Place-Based Investment Strategies
Allocate assets from investment portfolio for place-based investments
- Designate a percentage of investible assets within investment portfolio for place-based investments
- Increase the asset allocation incrementally over time
- Create a place-based investment asset allocation specifically to complement community benefit strategies
- Fund place-based investment with surplus returns from investment portfolio
- Contribute a fixed amount annually from investment portfolio
- Ensure a minimum available amount
- Create a place-based investment asset allocation to achieve a specific objective
Identify place-based investment opportunities across asset classes
- Cash and cash equivalents: deposits in local community development banks and credit unions
- Fixed income: geographically targeted private and public debt investments
- Private equity and venture capital: equity investments in local private enterprises with positive community benefits
- Real assets: investments in local infrastructure, real estate, and commodities with positive social and environmental impacts
Upstream Community Benefit Strategies
Dedicate a funding source
- Create a formula for resourcing upstream community benefit strategies
Address community health needs by allocating discretionary operating dollars to sustainable solutions
- Support inclusive, local community economic development
- Increase stable and affordable housing
- Improve access to healthy and affordable food
Hospitals and health systems have a range of options for utilizing their investment portfolios to address economic and environmental disparities and improve health and well-being in the communities they serve. Community investment opportunities exist through high-impact place-based investments across asset classes, themes, sectors, and risk/return profiles. This section focuses on place-based investment opportunities across asset classes that produce a financial return and a positive social, economic, or environmental impact within the geography that the health system serves.
Place-based investing enables institutions to activate investment assets traditionally overlooked for their ability to create positive community impact—a prudent institutional strategy as health systems grapple with limited resources yet greater responsibility for patient and community outcomes. In other contexts, and on occasion within this toolkit, this type of investment may be called “community investment,” “impact investing,” or “mission-related investing.”
Health systems new to place-based investing may choose one or two asset classes, themes, sectors, and risk/return profiles to focus on initially. That said, this toolkit recommends moving toward an integrated capital approach to place-based investing over time. Place-based investors often find that the community interventions and supports needed—and the investment required to make them sustainable—are not a good fit for the highly compartmentalized and specialized offerings of the mainstream financial system, and may therefore require more patient capital and new approaches to investment analysis and capital deployment. An integrated capital stack might include investments across a range of asset classes, including cash and cash equivalents, fixed income, private equity, private debt, and real assets, as well as grants and human and social capital, such as access to mentors, learning circles, and technical assistance.
In order to achieve even greater impact, health systems should examine how to allocate discretionary operating dollars more deliberately to complement their place-based investment strategies. This section will highlight several innovative examples of how health systems are taking an integrated capital approach to supporting local community economic development; increasing stable and affordable housing; and, improving access to healthy and affordable food while often leveraging additional resources in the process, either through their own foundations or external philanthropic or government sources.
This toolkit will refer to these complementary practices as “upstream community benefit,” since they do not preserve the value of the initial principal allocated to these strategies and are focused on addressing the social, economic, and environmental factors that are the most important drivers of good health and well-being within communities. These practices could be included as part of a nonprofit health system’s community benefit reporting.
Place-based Investment Strategies
Allocate assets from investment portfolio for place-based investments
To create a sustainable place-based investment program that addresses social determinants of health, an institution should allocate a portion of assets within its investment portfolio accordingly. Health systems have structured asset allocation for place-based investments differently. Here are a few examples:
|Health System||Asset Allocation Percentage|
|Dignity Health||5 percent|
|Bon Secours Health System||5 percent|
|Gundersen Health System||5 percent|
|St. Joseph Health||2 percent|
|Catholic Health Initiatives||1 percent|
|Trinity Health||1 percent|
- Designate a percentage of assets within investment portfolio for place-based investments:
The most commonly used strategy identified through interviews is to allocate 1 to 5 percent of assets within an investment portfolio for place-based or community investments.
