This post is the second in a Q&A exchange on social impact bonds and pay for success finance with UK blogger Privatising Schools. The focus of this post is Big Picture Learning. For additional background on Big Picture in Philadelphia check out my previous post here.
Privatising Schools: Question 8
Let’s look at a specific example of a social impact bond in education. Here in the UK, as you know, we’ve had eight years of austerity, which has done great damage to public services, especially those provided by local government. But central government regularly launches new funds, targeting particular areas of social need: youth unemployment, homelessness, mental health, and so on. We’ve had the Innovation Fund, the Social Outcomes Fund and, most recently, the Life Chances Fund.
Now, the purpose of these funds – and the government is very explicit about this – is to underwrite new public-private partnerships which will find ‘innovative’ ways of financing public services. In other words, social impact bonds (see here). The Innovation Fund, which was run by the Department for Work and Pensions, served to ‘incubate’ ten SIBs.
One of the projects supported by the new Life Chances Fund will see a US charter school chain, Big Picture Learning, set up a school in Doncaster, a town in north-east England, in order to ‘test new ways of learning through a social impact bond’ (see here). The target group is students who have been excluded from mainstream schools and who would normally be in what we call ‘alternative provision’. Doncaster Council is working with a company called the Innovation Unit, which was spun out of the Department of Education back in 2006, to set up the SIB.
According to a report given to the leaders of Doncaster council:
By introducing this educational model via a SIB, […] we have the opportunity to test innovation due to the use of an outcomes contract and making funding for the services conditional on achieving results. The Social Investors (still to be identified) will pay the provider at the start, and then receive payments from the Doncaster Metropolitan Borough Council (the commissioner) based on the results achieved by the project via a Special Purpose Vehicle (SPV) or other appropriate mechanism.
Can you unpack this for us?
It is interesting that the first education social impact bond in the UK is with Big Picture Learning, because I’ve been following them for several years. Big Picture started in Rhode Island in the mid 1990s and was incubated in the Annenberg Institute at Brown University. Their 990 tax form from 2001 states that among their “program service accomplishments” is to “redesign secondary education programs and use telecommunications to create educational models.” The program caught the eye of the Gates Foundation when their focus was investing in small high schools. Gates helped them scale the model, which includes a network of over sixty schools operating primarily in the United States but with outposts in nine other countries. The Doncaster school in the UK will make it ten.
The Philadelphia School Reform Commission entered into a $23 million contract with Big Picture in 2017. At that time they took over Vaux, which was one of the schools shuttered in 2013. Big Picture runs the school, which remains public not a charter, on a contractual basis. This report, prepared by ImpactEd and commissioned by the impact investment-oriented Barra Foundation, states the nature of that contract gives Big Picture a lot of flexibility in how it operates, much more than other public schools in the city have. Of course that is how the privatizers do it, tie up the neighborhood schools in accountability regulations and allow “innovative” models the freedom to do whatever they want while pitching in extra money.
Big Picture operates the school in partnership with the Philadelphia Housing Authority (PHA). PHA spearheaded a major urban renewal project in Sharswood where Vaux is situated a few years earlier. The initiative was carried out as part of a federal “Choice Neighborhood” grant administered by the Office of Housing and Urban Development (HUD). The project displaced hundreds of residents, many of whom were never properly compensated for their homes. Nearly four hundred buildings have been slated for demolition, which will substantially erase the historic character of a community that was once a center of jazz and civil rights activity in Philadelphia.
It’s important to understand the opening of Big Picture within the context of this larger urban renewal project. To maximize profit for impact investors, residents of low-income neighborhoods like Sharswood must be set up for integrated service delivery tracked through regional data systems. Undertakings like Gates’ Data Quality Campaign, the San Jose Datazone, and Project Unicorn make it clear tech and finance interests are working intently to coalesce data lakes for social impact analysis. I anticipate activities will be coordinated through our federal “Promise Zone” program, which was incorporated into Every Student Succeeds Act in 2015. Blockchain digital identity systems, being piloted with un-housed populations now, should be ready for broader implementation within the next five to ten years. Self-sovereign digital identity will be a boon to social impact investors, since software like Enigma is being developed by MIT to permit analysis on encrypted data.
Impact investing in education will be woven into larger interventions around housing, nutrition, substance use, preventative health, and behavioral health care. The ultimate goal is to be able to track “impact” in one area of a person’s life across all other facets of their lived experience. This is being embedded into the “What Works” government mantra, and while integrated service delivery may not be a bad approach IF the goal is to maximize benefit to recipients of services, it can be highly problematic if the goal is actually to monitor vulnerable people to maximize profit for global finance.
Unfortunately I am seeing a move in the latter direction. Entities like LISC (Local Initiatives Support Corporation created by the Ford Foundation, which just put $1 billion of assets into impact investing) are folding Pay for Success into their initiatives as shown in this report “Aligning for Success.” We recently had the Reinvest Philly Summit here where social impact bonds were advanced as a financial tool in creating economic opportunities, healthy communities, and a “just economy.” The summit emphasized the role of hospitals as anchors in community development, which is somewhat unnerving given Alphabet’s (parent of Google) interests in promoting “Smart City” infrastructure through Sidewalk Labs. A spin-off of Sidewalk Labs is CityBlock, a managed healthcare provider for “complex, urban populations.”
