that man, where would I go for training that would get me a living-wage job? I couldn't find it. Programs weren’t producing graduates with the skill level necessary to work and succeed in the long term.” Steve’s vision included: intensive job training program of skills development and Personal Empowerment; market-driven focus that addresses hiring needs of employers; commitment to serving adults from deep poverty with employment barriers; PFP funding that holds TCR! accountable for results; and ROI demonstrating long-term value. PFP has delivered more than $30 million in ROI to taxpayers through reduced welfare costs, increased taxes and reduced criminal justice costs. Based on the success of TCR!’s PFP contract, Steve is pioneering the next stage in the evolution of PFP: a model called Human Capital Bonding where states issue bonds funded by private investors to high performing organizations that achieve long-term outcomes. Human Capital Bonding is achieving international attention as a way to identify new sources of funds for groups that serve people in poverty. If successful, it would provide incremental investment and improve the effectiveness and efficiency of nonprofit spending.

Social Impact

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Please describe how your project has been successful and how that success is measured

TCR! has demonstrated resilience and continued success despite the difficult economic environment. In 2010, 52 participants achieved full-time, living wage employment with benefits, at an average salary of $24,655 per year. Their average work income increased by $17,530 from program start. Not only did this exceed the goal for the year, placements increased by 30% from 2009. One-year final placement retention remains strong at 83%. A total of 223 participants or 65% of active participants experienced important interim and final outcomes in 2010, including final placement, internship placement, gaining interim employment, and others.

The PFP contract with the State of Minnesota contains a very narrow definition of success that holds up to the highest standard: Placement into a full-time living wage job that pays at least $9 per hour or its equivalent with benefits; and retention in a fulltime living wage job for 12 months that pays at least $10 per hour or its equivalent plus benefits at the 12 month anniversary date. The contract was written this way purposefully to provide an incentive for Twin Cities RISE! to attain the best possible outcome for participants.

In 2010, TCR! participants qualified for the total number of budgeted payments under the contract. Thirty participants were placed into living wage employment during the contract period, and 21 were retained for 12 months during the contract period, for a total of 51 outcomes. TCR! has invoiced the State a total budgeted amount of $455,000 for this activity.

How many people have been impacted by your project?

More than 10,000

How many people could be impacted by your project in the next three years?

1,001-10,000

How will your project evolve over the next three years?

TCR! will remain performance-driven through the continuation and expansion of PFP. A detailed ROI review shows that TCR!’s return to Minnesota over the life of the program has been 624%, with a payback period of less than two years. This return comes in the form of income and sales taxes paid, eliminated medical/financial subsidies, and reduced recidivism in the criminal justice system.

This consistent, stable funding source has the ability to extend to other nonprofits, foundations and funding sources that are dedicated to outcomes-based work. The evolution of PFP into the Human Capital Bond funding method will provide systems change in government funding both at the federal and state level, helping fill in the quickly dwindling funding gaps for nonprofits.

Sustainability

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What barriers might hinder the success of your project and how do you plan to overcome them?

State and federal resources for nonprofits are limited and funding is currently capped at the state level for TCR! programming. The combination of the recent economic recession and struggles with state budget approval have meant drastic cuts to organizations. However, is a continued and growing need for resources, particularly in employment and workforce training programs. African Americans in the Twin Cities have the second highest black unemployment rate in the country and are three times more likely to be unemployed than whites at a rate of 20.4%. The PFP model is a proactive and successful way to deal with such funding and supply/demand issues, and needs to be included at the federal level to make significant change. TCR! has been asked to connect and provide input to the Workforce Investment Act bill, a step in the right direction for increased PFP participation.

Despite the numerous local and national supporters of the Human Capital Bond, the initiative cannot proceed without legislative approval. It is included in the Omnibus Government Finance Bill that passed the Minnesota legislature in May 2011. The governor vetoed the finance bill but indicated in his veto letter to the legislature that he was open to the HUCAP provision. The intention is to be included in any agreement fashioned by legislative leadership and the Governor as part of “end game” negotiations, but there is no guarantee of success in this legislative session.

Tell us about your partnerships

TCR! has a community partner model that is central to its strategy to eliminate poverty in the Twin Cities. Our program is highly effective and has a strong record of success. We are, however, limited by geographical reach and constrained resources. As a result, we have found that strategic partnerships with organizations that serve adults in poverty can be a highly effective way to provide a wider range of services to our participants, and to reach a broader base of people in poverty who would benefit from our program.

Our community partner model is organized around five key areas: Recruitment into TCR!; Referrals for Participant Support Services; Internships and Employment Opportunities; Personal Empowerment training; and Community Event Collaborations. Our internship program has grown from 24 placements in 2008 to 97 in 2010 at 34 different local sites. We estimate 150 internships for 2011.

Additionally, our PFP model would not exist without the partnership with the state and other philanthropic partners who provide funding for our high performance and success of benchmarks. Steve’s Human Capital Bond has garnered collaboration, funding and backing from a variety of nonprofits, foundations, government officials and business leaders who support the pilot program in the legislature.

Current annual budget of project, in US dollars

More than $1 million

Explain your selections

TCR! receives funding for the Core Program and Empowerment Institute from a combination of philanthropy, which includes individuals and foundations (61%), government grants (18%), and earned income, which includes businesses and nonprofits paying for Empowerment Institute services (20%).

In 2010, State PFP funding equated to $437,000 and foundation PFP contracts were $70,000. Human Capital Bond research and development has been funded with local philanthropy dollars.

