Compass Working Capital Financial Stability and Savings (FSS) Program Growth Plan: 2013-2015 Compass Working Capital Mission Founded in 2005, Compass Working Capital ( Compass ) is a Boston-based nonprofit organization that provides incentive-based savings and financial coaching programs that help low-income families access opportunities, build assets, and achieve their financial aspirations. More broadly, Compass seeks to catalyze and expand asset-building opportunities for lowincome families by sharing innovative, replicable ideas that help place families on the pathway to financial security. Overview of the Family Self-Sufficiency (FSS) Program Administered by the Department of Housing and Urban Development (HUD) in partnership with local housing authorities, the Family Self-Sufficiency (FSS) program was established by the federal government in 1990 to help boost employment and savings for recipients of federal housing assistance. In order to ease the rent burden, eligible low-income families typically pay 30% of their income toward rent. This structure inadvertently discourages some residents from increasing their work hours and earnings since they worry about paying more rent and losing other benefits if their income increases. The FSS model changes the incentive structure by allowing participants to capture their increased rent payments in a savings account, held by the local housing authority, which can be accessed upon the completion of a financial education and coaching program. Participants can utilize their savings to achieve their financial goals and reduce their reliance on public assistance. Although a rigorous, national evaluation of FSS has yet to be conducted, emerging field evidence suggests that FSS has enormous potential to promote financial security for working poor families in subsidized housing. A handful of exceptional programs around the country have documented success in four main areas: increased earnings; higher employment levels; asset growth, and homeownership. 1 Despite these promising results, however, the FSS program has been a historically underutilized and under performing program. Enrollment rates hover between 3-5% of eligible families, both in Massachusetts and at the federal level. Moreover, program outcomes are varied and not well understood. Compass FSS Model Compass recognized that the well-conceived but poorly executed FSS program had the potential to provide an effective and scalable asset-building program for Section 8 and public housing residents. After more than a year of planning, and with lead philanthropic support provided by Strategic Grant Partners (SGP) in Boston, Compass became the first nonprofit organization in the 1 Jeff Lubell (2004), A Diamond in the Rough The Remarkable Success of the FSS Program; Barbara Sard (2001), The Family Self- Sufficiency Program: HUD s Best Kept Secret for Promoting Employment and Asset Growth, Center on Budget and Policy Priorities. 1
country to develop, manage, and test an asset-building model for FSS on behalf of a local housing authority. In 2010, Compass launched its first program in Lynn, a city of about 90,000 people just north of Boston. The goals of this launch were two-fold: 1) to design, test, and evaluate an asset building model for the FSS program that would deliver better outcomes for families, and 2) develop a replicable FSS template that could help expand the scope and impact of FSS programs locally and around the country. Unlike the traditional FSS program, the Compass FSS model rebranded as the Financial Stability and Savings program - is grounded in lessons and competencies drawn from the assetbuilding field. Core program elements are summarized below. Specifically, Compass financial coaches provide rigorous and data-driven financial coaching and education for FSS participants to help them build assets and become financially secure. Workshops help participants establish financial skills, confidence, aspirations, and practices that are predictive of future financial well-being. Participants also receive on-going, customized financial coaching to help them reach benchmark targets in five core areas: income and employment; credit and debt; savings; utilization of high quality financial services, and asset development. As participants increase their earned income, part of their rent goes into an escrow savings account. Compass helps participants utilize their savings toward asset development goals, including post-secondary education, small business development, homeownership, and credit repair. 2
Compass FSS Launch in Lynn Early data in Lynn is very promising. Compass has already enrolled about 21% of the eligible population in Lynn, a figure that is four times the national average. The majority of participants are working, single, female-headed households with children; almost 60% of participants identify as Hispanic. Preliminary outcome data also confirms our hypothesis about the value of integrating asset-building strategies into the FSS model. After just one year in the program, 63% of participants had increased their income, 65% had reduced their debt, 64% had improved their credit, 68% had started saving in their FSS escrow account, and 66% had reduced their reliance on public assistance. For detailed program data, please see Appendix 1. Growth Plan Given the strong, early data emerging from the Lynn pilot, SGP accelerated its investment in Compass with an additional matching grant in February 2012 to help Compass replicate the FSS model in multiple sites, build the infrastructure required to support program expansion, and work toward broader