The Big Picture model is promoted as a progressive alternative for non-traditional learners and requires out of school learning internships. Their website states enrolled students are expected to work two days per week, unpaid, as part of their schooling. Looking for a lean business model? That would be it. You push staffing costs onto “mentors;” which allows you to have a smaller facility, maybe rotate students; and partners get free child labor. There are a number of other alternative education programs out there that have followed similar trajectories, including YouthBuild, which serves over-age, under-credited students, has an international reach, and provides training in building trades. Their students build affordable housing, which I suspect will allow financiers to begin layering SIBs into their finance structure, too.
I’ve heard Vaux has had a rocky start. A fellow activist shared that at a Big Picture school in another state some of the promised internships never materialized and students were left languishing in sad computer labs. To think they’re now going to build in new layers of profit by structuring it as a social impact bond… privatizers have incredible hubris. If the branding is good it seems few are willing to question something so ethically compromised as swapping up to 40% of a student’s instructional time with unpaid training. It’s Dickensian, and I continue to be shocked at how eagerly people eat it up.
Big Picture also partnered with SalesForce to develop an app called ImBlaze that identifies internship opportunities for students enrolled in the program. Ted Dintersmith, partner in the North Dakota education system takeover and author of What Schools Could Be, donated funds so the app could be used more broadly. I’m not sure why, if students are expected to spend 40% of their instructional time at a work-based placement, schools would rely on an app rather than say a trained school guidance counselor. I expect the real reason is because the app tracks student competencies demonstrated on the job, including social-emotional skills. This data feeds into LinkedIn so Big Picture can “see how student internships align to their career trajectory over time.” Which begs the question, can students opt out of this data collection? Is enrollment in this public education program conditional on being tracked digitally for an indefinite amount of time?
Is this app-based competency tracking system tied to Pay for Success finance? Seems likely given that SalesForce’s venture capital wing just teamed up with the Lumina and Robin Hood Foundations on “an impact investing alliance dedicated to investing in for-profit education and workforce development companies whose products, services and technologies not only produce a positive financial return, but also have the potential to alleviate or eliminate poverty.”
Workforce education was one of the first two Pay for Success initiatives launched the Department of Education under the Every Student Succeeds Act. Two million dollars in seed funding went to Jobs for the Future and Social Finance to provide technical assistance to incorporate Pay for Success into four Career and Technical Education programs in different parts of the country. Impact investors are keen on interventions in young children, the pre-k set, because research indicates that’s where they will be able to most effectively move the numbers on their data dashboards and collect their “success” payment. But there is also interest in what used to be called “disconnected youth,” renamed “opportunity youth” now that we have Pay for Success.
“Opportunity youth” workforce SIBs are linked structurally to recidivism SIBs. The first SIB in the US was for incarcerated youth at Riker’s Island Prison, and our largest SIB has been ROCA, which provides services to youth in the juvenile justice system. Social impact investment logic dictates employed youth are less likely to end up incarcerated, therefore, a portion of the “cost savings” that results from non-incarceration is available to be redirected into “success” payments. Incarceration costs are sizeable and straightforward to calculate. This makes it a very lucrative profit center.
So the question remains, what kinds of “success” metrics will be used to assess workforce training? Those in power are most likely to set the terms of success and establish targets they think they can hit. In the NPX “impact security” pilot at San Quentin prison, the success metric is a straightforward number of prisoner hours worked doing computer coding. “Success” has nothing to do with improving the economic outcomes for those who are incarcerated. That would be too messy and may not yield the desired result for the investors.
Given how the impact security for San Quentin was structured, how might such a structure work for Big Picture Learning? Big Picture could issue debt securities to fund provision of educational services. Investors could purchase those securities with the understanding that their profit was contingent on Big Picture meeting success metrics outlined in the securities agreement. Hewlett Packard has been a regular supporter of Big Picture since 2011, so imagine them as the investor. Success targets might be set for the number of students attaining competencies in a proper workforce mindset, or the number of students attaining a credential (we are hearing a lot about stackable credentials and certification here), or even the number of student hours worked in internships. Once the success target is met the donor pays back Hewlett Packard. But say that donor is actually the William and Flora Hewlett Foundation?
Foundations are required to distribute a minimum of 5% of their assets annually to meet the requirements of the Internal Revenue Service. So, why not transfer those funds over to cover the non-profit security agreement. It ends up being much more profitable to the parties involved than a traditional grant, and keeps capital concentrated in corporate hands. Below is a model I developed imagining an HP investment in an impact security to fund pre-k human capital, though a similar structure could work just as easily for workforce readiness.
I have serious concerns that creating profit centers focused on “opportunity youth” can’t help but advance a scenario where predictive analytics profile teens and push many unnecessarily into intervention programs. The drive for program growth could very easily lead to young people being flagged as “opportunity youth” not for their benefit, but rather for the benefit of the investors seeking to profit from managing a larger pool of clients. It also means that there will never be a reason to fix the underlying structures that cause young people to become disconnected from their schooling in the first place. If anyone pursued that course, there would be a smaller population to “fix” and the profit center for impact investment would diminish. Therefore poverty must continue, because there is profit in poverty management.