How do you plan to strengthen your project in the next three years?

The Administration's focus on scaling innovation that works has increased the visibility of our program, which uses an alternative financing model to provide assistance to the hardest to serve. Our highly successful and innovative PFP approach has strong placement, retention and wage advancement for participants with multiple barriers to employment. This PFP model is specifically cited by the House of Representatives in the FY 11 Labor-HHS Appropriations Committee Report as an example of a practice to be replicated by the Administration in its $338 million Workforce Innovation Fund that is designed to scale successful local workforce practices. Our model is also highlighted as a pilot and demonstration project to be replicated by the Department of Labor in pending job training legislation. Pending resolution of the Minnesota budget, Human Capital Bonds may be available for a pilot program soon.

We believe these federal legislative opportunities will allow our alternative financing model to be scaled quickly in other areas around the nation, provided we have adequate seed funding. In an era of declining federal resources for social services programming, our alternative financing model creates significant costs savings to government, while simultaneously increasing the programmatic success in assisting the hardest to serve. Third party evaluations have found that our model has produced a 624% Return on Investment due to reduced societal costs needed to assist our graduates and the subsequent increase in revenue they have created as a result of sustainable employment.

Challenges

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Which barriers to employment does your innovation address?
Please select up to three in order of relevancy to your project.

PRIMARY

Restricted access to new markets

SECONDARY

Need for regulatory/policy support

TERTIARY

Inadequate transparency

Please describe how your innovation specifically tackles the barriers listed above.

PFP and Human Capital Bonds unlock access to new and innovative financial markets and funding sources. This allows outcomes-driven nonprofits like TCR! to provide more resources to fighting poverty and unemployment. However, in order to provide these resources, policy support is needed at both the state and federal level. The Human Capital Bond program will be unable to launch without government approval. Policy support is crucial to greater access to skills training at TCR!. Finally, TCR!’s PFP model is key to increasing our transparency. Our outcomes-based funding makes us trusted in the community as an organization that can truly meet benchmarks and succeed. This is necessary to receiving more support for getting our participants out of poverty and into jobs.

Are you trying to scale your organization or initiative?
If yes, please check up to three potential pathways in order of relevancy to you.

PRIMARY

Grown geographic reach: Within host country

SECONDARY

Influenced other organizations and institutions through the spread of best practices

TERTIARY

Repurposed your model for other sectors/development needs

Please describe which of your growth activities are current or planned for the immediate future.

Both TCR!’s unique anti-poverty program and the PFP funding model can be replicated in other sectors and parts of the State. Our vision focuses on national replication as well. We have received federal support from the DOL and DOJ via demonstration funding focused on expanding our work with men transitioning from incarceration and improving employment outcomes for ex-offenders.. Steve has been working nationally to educate legislators about our PFP model and the Human Capital Bond, based on the high ROI from programs like ours that achieve long-term outcomes that help low income adults exit poverty. Through Steve’s work, these methods are garnering attention nationally and internationally, and could provide innovative funding to outcomes-driven nonprofits and NGOs.

Do you collaborate with any of the following: (Check all that apply)

Government, NGOs/Nonprofits.

If yes, how have these collaborations helped your innovation to succeed?

Government: TCR! sought a separate state statute to provide an incentive to train people with barriers to employment, and after working with the Minnesota government, the PFP funding model was created. This outcomes-based partnership with the state government has held us accountable to results, provided a new source of income for the program and increased TCR!’s ability to serve Minnesotans in deep poverty.

NGOs/nonprofits: Other nonprofits refer their clients to us, and vice versa, to help support all the needs of people in poverty. These services include internships, housing, health and wellness, chemical dependency support and business attire. TCR!’s PFP model will also benefit any outcomes-based nonprofit or NGO that can demonstrate ROI.

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135 weeks ago Nonprofit Innovation through Pay-for-Performance Funding - USA has been chosen as a winner in Powering Economic Opportunity: Create a World that Works.
140 weeks ago Stephanie Malone said: Hi Joseph, Thanks for your comment on our project! It will definitely be necessary for organizations to set success measurements of ... about this Competition Entry. - read more >
141 weeks ago Joseph Joute said: Dear Amy, you are doing a great job,but is it not a bit too costly and complicated for poor people to get access to the program? For a ... about this Competition Entry. - read more >
142 weeks ago Stephanie Malone said: Thanks so much for your support, Rachel! :) about this Competition Entry. - read more >
142 weeks ago said: I voted! I hope this program continues to gain momentum! Keep up the great work! about this Competition Entry. - read more >
147 weeks ago Elena Raye Clair said: Amy, Thanks for the time it took to answer the transparency and integrity Q. Minnesota is blazing a trail of hope for demographics ... about this Competition Entry. - read more >
147 weeks ago Stephanie Malone said: Thanks for your question, Elena. It is a common criticism of the pay for performance method that because of the high incentive for ... about this Competition Entry. - read more >
147 weeks ago Stephanie Malone said: Thanks, we appreciate it! about this Competition Entry. - read more >
147 weeks ago Elena Raye Clair said: That each of us is willing to work toward a common goal is awe inspiring. I am excited for the future to see how we all grow as ... about this Competition Entry. - read more >
147 weeks ago Elena Raye Clair said: That each of us is willing to work toward a common goal is awe inspiring. I am excited for the future to see how we all grow as ... about this Competition Entry. - read more >