Delaware experiments with first social impact bond to fund blood bank

By Ken Mammarella

The Blood Bank of Delmarva’s third bloodmobile — a roving donation center — was made possible by Delaware’s first social impact bond.

The concept, also called Pay for Success, was introduced to the U.S. in 2012 and legalized in Delaware last August. These arrangements involve at least three entities: a service provider (typically a nonprofit), an investor (individuals, companies or nonprofits) and a guarantor (typically a government).

The idea is that an investor commits a certain amount of funding, which is then guaranteed by the government in exchange for meeting a social need. To create accountability and incentivize better results, compensation is tethered to set performance measures agreed upon for each bond.

“We want to show the state how it works,” said Stuart Comstock-Gay, CEO of the Delaware Community Foundation, who began working on the $450,000 bloodmobile project in the fall of 2017. “It’s a unique way to remove risk.”

The Nonprofit Finance Fund in May analyzed America’s first 25 Pay for Success projects and found return on investments as high as 22%. The return for Delaware’s first social impact bond is listed at “5% maximum.”

Delaware’s new law aims to “incentivize private funding of economic development and social impact initiatives,” the state said. “Under terms of the contracts, the state would protect taxpayer dollars by reimbursing private funding only if the initiatives reach stated goals, and achieve progress.”

“To make this work, you have to have clearly measurable goal, with great specificity in outcome assessments,” he said. If the service provider delivers as contracted, the investor gets the money back, usually plus a profit, from the guarantor. If the project doesn’t do as well, there’s usually a sliding scale of returns that at its extreme means the investment has become a grant.

The blood bank identified a need to boost the number of blood donors ages 17 to 34.

“One [goal] is an incremental annual increase of 500 units from young donors year over year for three consecutive years,” said Ric Thomas, the blood bank’s senior executive director. “The other is regional self-sufficiency so that we do not import more than 2.5% of all units distributed in this region.”

High school and college drives yield 20-25% of the blood collected during the school year. The $450,000 for the bloodmobile and other programs comes from the Delaware Community Foundation’s Social Impact Fund, launched in 2014 by Discover Bank. When the blood bank meets its goal, the Longwood Foundation will
“pay back” the $450,000 with a premium into the fund, and the money can be invested in another initiative.

“If we meet or exceed our targets, Longwood rebates Discover the full amount of the grant,” Thomas said. “If
we miss, they get a discounted rebate based in part by how much we miss by.”

An outside committee approved (and will regularly review) the blood bank contract, resembling as much as possible a state contract, to encourage state agencies to adopt the concept.

Discover Bank and the Delaware Community Foundation created the fund when they “saw the need for this type of activity in Delaware, and the Delaware Community Foundation structure allowed for the repayment and recycling of dollars that the bank needed to facilitate these types of transactions,” said Abbe Kalina, Discover’s director of corporate communications.

“The fund was designed to help nonprofits launch projects or products that will result in self-sustaining income streams,” she added. Its first two projects involved Health for America at Christiana Care in 2014 and chicken manure processing in 2016, which was repaid in 2018. Since 2014, Discover has donated $705,000 to the fund, and Verizon has given $100,000.

Even before the new blood bank van hit the road, the First State’s first social impact bond notched its first success. “I’ll have to have my kids come back home to give blood,” Comstock-Gay said.

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