This will be our last panel for this session. We want to link the concepts of growth, scale and sustainability. Some times it seems that these are complementary and other times they seem like they are in conflict. We have Steve Dawson because we wanted to bring someone outside of our field. We also have Jeremy Nowak, who has begun to talk about his organization yesterday. Steven Dow is also able to join us here today.
About a month ago, Greg turned to Kirsten and said let's play a joke on Steve and have him talk about labor market strategies while everyone else is talking about financial market strategies.
Let's talk about direct care workforce, such as nurses aides. This is a very low wage, high skill job. The idea here is to have low investment, high turnover and low return. We want to change the attitude here in each of these areas.
This is important for the community economic development side. This is the person who will take your mother from the bed to the chair, tell her what day it is, keep her clean. This may be you one day. THis is the people who touch everyone in the home of the middle class.
This is my favorite quote about this profession:
This is also important in all of our communities. You're familiar probably with the chart of the aging in the U.S. You can find yourself somewhere on this graph.
The need for these jobs is going to grow by 40% in the next few years. This is rising by 800K jobs which is the greatest growth outside of the computer industry.
The traditional worker is a woman who is entering the workforce. The demographics of our workforce have changed over the next few years. THe baby boomers are getting out of the workforce. As the demand for these jobs grows, these workers are going to have lots of other options. In order for us to make sure this care gap is closed, we have to have a market force to make them competitive.
If Walmart decides to pay benefits, you wouldn't be able to staff nursing homes. Most of this work is paid for by federal and state government. You have a 3rd party payor which distorts this market. There will have to be a great deal of public policy change.
RIght now these are really bad jobs. Most of these workers live in poverty. Even though they work there, they don't have access to the healthcare system they work in. In New York City right now, one of 7 low-wage workers are direct care workers. In San Francisco due to consumer and union organizing pressures, they increased the wage to $10/hour. The poverty level in that city dropped by 15% just by this change.
What are we doing about this? About 20 years we created an organizations that has home health care workers. We have a training program and it is the largest worker cooperative in the country. About 13 years ago, we spun off paraprofessional to impact public policy. About 5 years ago, we started independence care system. This is about a $70M system and will probably grow to $100M in the next several years.
We try to be both a practice and a policy organization. Even though we do the best we can, the job in Philadelphia is still not good enough. They are so constrained by public policy. We can only do so much with the current rules of the game.
We're trying not to just build PHI but also the field. We starting a national clearinghouse. If there is an initiative going, they use this as resource. THis is our front porch. We promote anyone who shares this school of thought and is trying to change the calculus of how these workers are valued.
This is not enough and it's all to rational. We also are spinning off an advocacy group, called the Direct Care Alliance. We try to organize groups so that they have greater impact on state and national policy. We want everyone to understand the importance of this workforce.
In terms of how we think, I would recommend this framework. You need to understand from a very logical standpoint what are your inputs, outputs, outcomes, and impacts. We start at the bottom here and figure out what we're trying to accomplish and how to create systemic change.
In the workforce field there is a lot of conversation about dual customers and I think that's a wrong frame. We think of clients and constituencies. In order to maintain your understanding of who you really are serving.
Scale for us is a necessary evil. It's not thought of first. It has to follow strategy. If we grow our impact will be more significant on individuals, but not on our policy changes. It will help our legitimacy as an employer. Scale is a means to an end. As PHI has grown, the staff capacity is arithmetic and opportunities are geometric. The more staff we have the harder is to manage the opportunities. The more field staff we have the more overloaded they are.
We don't have a single long-term care system. We have one for each state. It would make no sense to have a single training system because of the certification differences in each system. The average education for these workers is a 5th grade reading level.
Getting bigger is not the point. There is no way to predict where the system is going to grow. We take money we receive from progressive foundations and turn it into training and employment of individuals. We want to keep creating greater value to all the people who touch our system.
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It's great to be here and great to be here with Steve Dawson. I'd like to think when I lend money to something that it would be a place that I would be willing to participate in, whether it's a grocery store for me to shop in, a house to live in, or healthcare for my family.
A few years ago, I had to get help for my elderly mother and from this personal experience I can completely relate to what Steve talked about.
We think about sustainability in terms of continuing to fund the venture. We need common language about this. We're still at an anecdotal level and we really need to come to terms with what we're talking about.
