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TCR! initially worked with the staff of then Governor Carlson and key members of the legislature to write the legislation. The original financial model was developed by TCR! with the aid of Art Rolnick, Chief Economist of the Minneapolis Federal Reserve Bank.
The economic value to the state is what drove the creation of this model and provides the opportunity for replication in other states. The analysis by economists from the State of Minnesota in the development of this fund showed that the state would obtain cash benefits of $3,800(1995 dollars) per year for each individual whose income could increase from $10,000 to $20,000. The benefits derive from increased sales and income taxes and decreased public subsidies. The present value of this gain was calculated at $31,000, of which $18,000 is made available to pay for performance payments. Funding is provided by an appropriation in the general fund. TCR! draws down the amount until it is used up. The program is administered by the State’s Department of Employment and Economic Development, responsible for all state workforce spending.
Over the last ten years, three governors from different parties and bi partisan legislatures have supported this legislation. The appropriation has grown steadily and was increased by 50% in 2007 due to demonstrated, outstanding performance for the state. Since its creation, the state of Minnesota, by its own formula, has received $1.80 for each $1 it has paid out, an 80% return on its investment. Over time this return will grow as graduates continue to earn income.
The advantage of this funding mechanism has proven to be manifold for the state. It pays only for success at a very high standard. No payments are made for drop outs or partial successes putting the emphasis on meaningful improvements. Half the payment is made only after one year in the job (TCR! average is 83% 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 “pay for performance success” some philanthropic foundations that TCR! is supported by also pay TCR! with pay for performance payments. Other contributors have greater confidence that their support is better spent knowing that TCR! is required to achieve success with its participants.
This pay for performance approach 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.
One of the areas of confusion about this model is that it is “benefit based” not “cost based” like most government financing for training programs. Some mistakenly compare the $9,000 payment TCR! receives for a successful graduate with the cost of providing training to the many. This is like comparing apples to oranges since pay for performance is outcome based, paying only for success, instead of process based payments for the provision of services.
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