policy influence. Specifically, Compass launched a replication effort in partnership with Cambridge Housing Authority (CHA), the fourth largest housing authority in Massachusetts, in the summer of 2012. A housing authority with nationally respected leadership and results, CHA provides Compass with the opportunity to demonstrate proof of concept in a large, urban market and also positions Compass for broader policy influence at the federal level. In addition, as a Moving to Work (MTW) housing authority, CHA enjoys programming flexibility that traditional housing authorities lack. This autonomy helps to fuel innovation, including CHA s renewed focus on subsidized housing as a platform to promote family selfsufficiency. Two additional replications are planned in 2013-2014, with a focus on partnerships with large urban housing authorities in Massachusetts and/or in the Northeast. In Massachusetts, for example, 2/3 of the state s approximately 56,000 vouchers are concentrated in the top twenty housing authorities (out of a total of 134 housing authorities). Scale and impact will require strategic partnerships with these large urban housing authorities. Moreover, Compass will prioritize partnerships with housing authorities that 1) promote financial security for recipients of federal housing assistance and 2) demonstrate up-front, through the investment of financial and in-kind resources, a long-term commitment to the partnership. Compass has also explored, and fielded initial inquiries from, housing authorities in Connecticut, Rhode Island, and New York. A summary of criteria for future FSS partnerships can be found in Appendix 2. Overall strategic objectives for the next three years are summarized below. Model expansion, refinement, and codification. Compass will continue to expand the program in Lynn. Based on the strong data emerging from its initial launch, the local housing authority in Lynn has recently asked Compass to manage its public housing FSS program. In addition, the Massachusetts Department of Housing and Community Development has entered into an agreement with Compass to serve its FSS-eligible Lynn-based Section 8 holders. As enumerated above, Compass will also launch a 3
modified FSS model in expanded and diverse markets, including Cambridge and two additional sites in 2013-2014. Evaluate impact of asset building model for FSS. Compass will continue to track, evaluate, and share leading indicators, outcome data, and return on investment (ROI)/post-program data. Compass close data tracking, through its partnership with the Institute on Assets and Social Policy at Brandeis University (IASP), is designed to ensure strong learning to inform model development. Inform program and policy development. Compass growth plans over the next three years, including model replication in three sites and broader policy work, is designed to position Compass as the leading provider of FSS programs in the Northeast and, in the long-term, nationally. (See below, Operating Statistics and Scale Objectives. ) Please see Appendix 3 for additional summary of strategic priorities over the next three years. Operating Statistics and Scale Objectives Between FY13-FY15, Compass will enroll an estimated 828 new participants by expanding and maintaining the Lynn program, growing the Cambridge program, and launching replication efforts in two additional sites. 4
Compass defines scale in several ways, as summarized below. Measure of local market share. At the local housing authority level, Compass looks at scale as a measure of local market share. Specifically, through its innovative, targeted marketing campaign, Compass seeks to enroll 25% of eligible Section 8 participants at each of its partner sites a penetration rate that is 5x the federal average. If this definition of scale were applied to FSS at the federal level, the program would grow tenfold, from a program serving about 50,000 families annually to one serving 500,000. Measure of state/regional market share. Compass also looks at scale as a measure of market share at the state and regional level. As indicated earlier, in Massachusetts, 2/3 of Section 8 vouchers are concentrated in the twenty largest housing authorities. Partnerships with the state s and region s largest housing authorities will position Compass to emerge as the leading provider of FSS in the region. Policy influence. Growth at the local and state/regional level will position Compass on the broader policy level. Robust data capture and analysis in these early four sites will help Compass create a convincing case to promote the adoptions of its operating principles more broadly at the federal level and by public housing authorities around the country. It is notable that early success in Lynn has already catapulted Compass into the national spotlight as an emerging thought leader in this space. The Center for Housing Policy and the New America Foundation, both in Washington D.C., highlighted Compass work in the last year. Jeff Lubell, the nation s leading policy expert on FSS and the executive director of the Center for Housing Policy, also invited Compass to comment on draft FSS legislation that is currently before Congress. Finally, in the last year, Compass has been invited to present its early findings at housing, asset development, and policy conferences in Cleveland, Providence, New York, Washington D.C., and Toronto. Compass values program dissemination and policy efforts as part of its long-term scale objectives. Target Outcomes Through a planning process with SGP, Compass defined a set of financial security outcomes for participants