Key strategies employed
- Designate a portion of investible reserves for place-based investments
- Provide secured and unsecured direct loans to local nonprofits and/or businesses
- Allocate to financial intermediaries, including community development financial institutions (CDFIs) and other investment managers offering place-based private debt strategies
- Provide loan guarantees to local nonprofits and/or businesses
- Move cash and cash equivalent assets into local banks and credit unions, including US Treasury Department-certified CDFIs, using money market accounts, business checking and savings accounts, and certificates of deposit.
- Purchase stock in community development banks and related economic enterprises
- Align community health with place-based investing strategies
Location: Headquartered in San Francisco, California, Dignity Health serves communities across California, Arizona, and Nevada.
Employees: more than 60,000
Revenues: $12.4 Billion
Investment portfolio: $10 billion
Mission of Program
Dignity Health’s Community Investment Program is “one way in which Dignity Health realizes its mission and enhances the advocacy, social justice and healthier communities’ efforts of its hospitals and religious and community sponsors. Through this program, Dignity Health provides below-market interest rate loans and other investments to nonprofit organizations who are working to improve the health status and quality of life in their communities…”
Dignity Health investments are to be used by nonprofit organizations for community economic development benefitting low-income underserved populations, including: women and children, communities of color, mentally or physically disabled individuals, veterans, and/or other disenfranchised populations. Initiated in the early 1990s, Dignity’s community investment fund has grown to more than $100 million today, with $90 million placed in dedicated investments. This amount represents about 1 percent of investable assets. Dignity’s long-term goal is that 5 percent of investable assets be allocated for community investments. Over the life of the program, Dignity has invested more than $180 million in loans and equity.
- Target resources to low-income communities
- Invest in the revitalization of urban or rural areas
- Empower low-income people to create, manage, and own enterprises
- Demonstrate a commitment to healthy communities
- Safeguard the environment
In the 1980s, several Sisters of Mercy congregations, which operated a number of hospitals that would become part of Catholic Healthcare West (now Dignity Health), had their own community investment initiatives. When Catholic Healthcare West was formed in the early 1990s, the sisters were successful in securing that a portion of the investment portfolio include an allocation for investing in projects in low-income communities in the health system’s service area.
Support has increased over time, as the board became engaged and the investment initiative was formalized, becoming the Community Investment Program. Pablo Bravo, the vice president of community health, explained, “It’s been an educational journey for the board. They get that not only are they getting a return on the investment based on interest rates, but also the return of impact in the community. The impact in our facility is very clear.”
Place-based Investment Themes
- Economic development
- Affordable housing
- Renewable energy
- Arts and education
- Alternatives to predatory lending
- Healthcare access (community health centers/Federally Qualified Healthcare Centers)
According to Bravo, the treasury or investment program is “like a three-legged stool.” One leg is the overall investment portfolio, which is managed by asset managers and overseen by a vice president for investments, who works in the treasury department. Shareholder advocacy is the second leg and the third is the community investment program. In essence, “a dotted line exists between treasury and community health.” Interest earned from the Community Investment Program returns to the overall investment portfolio. Bravo stressed the importance of housing the community investment program within a department focused on improving community health.
- Secured and unsecured loans
- Intermediary investment (CDFIs)
- Line of credit
- Loan guarantees
- Linked deposits (credit unions and community banks)
- Equity capital
Bravo oversees the community investment program, and has led its expansion over the twelve years he’s been at Dignity. He explained that the goal of the program is to fill gaps in the marketplace around access to capital: “Organizations should first reach out to traditional lenders. If they are not successful there, they should engage other financial intermediaries like community development financial institutions,” Bravo said. Adding: “When organizations come to us, they come to us because they have a project that requires gap-financing that we may be able to fill. We also engage organizations to let them know if they take on certain projects, we are willing to provide capital.”
Regarding Dignity’s willingness to use a variety of investment strategies rather than just partner with financial intermediaries or invest in funds, Bravo explained, “I think the best strategy is to really keep the dollars as flexible as possible and with reasonable interest rates. I think a lot of projects could not go forward if it wasn’t for the flexibility we provide with our program.”
