Minnesota Pay for Performance Contracting

Art Rolnick: https://wdr.doleta.gov/research/FullText_Documents/ETAOP_2012_05.pdf NCSL: http://www.ncsl.org/documents/sfn/MN_impactbonds.pdf FRBSF: https://www.frbsf.org/community-development/files/Rothschild_PayforSucess.pdf The Model: The “non–nonprofit” organization: Twin Cities Rise! Steve Rothschild, a former senior executive with General Mills, became concerned about an issue facing the Minnesota Twin Cities. The issue was the number of recently incarcerated men returning to their communities with little opportunity for meaningful employment. He established Twin Cities Rise!, an intensive, year-long empowerment and skills-based training for the returning men, coupled with a marketing strategy of recruiting business customers to hire graduates of the program. Rothschild’s organization established a performance outcome goal: every man who received training would make a living wage of at least $20,000 annually for a minimum of two years. Every time Twin Cities Rises! met this target, costs to the state for public support were reduced and tax revenues increased. With the help of two Minneapolis Federal Reserve Bank economists, in 1995 Rothschild approached the state with a pay-for-performance proposal.They calculated that each time a graduate of the program secured a job that paid at least $20,000 annually that also included health benefits, the state netted $3,800.00 per year through increased taxes and lower subsidy payments (i.e., welfare). Over a 15-year period, the state saved approximately a minimum of $31,000.00 per hire. Thus, a bond was structured so that Twin Cities Rise! was paid $9,000.00 per person, per placement. A second payment for $9,000.00 was paid if the person was still in the same placement after a specified period of time, for a total of $18,000.00. Investors received a four percent return on the investment, and the Human Capital Performance Bond was born.v