To combat homelessness, Austin nonprofit looks to outside investors


A permanent supportive housing project for Travis County’s homeless has almost reached its $17 million goal.

The project uses an innovative funding model that offloads risk onto investors, rather than local governments.

Once the money is raised, the nonprofit leading the project will write a contract and seek investor funds.

An initiative to house and provide services to up to 250 homeless people in Travis County is set to be among the first in Texas to use an innovative funding model where investors pay upfront costs and are reimbursed by local governments only if goals are met.

The funding model, known as “Pay for Success,” has gained popularity throughout the country and world since the first project launched in the United Kingdom in 2010.

The premise is that investors front the cost of a project that addresses a social problem, and only if it is successful, according to metrics agreed upon ahead of time and verified by a third-party evaluator, will governments repay the investors. They usually receive a modest return on investment as well.

In Travis County, the plan is to provide up to 250 homeless people with subsidized rental housing, likely through voucher programs, paired with case management and other social services. It will target those who are frequent users of health care, shelter and emergency medical resources or have frequent arrests.

The project is being spearheaded by the nonprofit Ending Community Homelessness Coalition, commonly known as ECHO.

The program is expected to cost about $15 million, but ECHO will need to secure about $17 million in government pledges to cover potential returns for investors. That would mean a maximum annual return on investment of about 2.5 percent.

Since the project was proposed about two years ago, the nonprofit has received $1.3 million in grants to set it up. It’s also received assurances from three local government entities that they will provide the bulk of the reimbursement funding.

RELATED: Austin homelessness group wins more than $1.1 million in federal funding

The project first grew wings when a feasibility report published by the nonprofit Corporation for Supportive Housing in 2016 concluded that ECHO was well-positioned to move forward with a Pay for Success project.

The report found that the 250 most expensive homeless individuals in Austin and Travis County, based on emergency services and jail bookings, cost taxpayers on average about $222,000 per person a year.

Ann Howard, executive director of ECHO, said the goal of the model is to use government funds in a smarter way.

“Taxpayers are paying for this inefficient system,” Howard said. “If we can take this homeless population that’s been cycling in and out of the jail and hospital and get them stably housed … all the data shows they’re going to change some of their behavior … and as a community, we’re going to avoid a bunch of costs.”

The success metrics for the project would likely center on how many people remain housed for a set period, how many fewer people are incarcerated and how many people avoid emergency departments and hospitalizations.

Specific benchmarks will be determined in a final agreement with the local governments, Howard said.

READ THE REPORT: ECHO Pay for Success Feasibility Report

Permanent supportive housing has been one of the city of Austin’s main tools in its fight against homelessness. Studies show that it can increase housing stability, reduce hospitalization and criminal justice encounters and improve residents’ health.

So far, the city of Austin, Travis County and Central Health, Travis County’s health care district, collectively have given tentative approval to cover $11 million over five years. ECHO still needs to find pledges for the remaining $6 million over five years.

Once the $17 million is committed, Howard said the next steps will be to write up a contract and bring the project proposal to investors.

The report estimates that over five years the savings to local governments could be about $43 million after investors are paid.

‘Innovative concept’

Pay for Success programs cover a spectrum of social issues. As of 2018, there are 20 launched projects in the United States and 108 in 24 other countries, according to Social Finance, a nonprofit Pay for Success intermediary, which will design the structure of ECHO’s project.

Of 27 projects that had wrapped up, 10 delivered on targets and governments repaid investors, 16 had not reported results, and one failed and left investors unpaid, according to Social Finance data as of January.

Critics of the model have raised concerns about the length of time they take to complete and their potential to concentrate philanthropic funds only on social issues with quantifiable solutions.

The city of Austin agreed last fall to set aside from reserve funds the first of what would be annual $1.2 million payments to the project over five years in its fiscal 2018 budget. Travis County commissioners voted unanimously March 6 to commit $600,000 in a reserve account, also the first of five annual payments.

Mayor Steve Adler said the project falls in line with the council’s goal of addressing homelessness. While details still need to be worked out before officials sign a contract, he said the funding model is intriguing.

RELATED: Austin wins $5.2 million grant to tackle youth homelessness

“Being able to use private money to prove out the efficacy of social programs is kind of a new and novel and innovative concept,” Adler said, “and I think that Austin, as an innovative and creative city, needs to be one of the players at the table.”

Travis County Commissioner Gerald Daugherty said he saw the effort as a tangible way for the county to step up and address a problem that officials constantly talk about solving.

“I am interested in taking 250 people that we know are the people that are costing us the most money to do something with them,” Daugherty said. “And I think that we owe it to ourselves as a Commissioners Court, and we owe it to this community to participate.”

Central Health commits

At the end of last month, ECHO received its latest financial commitment from Central Health. ECHO had requested $1.2 million a year, but Central Health’s staff instead recommended $400,000 a year.

Central Health President and CEO Mike Geeslin said he felt more comfortable with the lower amount because it left room for spending on other projects.

“If we can address their lack of housing, we believe we can stabilize their life, driving down their medical costs while improving their quality of life,” Geeslin said. “This is good for our entire community.”

Central Health’s board of managers approved the commitment on a 6-2 vote March 28 with managers Maram Museitif and Cynthia Valadez against and Julie Oliver absent.

ALSO READ: Audit: Austin ordinances don’t help the homeless and might not be legal

Valadez said she would prefer to see the money go directly toward medical care, and Museitif said she first wanted to see Central Health and its partners write a strategy for addressing social determinants of health on a larger scale.

“Yes, it’s a no-brainer to support homelessness initiatives,” Museitif said at the March meeting. “But given the current circumstances, the financial strains and obligations, I cannot support any social service funding without having a collaborative strategy.”

Geeslin said the agency might be able to help make up the gap with funds from its partners, such as the Community Care Collaborative, a Seton Healthcare Family-Central Health nonprofit that provides health care.

Howard said she’s hopeful ECHO can raise the rest of the money from the organization and other health-oriented nonprofits.

“A project like this is allowing us to all work more closely together and figure out the interventions we need to end homelessness,” she said.

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