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First 'Pay for Success' Project for Veterans Underway

The VA is working with states and cities to use the innovative financing approach to help veterans with PTSD find gainful employment. If it's successful, the payoff for investors is big.

Hundreds of military veterans were on the ballot last week, and many of them won their races. But for some veterans who have spent years putting their lives on the line, running for office, let alone finding a steady job, is too much to handle.

That was certainly the case for rising Democratic star and veteran Jason Kander, who last month announced he was dropping out of next year’s Kansas City, Mo., mayoral race. Kander, who served in Afghanistan as an Army intelligence officer and was seen as a front-runner, cited post-traumatic stress disorder (PTSD) and depression as the reasons for his decision.

Veterans often struggle to find and keep jobs. If they have mental health issues, that only exacerbates the struggle. That's where a joint state and local pilot project -- the first of its kind -- hopes to help.

“We’re not just talking about employment but better health outcomes for PTSD sufferers. The hope is to change the trajectory of that veteran’s life,” Melissa Glynn, an assistant secretary for the U.S. Department of Veterans Affairs (VA), said in a conference call with reporters. “We are looking at this as a way to combat suicide.” 

The VA is working with the state of Massachusetts and the cities of Boston and New York to connect 480 veterans to civilian jobs that stick. What's novel about the joint effort is how its being funded: by so-called pay for success or social impact bonds.

Pay for success projects are financed by private investors that only get paid back and then some if certain benchmarks are met within a specified timeframe. The projects are run by public institutions and have certain measurable outcomes and goals that aim to benefit society -- in this case, employing veterans. If those goals are not met, the investors don't receive their money back. This funding structure minimizes the financial risks for governments.

The project will expand upon an existing VA program and be called the Veterans Coordinated Approach to Recovery and Employment. Rather than simply helping a veteran adjust to the conditions of a job he or she might have, Veterans CARE case coordinators work directly with their clients to explore interests and aspirations with the goal of placing them in a job that not only meets their physical and mental needs but is one that can be fulfilling. Research published earlier this year by the VA found that this approach had twice the success rate as traditional job placement programs for veterans suffering from PTSD.

The nonprofit Social Finance has raised $5.1 million from five investors for the project to run for three years. During that time, the Tuscaloosa VA Medical Center will oversee and monitor it, reporting on outcomes in four categories, such as earnings and sustained employment.

One of the criticisms of pay-for-success projects is that there are hidden costs. The financing often doesn’t include the expenses associated with developing the project’s parameters (which could take years) and monitoring the project.

Supporters of the approach, meanwhile, argue that investors stand to see a nice payoff if the project is successful. They could be repaid up to $6 million over three years -- an additional $900,000 on top of their investment. Given the investment risk and potential economic and public health implications of helping a veteran conquer PTSD and rejoin society, says Social Finance CEO Tracy Palandjian, it's worth it.

Pay-for-success projects, she adds, are often meant to be test cases to determine whether a certain approach could work before governments develop new policy around it and start funding it themselves. She believes the Veterans CARE approach could eventually become a national standard of care.

The existing VA program has already helped Bob Simonovich, an Ohio resident who was seriously injured in 2007 by a landmine in Iraq. He says it has changed his life. Other than the Army, his only job experience had been physical labor, which he is no longer capable of thanks to his injuries. Sitting at home, he felt stuck. “You almost feel destructive sitting around by yourself,” he says. “It’s a dangerous place to be.”

But baseball was one of the few things that the lifelong Cleveland Indians fan still got excited about. His care coordinator helped him work through his anxieties about being in crowded places, then used his community connections to land Simonovich a part-time job keeping stats for the Indian’s AA affiliate Akron Ducks. During the off-season, he works at a baseball training facility.

“I’m setting a better example for my kids,” Simonovich says. “You feel like you’re contributing -- you’re not a burden.” 

CORRECTION: An earlier version of this article stated that investors stood to receive a nearly 25 percent return on investment if the project was successful. It has been changed to say an additional $900,000. Language was also updated to make it clear that the project is not replicating Veterans CARE, but expanding an existing VA program. And finally, language was also updated to make it clear that the nonprofit Social Finance is not funding the pilot, but rather raising money for it. 

Liz Farmer, a former Governing staff writer covering fiscal policy, helps lead the Pew Charitable Trusts’ state fiscal health project’s Fiscal 50 online resource.
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