for participants who have been with the program for at least two years. Please see Appendix 1 for a detailed summary of target medium term individual outcomes, and Compass progress to date in Lynn against these outcome measures. Compass will also track the length of time families remain in Section 8 housing after they graduate from FSS and the length of time it takes for FSS participants to graduate. Finally, for comparative purposes, Compass will endeavor to develop evaluation partnerships with other FSS programs such that each program tracks, at minimum, a few common key outcomes. Overall, Compass goal is to ensure that participants sustain the gains made during the program across several financial security outcome measures: income, credit and debt, savings, utilization of quality financial products, financial confidence, and asset development. Monitoring housing status and overall benefits information to the extent possible will support Compass long-term cost-benefit research. 5
Financial Model and Funding Requirements SGP s lead investment permitted Compass to establish the pilot in Lynn, largely without additional financial support. Going forward, Compass will pursue three primary funding sources: FSS coordinator funds administered by the Department of Housing and Urban Development (HUD), other housing authority partner funding, and philanthropic support. HUD-allocated FSS coordinator funds. By federal program standards, FSS is a small program, serving about 40,000-50,000 families with a $100 million annual budget. Approximately 70% of the program s budget goes to cover the cost of FSS coordinators at local housing authorities. These coordinator funds are distributed to housing authorities around the country through an annual Request for Proposals (RFP) process. Funds are allocated as a step function of the number of FSS participants in the local housing authority s program. (e.g. one coordinator funded up to $68,000 for 25 participants, two coordinators funded up to $136,000 for 75 participants, three coordinators funded up to $204,000 for 125 participants, etc.) As enumerated in the Memorandum of Understanding that Compass executed in both Lynn and Cambridge, a commitment from the public housing authority to allocate any incremental federal FSS coordinator funding to Compass is a prerequisite for Compass to enter a site. With philanthropy typically funding the initial start up phase of the launch at each site, this structure creates a long-term and sustainable revenue model at each site. Moreover, at the national level, pending legislation would make funding for FSS coordinators automatic, rather than being dependent on the annual RFP process thus creating the conditions for FSS to scale up more easily. Other housing authority partner funding. As a Moving to Work housing authority, CHA has more control over how to use its federal funding than traditional housing authorities. Notably, CHA has agreed to re-allocate $315,000 of existing federal funding to support the Compass FSS replication in Cambridge from FY12-FY16. In addition, Compass and CHA agreed to an escrow sharing model, based on the work of housing policy expert Jeff Lubell, where 50% of escrow funds are allocated to the participant and 50% are allocated to support the program s growth and sustainability. Philanthropy. As indicated earlier, philanthropic investments are required to launch the Compass FSS model at each site and to grow the program to the point where it become eligible to draw down federal funds. Compass posits that, because family self-sufficiency is a core social issue, philanthropies would value the opportunity to leverage their investments with public dollars to expand promising FSS programs. To date, Compass has already received multi-year grants from Strategic Grant Partners (SGP), its lead investor and thought partner, and from Social Venture Partners Boston. It is also worth noting that an investment in the Compass FSS model also helps leverage substantial federal dollars in the form of the FSS escrow savings accounts funds that flow directly to families to help them make progress toward financial stability. Although funding for FSS coordinator dollars is capped each year (about $60 million in FY12, which translates to approximately $68,000 per FSS coordinator), there is no cap on escrow funds. Federal rules do 6
not restrict the number of families that can participate in FSS or the accumulation of escrow funds. Moreover, HUD funds the FSS escrow accounts, regardless of program size. As Reid Cramer at the New America Foundation suggests,...hud s commitment to fund the escrow accounts creates a virtually unlimited stream of resources to support this savings incentive. 2 At a time when local and state governments are struggling with significant budget deficits, FSS provides a significant and often untapped stream of funding to support a promising employment and asset-building program for public housing and Section 8 residents. As indicated earlier, our operating model estimates that expansion in four sites will leverage approximately $5.3 million in additional federal FSS funds that can be deployed directly to help families reduce their reliance on public assistance and make progress toward financial security. This structure provides a highly leveraged opportunity for philanthropy. Funding Requirements Over the next three years, Compass seeks to raise $2.76 million to support its FSS growth plan, as summarized below. Total secured funds: $300,396 ($112,396 from SGP; $120,000 from CHA; and $68,000 in federal FSS coordinator funds in Lynn). Pending private funds: $313,000 challenge grant from SGP with 1:1 match for new investors. Pending federal funds: $628,303 in FSS coordinator funds. 3 Additional philanthropy required: $1.46 million Please note that Compass received a total of $930,000 from SGP to support its initial launch in Lynn (FY10-FY13) and its expansion in Cambridge (FY13-FY15). The funds reflected in the model above are for the FY13-FY15 period only. For a site-specific budget (for Cambridge), please see Appendix 5. 2 Reid Cramer (2004), Family Self-Sufficiency Program: An Asset-Building Opportunity, NHI Shelterforce Online. 3 In addition, Compass estimates the program will leverage about $3.8 million in escrow savings, which are fully funded by HUD and represent dollars that flow directly to help working poor families become financially secure. 7