For a project to be considered by the Community Investment Program, it has to be able to meet certain legal, financial, and management requirements (see the figure below). Generally, Dignity will first meet with the organization to learn more about the project and—if there is a possibility it will more forward—-ask them to submit an application.1The More Resources section of the online version of this toolkit provides two application templates for Dignity Health’s community investment program. Bravo explained, “You want to get a sense of the organization. How long have they been around? Have they had any financial difficulties in the past? You start looking at their financial track record and then you look at their ability to finance the project.” Bravo and a financial analyst, Leslie Watson, complete due diligence for potential projects.
After the initial due diligence, the Community Economic Initiatives Subcommittee reviews recommended applications and then provides its recommendation to the Board of Director’s Investment Committee, which meets four times a year. Bravo noted that the Community Economic Initiatives Subcommittee is not simply a loan committee because it oversees other community health-related activities.
Interest rates on loans provide by Dignity Health range from 0 to 5 percent, depending on the investment. Loan terms range from one to seven years and the minimum loan amount is $50,000. The current rate of return is about 3.2 percent and the rate of return on the loans is indexed to a three-year blended consumer price index (CPI). It has exceeded this index for more than ten years.
Community investment requirements
|Legal Information||IRS Nonprofit Determination Letter, Articles of Incorporation, Corporate Bylaws, and Board Resolution to Borrow|
|Financial Information||Audited financials and business plans as appropriate|
|Management Information||Demonstrated level of board and management expertise|
Bravo shared, “As far as returns, we don’t have or get the returns the market provides, but sometimes the community investment allocation outperforms the overall market…During the Great Recession banking meltdown, we did outperform almost that entire year, especially if you measure the positive social, economic, and/or environmental outcomes, like savings to the system as far as providing appropriate access to care or keeping people healthy. If you quantify that in dollars, we outperform any market on a year-by-year basis.”
Bravo ensures that local Dignity Health facilities are involved in any funded projects in their communities. This is important for two reasons. First, so that the local facility, not the system office, gets acknowledged for making the investment; and, second, so that a local staff person is engaged with the loan recipient and can keep Bravo informed if the organization experiences any challenges.
In the case of borrowers who are struggling to pay back the loan, Bravo will meet with the organization to discuss how to resolve the issues. If that proves unsuccessful, the next step is to consider restructuring the loan with more favorable terms, with Dignity Health acting as a “patient” lender. Out of over 140 total loans since Bravo joined the health system, Dignity Health has had only one domestic default—when ShoreBank CDFI was forced to close in 2009 during the Great Recession.
Education about the program is an important aspect of Bravo’s job. Information on the program is reported in the system’s annual mission report. In addition, he meets with other board committees and visits local facilities frequently. Bravo remarked, “The program is now well-known throughout our system. Whenever I run into a hospital president, they want to know when we are doing something in their service area. It’s a different day, but it has taken us a while to get here.”
Staffing and budget
From the early 1990s until 2002, the Community Investment Program did not have a full time staff person. Then, in 2002, and until 2015, Bravo oversaw the community investment portfolio as his primary responsibility. In 2015, when Bravo was promoted to vice president for community health, Watson, the financial analyst, was hired to help manage the program. Although Bravo now oversees other departments, such as community health, he still considers community investment to be “100 percent” his responsibility: “If I’m meeting with our community health person out in Santa Cruz, the tool is still with me. If I’m sitting in a room having a conversation with an organization that mentions they are looking to expand, I ask if they are familiar with our community investment program.”
Bravo’s responsibilities include drafting loan agreements and sharing them with the legal department. Watson assists with the work leading up to this stage: preparing memos, handling much of the due diligence, providing financial information, and ensuring that borrowers submit monitoring reports.
Other departments provide important services as well: the legal department reviews the prepared loan agreements; treasury handles the wires; and, finance ensures that they are capturing the financial data. Community health staff also contribute, by suggesting potential investment opportunities. As Bravo described the team-oriented process: “Even though there are two people fully focused on the program, we’re surrounded by others who support us to execute.”
Key strategies employed
Provide secured and unsecured direct loans to local nonprofits and/or businesses
By providing secured and unsecured direct loans directly to nonprofit organizations, Dignity targets its investments more strategically and minimizes costs for the borrower. This approach also allows the institution to make investments in communities where there are no active financial intermediaries.