I want to propose here what our CDFI structural dilemmas. We're the guys who are out there looking for junk bonds for our investors with no hope for return. Most social investors are not interested in scale. They have boutique tastes. We have a tendency to build markets and then get out of them when the money rolls in. If I started my organization today, I would not start it without the ability to make money on some products. It is important to cross-subsidize. You can put all investors into three categories: mission, mandate, market. The trick for us is to use mission and mandate to cross over to the market.
For me, information becomes some of the highest value. You need to create a backstage function and bring it into the front stage. This will change your way into the market. If you can't broaden capital market strategies, then you will never be able to grow efficiently.
About 45% of our portfolio is still residential real estate. This is unscientific but probably right. We were losing money in the 90s when everyone else was making money. We are in the unhappy position of taking equity risks without equity returns, which makes it hard to be sustainable. We invested a lot into the infrastructure of information and make different choices for allocation.
If I think about what we did, given that it's always iterative, we started as an R&D investor, then we re-learned the market, then perused more targeted investment and then converted niche capital strategies. We create new data tools and began to sell them. The big learning was to reflect on what we did and see the good and bad news. We needed to be smart about making money. As we have grown, we take much higher levels of risk. If you're small, marginal and cute, we were not doing great mission things. Now we make extraordinary acquisition loans.
This is a map of Philadelphia with 2000 data. The city had 26k abandoned residences, 30k vacant lots. If there wasn't an asset allocation strategy, the city couldn't survive and no one could create value. Traditional homeowners were like holding bad bonds. We tried to understand and then geo-code the neighborhoods. The red areas are the most problematic. You could ask me what is going on in any neighborhood and tell you where the worse drug areas are, poverty, banks, as well as the most opportunities are.
With this we could also evaluate change. I can tell you how the role of schools made a difference. We've financed many charter schools.
We've tried to identify inflexion points. This is the city of Camden. The places that are orange we thought still had viability. They were relatively the safest and home values had fully collapsed. These were the places for the working poor.
We did more than 500 targeted rehabilitations. As we did that, we began to change the feel of the neighborhoods. When we rethought how we do all this, it was the only place where housing values went up by 42% while the rest of the city went down. We have a wealth-building mission. Real estate is one way to do that.
How do you move from this big data to lower level data. For us as an organization, how do we create value out of the value we create? Not only out of real estate, but we also now have more available resources and have built data sets that we can sell and use. We are now taking the next step and we will create an affiliate development company. We will move first into those places with information.
In some ways, there are some similarities to what Steve was saying. We are not going to change the world loan by loan. But if we can lever a set of ideas then we can use that to make systemic changes. You can use the ability to influence others to get your mission done.
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I'm going to talk about individuals. We started to look at not only the income gap, but the wealth gap. The systems that have been successful for building wealth at a community level don't work for low income people. The U.S. tax code has done phenomenal things to incentivize wealth creation. It has helped people change their behaviors around household wealth. We use the tax code to drive changes in behavior. The problem is that it doesn't work for people who don't pay taxes.
How do you get low income people to change their behavior to have a better balance sheet of household income? In an environment where middle, upper and non-poor people think about this, there are no public structures that can work on this. In fact, the system works as a disincentive for them to grow their balance sheets.
The largest source of income to low income people is the earned income tax credit. How can we think about reducing the amount of that money which is lost in transaction cost? As it moves from the treasury to families, how can we keep more of it in the families? How can we turn it into a form of equity that the families can leverage?
We want to build some models that work, study them, and sell them to policy makers. We want them to understand that there is a very large market here. We've been working on individual development accounts. You take some combination of financial literacy, education. We could have a transformational effect on the households.
We saw an extraordinary commitment of funders to gather information. We ran an experiment with a treatment and a control group looking at the elements of IDAs. We ran it for 4 years and we're just beginning to see the results. The question now is what did we show during the demonstration period. It was unconventional wisdom that you could get low income people to purchase assets and saving some of their incomes. This was a remarkable achievement. We looked at how and why they saved and how to incentivize them to save.
These are the issues that we're just beginning to understand. We looked at how the behaviors changed in the household. We're in the early stages of this learning and we need to go to the next stage of testing other concepts, such as splitting tax returns. We want to get them to spend and save some. Can we get people to save without a savings match? We're just beginning to tease this out.
