Show me the money

Innovative finance model could provide new path for early childhood services

It was the fall of 2010, and the finance task force of the Early Childhood Council of Boulder County had worked for the better part of the year to come up with the dollar amount needed to provide high-quality early childhood services to every child in the county.

But after the task force finally nailed down the number, they never released it publicly.

“The number was so big, they were afraid it would terrify the community,” said Bobbie Watson, executive director of the council.

With the recession hitting, the board knew better than to ask voters for a tax increase, much less one capable generating the many millions of dollars the task force anticipated was needed.

Fast forward to November 2013 and the ballot box defeat of the school finance measure Amendment 66, which would have made possible universal full-day kindergarten and thousands more preschool slots for at-risk children. With that funding opportunity gone, Watson and her board quickly decided to pursue an innovative financing model they’d begun to explore.

Called “Pay For Success,” or PFS, it had bubbled up in policy circles for a few years, but is largely untested.

The idea behind the model, which is also sometimes called “Social Impact Bonds” or “Results-Based Financing,” is that private investors—commercial banks or foundations–pay upfront for evidence-based programs, such as high-quality preschool.

In turn, the programs prevent costly interventions such as grade retention or the use of special education services during the child’s K-12 career. If the school district or state realize the expected savings from reduced special education or grade retention costs, the investor is repaid with interest. Thereafter, the district or state reaps any additional savings.

While there are no active Pay For Success programs in Colorado, the concept is gaining traction. The city of Denver and the state now share a fellow from Harvard University’s Social Impact Bond Technical Assistance Lab whose job is to evaluate possible PFS projects. In addition, the Rose Community Foundation has convened a group of about 20 Colorado foundations for ongoing discussions about how they might facilitate or fund Pay For Success projects in early childhood.

Watson, who with her board has hired consultants to lead the Pay For Success planning process, said, ““We’re not talking about this. We’re doing this…This is the only option we see on the horizon that will bring millions of dollars into the birth-to-five space.”

Skepticism, then excitement

If Pay for Success were a child, it would still be in preschool. It was launched first in England in 2010 with a program aimed at reducing recidivism—and thus the high cost of prison stays–by helping freed inmates transition back into their communities

While there are a number of Pay For Success programs in the works around the world, fewer than 10 are actively running. Just one of those—in Utah’s Salt Lake County—focuses on early childhood. In New York, projects focus on adult and juvenile recidivism and in Massachusetts they address recidivism and chronic homelessness. A health care-based program launched last year in Fresno, Calif., aims to cut emergency room visits by low-income children with asthma. None of the programs have reached the pay-out phase yet.

Mary Wickersham, who is one of the consultants working for the Early Childhood Council of Boulder County, said a state senator first proposed a PFS-like concept to her in 2008 when she worked in the state treasurer’s office.

“At the time, I was extremely dismissive,” she said. “It just seemed horribly impossible to me.”

But proponents of the idea, including U.S. Rep. Jared Polis, a Democrat who formerly served on the State Board of Education, kept talking about it and policy-makers, foundations executives and law-makers started listening. Wickersham, director of the Center for Education Policy Analysis at the University of Colorado Denver, is now part of several efforts to move Pay For Success forward in Colorado.

“It’s been an idea that’s really exploded over a short period of time,” said Wickersham.

Part of the appeal of PFS in the early childhood realm is that there’s already a large body of evidence demonstrating the positive outcomes that stem from effective early childhood programs. Because those positive outcomes — from improved school performance to lower unemployment — help save the government money, the idea of staking a claim on those future savings to expand programs now seems to make sense. In fact, many in the early childhood community believe PFS has the potentional to address what they see as chronic underfunding of important early childhood programs.

“In early childhood, [the lack of funding is] even worse than the K-12 education system, if that’s even possible,” said Elsa Holguin, the senior program officer at the Rose Community Foundation who’s leading the coalition of foundations interested in PFS.

Aside from federal child care subsidies and targeted programs like the Colorado Preschool Program, “there’s not a really robust financing mechanism for comprehensive early childhood programs,” said Karen Rahn, director of the Boulder County Department of Human Services.

She believes PFS is a promising finance tool as well as “a way of bringing stakeholders together around an issue.”

Nuts and bolts

Pay For Success deals are complicated transactions that may involve eight or more partner organizations, including investors, government entities, service providers, account managers, evaluators, and an “intermediary” whose job is to recruit investors and manage the overall program. Such projects also require extensive planning and number-crunching to determine the target population and intervention that will provide the savings needed to make the concept successful.