Allocate to financial intermediaries, including CDFIs and other investment managers offering place-based private debt strategies
About a quarter of Dignity’s community investment portfolio is invested in partnership with CDFIs. These partnerships are strategic for a number of reasons. Most importantly, they allow Dignity to leverage investment funds to extend their reach while mitigating risk. Moreover, both Dignity and the CDFI benefit from the partnership and share the risk, since neither party provides all of the total financing. Borrowers also benefit, as they can access capital at a lower rate and/or with fewer fees from a CDFI. In addition, the CDFI assists Dignity with monitoring and back office support.
Provide loan guarantees to local nonprofits and/or businesses
Of the $100 million allocation for community investment, $10 million is specifically designated for loan guarantees. Although Dignity has provided only one loan guarantee, to Mercy Housing for affordable housing construction, this investment vehicle expands Dignity’s ability to best allocate resources to needs in the community.
Move cash and cash equivalent assets into local banks and credit unions
By opening a certificate of deposit (CD) in community credit unions, and supporting these financial institutions that prioritize low-income communities, Dignity helps increase local access to capital for home ownership and small businesses. Currently more than $500,000 of Dignity’s community investment allocation is invested in community credit unions.
Purchase stock in community development banks or other types of alternative economic enterprises
Dignity also owns $500,000 in preferred common stock in two community banks, allowing those banks to more effectively provide services in low-income communities, where larger banks do not offer these same services.
Align community health with place-based investing strategies
As vice president of community health, Bravo oversees both the community health department and the Community Investment Program, allowing him to strategically align these two areas of overlapping work. Dignity Health hospitals contribute .05 percent of prior year audited expenses for community grants that align with priorities identified in the local facilities community health needs assessment (approximately $4 million). Grants range from $5,000 to $100,000.
The impact of Dignity Health’s Community Investment Program, which has disbursed more than $180 million in loans and equity over the life of the program, is valued across the organization.
When asked what type of investment strategy or area is the most important to the program, Bravo reflected, “The fact that we have made it possible for three clinics to become FQHCs [Federally Qualified Health Centers], that’s meaningful. The fact that we have invested in supportive housing and expanding affordable housing, and provided difficult to access pre-development loans, is important. That we have reduced the frequency of unnecessary use of the emergency room by homeless individuals is impactful. I could not choose one over the other, they’re all key.”2Specific examples of projects in Sacramento, Los Angeles and San Francisco, California can be found in the More Resources section of the online version of this toolkit.
One project did stand out as particularly meaningful for Bravo: the Children’s Museum of Phoenix. Founded in 1998, the museum was originally mobile; staff would pack up everything into a van and travel from community to community. Then, in 2006, museum leadership went to the city of Phoenix and negotiated a deal with the city to retrofit and rehab an abandoned high school and turn it into a state-of-the-art interactive children’s museum. At the time, Phoenix was not only the “youngest” big city in the nation, but also the only major city in the country without a dedicated children’s museum. Once plans were in place, the museum started a capital campaign. But the museum and the capital campaign struggled to raise enough money to get the project off the ground.
“Then they came to us,” Bravo shared. He explained that the museum asked if Dignity could provide a loan against future pledges. Dignity was enthusiastic about the project and offered a bridge loan of $1.5 million at 3.5 percent interest over five years. Bravo emphasized proudly, “If you go to Phoenix today and check out this museum, you’ll notice, first, it’s an incredible museum, and, second, it has help transformed the entire area by serving as a catalyst for other development. It is a place that children of all income backgrounds can come and interact with each other without thinking about anything else but having a good time.”
For more information
Pablo Bravo, Vice President, Community Health
Leslie Watson, Analyst
Pablo Bravo, phone interview by David Zuckerman and Katie Parker, March 18, 2016.
References [ + ]
|1.||↑||The More Resources section of the online version of this toolkit provides two application templates for Dignity Health’s community investment program.|
|2.||↑||Specific examples of projects in Sacramento, Los Angeles and San Francisco, California can be found in the More Resources section of the online version of this toolkit.|