City leaders can consider innovative private sector funding models as part of their strategy to secure and deploy BIL or IRA funding. Such approaches can expand the impact of the dollars by de-risking innovative ideas, filling funding restrictions or shortfalls and/or expediting progress where federal dollars may be delayed. For example, cities can explore working with a social impact funder to obtain funding upfront if the program can generate returns over time, or engage with foundations and other donors about using program-related investments in order to stretch their financial resources and enhance their impact.
“Pay for Success” or “Social Impact Bonds” offer a new model of outcomes-based funding. Per the Urban Institute, it shifts “financial risk from a traditional funder—usually government—to a new investor, who provides upfront capital to scale an evidence-based social program to improve outcomes for a vulnerable population. If an independent evaluation shows that the program achieved agreed-upon outcomes, then the investment is repaid by the traditional funder. If not, the investor takes the loss.” Key partners in this work include organizations such as Better Future Forward Social Finance, Maycomb Capital and Third Sector Capital Partners.
When including such innovative models as a component of a funding strategy for infrastructure and climate jobs, it is important to also consider any specialized support that may be required from outside experts, capacity building that may be required for staff to successfully manage or integrate such an approach, as well as additional data to understand the outcome of the work. For example, Brookings in their article “4 types of data necessary for outcome-based financing” highlights the need for:
- Cost data: How much does it actually cost to deliver desired outcomes?
- Cost of inaction data: How much would it cost the government/society if the outcomes were not delivered?
- Real-time performance data: What is (not) working and for whom? What can be done?
- Results data: Are final outcomes being achieved?
Common models include the following:
|
Funding Model |
Description |
Benefit |
Example |
|
Income-Sharing Agreements (ISAs) |
Students agree to repay a portion of their future earnings if they land a qualified job, reducing upfront costs. Useful when funding for training is not sufficient to cover the full cost or support the number of individuals in need. May still need to be supplemented with other funds to cover supportive services. |
Lowers student burden, incentivizes programs for job placement. |
Purdue University’s “Back on My Feet” program partners with nonprofits for addiction recovery and job training with income-based repayment. |
|
Social Impact Bonds (SIBs) / Outcome-Based Loans |
Private investors fund programs with a return based on achieving positive outcomes (e.g., increased employment). Useful when a city may experience a gap between when the funding is received and when the program needs to start to support operational agility and cash-flow considerations. |
Attracts private capital, creates performance-based incentive. Aligns incentives between lender and borrower, potentially lowers risk for lender, motivates borrower to achieve success in the program. |
Boston Jewish Vocational Service (JVS) launched the Massachusetts Pathways to Economic Advancement (MA Pathways) to focus exclusively on workforce development, focused on helping immigrants throughout Greater Boston improve their English and find higher wage jobs. |
|
Pay-for-Performance Models |
Funding is tied to successful program outcomes (e.g., job placement, skill acquisition) and paid as they are achieved. May be in addition to core funding (e.g., a bonus) or may be instead of cost reimbursement for certain aspects of the work. Useful to ensure that vendors or subrecipients are meeting equity or job quality targets and to safeguard city funding if a vendor is offtrack. |
Encourages high-quality training with real results. |
Virginia implemented a pay-for-performance model using WIOA funding to incentivize providers to serve justice-involved individuals. VA also uses pay for performance as a tool in the Veterans Health Administration (VHA) system to incentivize quality and appropriate utilization. WIOA allows up to 10% of allocation to be used for Pay for Performance strategies. |
|
Apprenticeship Programs with Employer Contributions |
Employers financially contribute to apprenticeships, benefiting from a skilled workforce. Useful to rapidly stand up an apprenticeship program and target candidates who may not have otherwise considered a given occupation. |
Creates employer-provider partnership, ensures programs align with industry needs. |
Many registered apprenticeship programs involve employer contributions to training costs. Program can be registered with the U.S. DOL Office of Apprenticeship, through field offices, or through the State Apprenticeship Agency. |
|
Public-Private Partnerships (PPPs) |
Governments partner with private companies to develop and deliver training or education. Useful to provide agility in the development timeline and risk sharing by having the private sector lean into areas where they have specific expertise (e.g., technology solutions), as well as to diversify the capital stack so that if one source of funding goes away, a program can continue. |
Leverages expertise and resources from both sectors for comprehensive programs. |
California launched The High Road Training Fund, a public-private partnership, to create workforce development programs focused on good-paying careers in climate, public health and other jobs of the future, particularly in disadvantaged communities. |
|
Pay-As-You-Go (PAYGO) Systems |
Earmarking current tax revenue to pay for future benefits. Useful to provide cities with additional flexibility around cashflow, balancing expenditures with the timing on funding receipt. |
Promotes long-term fiscal sustainability, reduces reliance on debt financing. |
A national infrastructure bank funded by a dedicated gasoline tax for future road and bridge maintenance. |
|
Sustainability / Climate / Green Bonds |
Bonds issued to finance environmentally friendly projects (e.g., renewable energy, clean transportation). Useful to attract new investment into a local area and may be tied to specific metrics or requirements such as creation of high-quality jobs in a particular area. |
Attracts investments toward sustainable development projects, promotes environmental benefits. |
In 2018, voters in Berkeley, CA, adopted a measure to issue $38 million in bonds to finance the construction of affordable housing to reduce homelessness in the city. |