1. 1

2. 2

3. 3

4. Rate of return on investments in human capital by age… 4 Programs targeted at earliest years Preschool programs Primary, secondary schooling and college Job training

5. 5

6. 6

7. 7

8. 8 ①Government, Philanthropy and Private Investors $$ ②Lead Contractor (PFS Lead) Distributes $$ In High Quality Early Care Programs ③Early Care Programs Produce Measurable Benefits for Government ④Government Pays Lead Contractor “Success Payments” based on these Measurable Benefits ⑤Lead Contractor Pays Investors with funds from “Success Payments” “Pay for Success”

9. Monetizable benefits Measureable Capturable for pay-back Payback in under 10 years. Such as: special ed cost avoidance or infant intensive care costs Non-Monetizable Benefits Good, but not measureable Good by not capturable for pay-back Take more than ten years 9

10. 10

11. 11

12. Saving Money: As intervention costs go up, ability to finance pre-k improves (Cost Ratio ) 12 Number of Children in School Program

13. 13 Saving Money: As pre-k reduces need for later school interventions (special ed), ability to finance Pre-K goes up (Effect Ratio) Special education cost With PFS Financing Special education cost Without PFS Financing

14. 14 Fixed-Debt: Fixed, guaranteed payments on loan or bond with fixed end-point, like five years. Lower Risk to Investors. Pass-Through: Investors receive annual payments consisting of a percentage of the Success Payments. Annual payment vary based on success payments. Higher Risk to Investors.

15. Financial Model Projection Results Variations Variation A: Funding Source: 75% Investor, 10% state, 15% federal Fixed-Debt StructurePass-through Structure 88.35% of Success Payments paid to Investor to reach Target Return IRR to the Investor4.17%6.00% IRR to PRI1.29%0% IRR to the State8.28%5.82% Variation B: Funding Source: 50% Investor, 50% state Fixed-Debt StructurePass-through Structure 58.9% of Success Payments paid to Investor to reach Target Return IRR to the Investor4.17%6.00% IRR to PRI1.39%0% IRR to the State2.14%0.75% Variation C: Funding Source: 50% Investor, 25% state, 25% Federal Fixed-Debt StructurePass-through Structure 58.9% of Success Payments paid to Investor to reach Target Return IRR to the Investor4.17%6.00% IRR to PRI1.39%0% IRR to the State7.45%11.63% 15

16. State PFS Social Impact Finance Law and Regulations Intermediary Gov. Agency Contract PFS Lead and Service Provider Contract Evaluator Contract(s) with Government, PFS Lead & Provider Investor Terms & Conditions 16

17. 17

18. 18 3-5 months for prenatal health 2-3 years for pre-k

19. 19 ①Government, Philanthropy and Private Investors $$ ②Lead Contractor (PFS Lead) Distributes $$ In High Quality Early Care Programs ③Early Care Programs Produce Measurable Benefits for Government ④Government Pays Lead Contractor “Success Payments” based on these Measurable Benefits ⑤Lead Contractor Pays Investors with funds from “Success Payments” “Pay for Success”

20. Standard error estimates of the distribution of returns on PFS assets. PFS project capital structures, risk, subordination and loss absorption. Sensitivity analysis of returns to variations in parameter values and financial structures. Pre, concurrent and post intervention data needed to evaluate near-term financial returns and longer-term all-in outcome improvements. Research methodologies to use when needed data are limited. 20 More to Learn….

21. 21

22. 22 Slides for Q&A responses

23. Step 1: Organizers study Feasibility Research and decide whether to move forward Early Health or Education Service Providers Government Health or Education Agency Third Party Feasibility Research Private, Philanthropic, Government & Provider PFS Organizers Third Party PFS Project Evaluation and Certification Early Childhood Pay for Success Investment Intermediary Main Participants in a Pay for Success Project 23

24. 4. Success Payment for Outcome Improvement or Cost Avoidance 5. Intermediary Issuer repays investors 2. Operating funds paid to to Service Providers 1. Investors acquire PFS assets and provide working capital Early Health or Education Service Providers Government Health or Education Agency Third Party Feasibility Study Private, Philanthropic and Government PFS Investors Third Party PFS Project Evaluation and Certification Early Childhood Pay for Success Investment Intermediary 3. Cost Avoidance or Outcome Improvement Achieved Flow of Funds in a Pay for Success Project (arrows) 24

25. Early Health or Education Service Providers Government Health or Education Agency State PFS Social Impact Finance Law and Regulations Private, Philanthropic and Government PFS Investors Third Party PFS Project Evaluation and Certification Early Childhood Pay for Success Investment Intermediary Pay for Success Statute and Contract Agreements (ovals) Intermediary Government Agency Contract Intermediary and Service Provider Contract Investors Evaluator Contract with Government, Intermediary & Provider PFS Asset Investor Terms & Conditions 25

26. 4. Part of Government savings paid to Intermediary 5. Intermediary Issuer repays investors 2. Operating funds paid to to Service Providers 1. Investors acquire PFS assets and provide working capital Early Health or Education Service Providers Government Health or Education Agency Intermediary Government Agency Contract Intermediary and Service Provider Contract Third Party Feasibility Study State PFS Social Impact Finance Law and Regulations Private, Philanthropic and Government PFS Investors Third Party PFS Project Evaluation and Certification Early Childhood Pay for Success Investment Intermediary 3. Cost Avoidance or Outcome Improvement Achieved Putting it all together -- A Pay for Success Project PFS Asset Investor Terms & Conditions Evaluator Contract with Government, Intermediary & Provider 26

27. “Success Payment”  “Success Payment” is the portion of the government operating cost reduction paid to the Intermediary for successfully reducing the operating costs of the Government, or a payment for achieving specific outcome improvements  Intermediary uses the success payments to pay interest and principle to investors pay bonuses to providers who exceed expected performance levels 27