In Tulsa we served 18k households. We recognize there are a lot of other ideas that need to get out there. We want to associate some of this with the tax experience. We want them to use this money for different long term results.
What is the ratio of your management staff to your field work staff? What's the impact of this ratio on your ability to fulfill your mission?
We have been chronically overmanaged. The joke is that I pretend to manage the staff and they pretend to be managed. But as we grow that will not be possible. We need to be much more involved in helping the field staff make better choices. They're such perfectionists.
About 5 or 6 years ago, we were overstaffed for the amount of productivity. Our plan was to hold infrastructure. As we grew production, we were going to hold steady. It works like a staircase. We need to invest again in our staff. If you're not careful and not use working capital for R&D, if you use subsidy to skewer the efficiency of operations, you're in trouble. Now we're going to make an internal investment.
The tax program has low ratio of management to clients. We use the model of volunteer tax preparers. By contrast in the IDA, it was staff intensive. Part of the evaluation was looking at the cost-benefit analysis in the process. We demonstrated that people can save, but the process is clearly not able to be sustainable.
Can you comment on how larger market competition has affected you and to fulfill mission?
When we first started out we had an enterprise strategy. About 10 years ago, the marketplace changed dramatically with Medicare being cut for home health care. The idea of setting up free standing enterprises makes little sense. We did a mid-course strategy. The market shift forced us to maintain our base and unpack what we learned to home care and nursing home care. It helped us get more deeply embedded in the industry and not separate from it.
It's a complex question for us. The financial service industry changed so much for us. In most instances, we've had successful relationships with the retail agents. The largest CDFIs is an asset peer of the commercial banks. In the middle range, we've worked out good arrangements with the mainstream banks. Sometimes banks do irrational pricing and distort the market which is a problem for community development. Banks have the capacity to offer services that we just can't. Until we can do that, we have no way to compete in that market.
In the tax field, nothing changed faster than when the IRS made permanent the debt indicator. A lender can ascertain whether or not the refund was going to come back to the tax payor or would the IRS keep it. There was then a loan product that automatically kept the fee out. The tax preparers flooded the low income neighborhoods then. We found we were key providers in this market. When we did recruitment for the IDA program, we found a lot of people who had no income or wealth and it was hard to get mailing lists for these people.
I'd like to hear the rest of the theory of change in the practice and policy in terms of staffing. How do you build this?
All three strands are embedded. We have policy and practice staff. We are focused on state by state and we do a lot of work to see that the staff learns from each other but they don't have to do each other's work. WE learned pretty quickly that it's not about integration but good communication. Since we're working with such low income workers, it wouldn't make any sense to take any earning to go toward us. It's about 10-15% fee for service on our consulting work. We've been able to maintain most of our workforce funders and then go to very large foundations after that. We have about $6-7M budget which half of that is general support.
The difference between people who think about transaction and people who do transactions was the difference between Henry the V and Hamlet. My lenders are very suspicious that we brought Henry the V's in. Now that they see we've put assets on the table, they like taking the idea as their own.
I'm interested in the organizational models which are quite complex. How do you take the entrepreneurial leap? What are the key questions?
We only set up something new because it's necessary. The management challenge is to maintain coherence. Our organization runs as one. The view is that there is one strategy, one executive team with a set of subsidiaries that is invisible to customers. The important thing is that the complexity doesn't touch the customers. There are moments when you can say that we're way too complicated. We have to think of how to restructure it.
We do not think of ourselves as a single financial team. What makes it work is that there is significant constant alignment with the mission. There is a large degree of senior leadership and entrepreneurial alignment. I trust the teams with whatever they want to do.
I want to thank all of our panelists. We are deeply grateful for their participation in making this an engaging discussion. We've made allusions to the ongoing conversation. We have not arrived at a destination but are still on the journey.
For the Chicago Feds part, we're going to build a transcript of this session.
I want to recognize Aspen for their work on this. I want to thank Langdon also for offering us some excellent insights.
We at InnovationLabs will host the website and will maintain it as part of your dialogue. We want to keep talking and keep a living website. It's our intention and hope that the other Fed branches will be open to keeping all of these conversation available. We can use the website as a venue that we gather information.
We plan to use this as a forum for further dialogue. We'd like to use it as a communication portal. There will be a survey also about what you want to know or what you need.