In a hypothetical example, an investor pays a school district to create 500 new preschool slots for low-income children in the hopes of preventing the students from repeating third grade. The contract would establish  specific performance targets that would need to be achieved for that cohort at the end of third grade, or approximately five years after the start of the PFS project. If the outcomes do not materialize, the school district would not have to pay back the investors.

Under Utah’s PFS deal, launched last summer, private investors will provide up to $7 million to pay for thousands of new preschool slots for low-income three- and four-year-olds over the next several years. The program is based on data that shows children who attend high-quality preschool are less likely to be identified for costly special education services once they start elementary school. Because children rarely discontinue special education once they are found eligible, reducing their chances of needing services can yield a huge cost savings over the course of a 13-year school career.

Janis Dubno, a Wall Street banker-turned-children’s advocate, started some of the early work on what’s called “The Utah High Quality Preschool Program” in 2010 and said the process required much collaboration among partners. Among them were  two school districts, the local United Way, a local community foundation, Salt Lake County, a children’s advocacy organization, an investment firm and two private investors—the bank Goldman Sachs and Chicago philanthropist J.B. Pritzker.

“We were all aligned with what we wanted to achieve,” she said.

Even so, there were stumbling blocks. Legislation that would have enabled Utah’s state government to participate in the deal failed last year and leaders of the PFS effort had to settle for a one-year “proof of concept” approach under which the United Way and Salt Lake County contributed to a repayment fund instead of the state.

“A lot of people in the legislature couldn’t get their heads around this financing mechanism,” said Dubno, a senior policy analyst for the advocacy organization Voices for Utah’s Children. “There was a lot of convincing to do.”

Those efforts paid off this year with the passage of the enabling legislation. It was signed into law on Tuesday.

Movement in Colorado

In Boulder County, the early childhood council will work with its consultants over the next year to determine what type of PFS pilot would work best there. It could be an expansion of an existing preschool program, a home visiting program for families with young children, or something else, said Watson.

“It’s investing in our current capacity and just expanding the bandwidth,” she said.

Boulder County isn’t the only one considering Pay For Success right now. A number of other organizations also crafted PFS proposals last fall in response to a “Request For Information” by the state. All told, 43 proposals came in, with 12 of those focused on early childhood , 14 on disconnected youth,  five on homelessness, four on health and even one on forestry.

Among the early childhood respondents were big players like Mile High Montessori and Clayton Early Learning as well as smaller organizations like the two-employee Adams County Youth Initiative. Tyler Jaeckel, the PFS staff member shared by the City of Denver and the state, said the next step in the process is determining the feasibility of the proposals and building the partnerships that would be required to launch them.

One promising proposal came from the Merage Foundations, which proposed an expansion of an existing program called “Early Learning Ventures” that helps small, independent child care providers band together in “alliances” to achieve economies of scale when it comes to business and administrative functions. Sue Renner, the foundations’ executive director, said the program already shows a return of $8 for every $1 invested, has cut state costs for processes like licensing, and has given providers more time and money for quality improvements.

“We know we’re on to something,” she said. “How do we make sure we can scale this and do more of this work?”

While Merage, Boulder’s Early Childhood Council and other interested parties will have to spend months more on data collection and analysis before launching Pay For Success in the state, some observers believe it won’t be a theoretical discussion for much longer.

“It’s in the early stage, but this is going to move fast,” said Holguin. “My goal is let’s position Colorado…to be part of this national wave.”

Not without challenges

While PFS has an enthusiastic cadre of supporters, it has its skeptics too. Some worry that it could represent the privatization of social programs. Others wonder about the intentions of corporate banks that might serve as investors and question whether they should be making a profit off social programs.

Jaeckel said the privatization concern isn’t warranted because PFS money funds non-profit providers or government entities that are already providing services. As for concerns about corporate motives, he noted that commercial investors may care about the social good and see investments in early childhood PFS projects as a way to ensure a quality work force down the road. In Colorado, he added, key PFS investors are more likely to be foundations than Goldman Sachs-type companies.

While investors do earn interest through PFS deals–if the desired outcomes are achieved– the rates are not particularly lucrative. Typically, foundation investors might only get a return of around 2 percent and commercial investors might only get a risk-adjusted rate of around 4 percent, said Jaeckel.