Summary The first program of its kind in the country, the Compass FSS program is a replicable model for helping working, low-income families in subsidized housing save, build assets, reduce their reliance on public assistance and become financially stable. The potential scope of this project is noteworthy. By expanding and codifying its innovative FSS model, Compass hopes to develop an asset-building template for the FSS program that can be replicated in other communities locally and around the country. In addition to promoting financial security for participating families, a successful FSS model also has the potential to increase access to scarce housing vouchers for needy families. Limited turnover in the Section 8 and public housing market, combined with long waiting lists for housing, often make it difficult for the most vulnerable families to obtain housing assistance. By helping participants increase their earnings, build assets, and pursue homeownership opportunities, FSS has the potential to free up vouchers for vulnerable families by helping more families transition out of subsidized housing and achieve financial security. 8
Appendix 1: Compass FSS Program Lynn Data 9
Appendix 2: Criteria for Future Strategic FSS Partnerships 10
Appendix 3: Compass Three Year Strategic Priorities 11
Appendix 4: FSS Market in Massachusetts 12
Appendix 5: Site Specific FY13 FSS Budget for Cambridge 13
Appendix 6: Organization Chart Summary of Departments FSS Program This department focuses on the development, implementation, expansion, and evaluation of an asset building model for the Family Self Sufficiency (FSS) program, a historically underutilized federal housing program designed to promote employment and savings for working poor families. Financial Coaching Program This department, which supports the FSS program, is responsible for developing and maintaining a set of core standards for Compass financial coaching offerings, including goal setting, budgeting, credit improvement, saving, investing, and home buying to drive program quality and establish the foundation for program growth and scale. This department also provides training and professional development for financial coaches across all program sites, including the FSS program, the Individual Development Account (IDA) program, and contract-based coaching work with other nonprofit organizations. Research and Compliance This department oversees data management, reporting, and compliance across all core programs, as well as the development of internal procedures, protocols, and policies to support organizational growth and scale. The department administers and maintains Compass web-based client data tracking system, oversees all data collection and data entry, works closely with Compass software provider on all customization projects, prepares reports for internal and external evaluation purposes, and trains all staff on Compass web-based system. The department also develops, implements, and oversees Compass data security policies to ensure compliance with Massachusetts privacy law and credit reporting standards. Finally, this department develops and maintains policies, procedures, protocols, standards, and training manuals for all programs. Finance This department, which works closely with the finance committee on the board, oversees the budgeting process, the bi-monthly review of financial statements, the pricing structure of Compass fee-based financial coaching contracts, and the annual audit process. 14
Development This department, which works closely with the development committee on the board, is responsible for developing and implementing a robust, annual fund development plan. This includes cultivating individual and institutional donors, managing an annual event, and identifying/growing earned revenue sources, including fee-based financial coaching contracts with other nonprofit organizations. Through outsourced relationships with key vendors and pro bono partners to promote efficiency and scale, Compass also maintains the following departments: Human Resources. This department, which works directly with an outsourced human resources company, is responsible for hiring, orienting, and training all staff. This department also manages payroll and benefits, develops and administers employee guidelines, and handles all employeerelated issues and concerns. Legal. This department works closely with Compass pro bono legal partner, Goodwin Procter, to develop and review all partnership documents, including Memorandums of Understanding (MOUs) with housing authorities in the FSS program and other program contracts, and to strengthen board governance. IT. In addition to working with Compass web-based client tracking software provider, this department oversees Compass website and social media strategy. 15