Besides concerns about corporate profits, advocates of PFS initiatives may also have to grapple with the same public perception problems that have sometimes derailed early childhood proposals seeking funding through traditional means.

Pamela Harris, president and CEO of Mile High Montessori in Denver, said, “There’s…this cultural piece that the majority of people think kids should be at home with their moms.”

On top of that is the challenge of getting the public, which may be familiar with K-12 per-pupil costs of around $6,600 a year, comfortable with the higher price tags that often accompany early childhood programs. For example, Harris said, a comprehensive, high quality preschool program can run $9,500-$15,000 a year.

“The cost of quality early education is really high and…that’s been shocking for people.”

farewell

Head of Denver Preschool Program resigning after more than five years

PHOTO: Eric Lutzens/Denver Post
Jennifer Landrum, president and CEO of the Denver Preschool Program

Jennifer Landrum, who oversaw the Denver Preschool Program for the last five and a half years, announced Friday that she’s leaving for personal reasons.

During Landrum’s tenure, Denver voters increased the sales tax that supports the program, allowing it to cover summer tuition costs and serve more children, and extended it through 2026. Landrum also oversaw the redesign of the tuition credit scale, expanded scholarships and awards for teachers and directors to better support quality improvement efforts, and developed a new strategic plan.

Landrum said she was leaving not for a new job but to take care of herself and her family after experiencing “extreme loss.”

“I need time to pause, reflect and recharge,” she wrote in an email to supporters of the program.

The Denver Preschool Program provides tuition subsidies that scale according to family income and preschool quality for students in the year before they enter kindergarten. The largest subsidies go to the poorest families enrolled in the best preschools. The program also supports quality improvement efforts, including for younger students, part of a broader shift in focus in the early childhood sector. It is funded by a voter-approved 0.15 percent sales tax and has become a model for communities around the state.

“Jennifer has served with vision, boldness, and a constant and deep commitment to improving the lives of Denver’s young children and supporting Denver families,” preschool program board chair Chris Watney wrote in an email. “The board, staff, and community are going to miss her in this role. The board of directors firmly supports Jennifer’s decision and wishes her all the best.”

Deputy Director Ellen Braun will serve as the interim director while the board conducts a search process for a new leader this spring.

Meet Reggio Emilia

Power to the kids: A preschool approach imported from Italy comes to public schools in Denver

PHOTO: Courtesy of Boulder Journey School

Boulder Journey School feels different from most other child care centers almost as soon as you walk through the door. In the hallways, there’s a kid-sized mail-sorting station, a giant metal spaceship trimmed with white and green lights, and a child-designed memorial for the school’s chickens, who were killed by raccoons a few years ago.

Preschoolers there help decide what and how they learn, drawing on their interests, imagination, and environment. Which means trying out adult-style jobs, building 10-foot-tall contraptions, and even talking about death are all par for the course.

“Rather than covering the curriculum, we’re uncovering the curriculum with the children in the classroom,” said Alison Maher, Boulder Journey’s executive director.

It’s all part of the school’s Reggio Emilia-inspired approach to early education — one that prizes play-based and project-based learning, grounded in the local community. At least two public preschools in Denver will soon begin using the approach.

Early childhood leaders in Denver see the adoption of Reggio in district classrooms as a milestone that brings a celebrated approach typically found in private preschool programs to a diverse group of children in the public sphere.

PHOTO: Ann Schimke
A spaceship designed by preschoolers at the Boulder Journey School.

Next fall, with help from Maher and other partners, a new Reggio Emilia-inspired child care center and preschool will open in a facility called Z Place in the Green Valley Ranch neighborhood. A new preschool program planned for Inspire Elementary School in the Stapleton neighborhood will also use the Reggio approach, which school leaders said ties in well with the expeditionary learning focus in other grades.

“Denver has been a bold city around early childhood,” said Rebecca Kantor, dean of the school of education and human development at the University of Colorado Denver, a partner in the work at Z Place. And adopting the Reggio approach is a “continuation of that bold theme.”

Denver isn’t the first community to incorporate Reggio principles into public classrooms. Early education programs in Boston, Indianapolis, and Tucson, among other cities, have implemented them, but the approach is hardly widespread.

At Z Place, the student body will include some children in the federally funded Head Start preschool program. School leaders say that there are special challenges when adapting Reggio for taxpayer-funded classrooms because of additional state and federal regulations governing everything from technology use to how children are assessed. Still, they believe it’s doable since Reggio is a philosophy of teaching and learning, rather than a prescriptive program.

In addition to Z Place and Inspire, Denver district officials may also bring Reggio to two programs in South Denver in 2020: The Stephen Knight Center for Early Education, which includes preschool and kindergarten, and Place Bridge Academy, a school for immigrant and refugee students that will soon be getting new preschool space.

Lisa Roy, executive director of the Denver Public Schools’ early education department, said incorporating Reggio principles into preschools in different neighborhoods advances the district’s plan to offer high-quality school choice options throughout the city.

Currently, most district-affiliated preschools use what’s called the Creative Curriculum, a research-based curriculum popular nationwide. About 15 use a curriculum called Tools of the Mind, which emphasizes social-emotional skills. Another handful uses the Montessori method, in which students in multiage classrooms learn at their own pace with the help of special educational materials. In addition to using the Reggio philosophy, the Z Place program will incorporate Montessori principles and emphasize the inclusion of students with disabilities alongside typically developing children.

Unlike Montessori, which is named for its founder, Italian educator Maria Montessori, Reggio Emilia is named for a place — that is, the northern Italian city where the educational philosophy first emerged after World War II. That’s because learning about and through the local community figures prominently into the approach, even for the smallest children.

For example, in Molly Lyne’s toddler classroom at Boulder Journey School, “bus” is the name of the game these days. That’s because city buses and school buses often pass by the playground just outside her room — regularly piquing the interest of her 1-year-old charges who watch the vehicles through holes in the fence and often blurt out the word “bus.”

To capitalize on their interest, Lyne and her two assistant teachers sometimes project a video on the wall showing what it’s like to be on a moving bus, from showing the traffic passing by to a simulation of the loud, creaky lurch passengers hear when the bus stops. Like all the technology used at the school, the video isn’t meant for the kids to sit and watch quietly. It’s intended as a backdrop and inspiration for their play.

Older students at Boulder Journey get even more opportunity to interact with the community. When a new pizza restaurant opened near the school several years ago, preschoolers got to visit — taking photos and interviewing restaurant patrons. They also offered up a critique: The restaurant didn’t quite work for little kids — the stools didn’t spin, for example, and the toilets in the bathroom were too high. Back at school, the children fashioned their own ideal restaurant furnishings out of clay, a collection featured at the pizzeria for a time and now displayed in the school hallway.

“It’s not only getting kids ready to read at third grade proficiently, but it’s for them to become citizens, owners of their community … and understand how their neighborhoods are different from other neighborhoods in the city,” said Roy, who last year visited Reggio Emilia schools in Italy with a delegation from Boulder Journey School and the University of Colorado Denver.

Maher said there’s a common misconception that Reggio-inspired schools are unstructured.

“People think because children have a voice in their education, in the way the day’s organized, in the projects that are developed, that the teachers are invisible and hands-off, and that’s not the case,” she said. “It’s a highly structured dance between children and adults to make sure all voices are represented.”

PHOTO: Ann Schimke
The “materials room” Boulder Journey School.

At Reggio schools, you won’t likely see any commercially produced alphabet charts, daily schedules, or cartoony posters. Many Boulder Journey classrooms have attractive blond wood furniture, colorful light tables and aquariums full of fish. The “materials room,” where kids can craft and create, is a feast for the eyes — with wood, colorful fabric, tubes, lids and other supplies arranged neatly on white shelves that line bright orange walls.

Maher said people who tour her school tend to think she has a big budget because the school is beautifully appointed. But many of the school’s decorations and supplies are inexpensive, everyday items that can be found around town, she said.

Maher acknowledges that being in Boulder, an affluent community northwest of Denver, means a wealthier pool of families. About 20 percent of her students receive some kind of help paying tuition, which is about $1,300 a month for a preschooler who attends four hours a day, five days a week.

The percentage of students who need financial assistance will be higher at the Denver programs’ adopting the approach next year. A little over one-third of Inspire’s student body come from low-income families, and the new Z Place program will likely serve a high proportion of such students.

At Inspire, there are already two teachers with training in Reggio, both graduates of a special masters degree program run by the University of Colorado Denver and Boulder Journey School.

One of them is Sarah McCarty, a kindergarten teacher who had never heard of Reggio before she entered the program. She believes the approach, in addition to helping kids build creativity, work collaboratively and develop problem-solving skills, instills a love of learning.

“I’ve never seen a kid who, when they got to do what they wanted, wasn’t happy about it,” she said.