For example, Dignity Health based in San Francisco, California has an investment policy statement outlining that up to 5 percent of its investment portfolio will be allocated for loans to nonprofits that are supporting community health and well-being. Currently, it has deployed slightly less than one percent, or nearly $90 million, for these investments.1Pablo Bravo, phone interview by David Zuckerman and Katie Parker, March 18, 2016.
- Increase the asset allocation incrementally: The Board of Directors at Bon Secours Health System, based in Marriottsville, Maryland has authorized the institution to invest up to 5 percent of its Long-term Reserve Fund (LRF) with community development financial institutions (CDFIs) that serve low- and moderate-income communities. Bon Secours has worked toward achieving this target by annually increasing its asset allocation by approximately $3 million. Since instituting this policy in 2008, Bon Secours has shifted $26 million, or about 2 percent of its $1.1 billion LRF (to date) to support affordable housing, economic development, community facilities, and other projects that benefit the health and well-being of the community members it serves.2Ed Gerardo and Ross Darrow, interview by David Zuckerman and Katie Parker, Marriottsville, MD, December 16, 2015.
- Create a place-based investment asset allocation specifically to complement community benefit strategies: Trinity Health, based in Livonia, Michigan, approximates 1 percent of its total operating investment portfolio for community investing through CDFIs. As part of that effort, Trinity Health launched its Transforming Communities Initiative in 2016, through which six community, multi-sector partnerships will receive a combination of grants, loans, and technical assistance. Through that initiative specifically, Trinity Health has made available $40 million from its community investment allocation to support projects that may be developed from those partnerships.3Cathy Rowan, interview by David Zuckerman and Katie Parker, Bronx, NY, January 29, 2016.
- Fund place-based investment with surplus returns from investment portfolio: Dartmouth-Hitchcock Health, based in Lebanon, New Hampshire, created the Population Health Innovation Fund in 2014 to “support the advancement of population health across Dartmouth-Hitchcock Health practice sites and communities.”4Dartmouth-Hitchcock Health Population Health Innovation Project Proposal application. It is resourced with 30 percent of investment portfolio returns that exceed budget targets. This fund, which has grown to more than $14.5 million from its inception, currently provides community grants for activities that align with the system’s community benefit priorities.5Laura Landy, “Using Systems Change to Create a New Health Ecosystem,” ReThink Health, July 11, 2016, http://www.rethinkhealth.org/the-rethinkers-blog/using-systems-change-to-create-a-new-health-ecosystem/. A similar strategy could support seeding a place-based investment fund, which would continue to grow and be self-sustaining over the long term.
- Contribute fixed amount annually from investment portfolio: In lieu of an active place-based investment strategy, Mercy Health, based in Cincinnati, Ohio, contributes $5 million annually from its portfolio returns to its foundation. The foundation then determines how to grant those dollars within the community. A similar strategy could support seeding a place-based investment fund, which would continue to grow and be self-sustaining over the long term.6Molly Murphy, interview by David Zuckerman and Katie Parker, Cincinnati, OH, January 14, 2016.
- Ensure a minimum available amount: St. Joseph Health, based in Irvine, California, has a Community Investment Fund that provides capital in the form of loans, deposits, or other support to nonprofit entities to promote social good and the development of healthier communities. The fund makes available whichever is greater, 2 percent of St. Joseph’s long-term reserves sub account or $50 million.7Lisa Laird, interview by David Zuckerman and Katie Parker, May 9, 2016.
- Create a place-based investment asset allocation to achieve a specific objective: Gundersen Health System, based in La Crosse, Wisconsin, set a goal to produce more power than it consumes from fossil fuel sources by 2014. Recognizing that this objective would require an extraordinary level of investment, it allocated 5 percent of its investment portfolio, or $30 million, to invest in local renewable energy projects. These real assets allowed Gundersen to meet renewable energy targets, create jobs in the communities it serves, and realize above-market returns on its investments.8Mark Platt, Jeff Rich and Jeff Thompson, interview by David Zuckerman and Katie Parker, La Crosse, WI, March 16-17, 2016.
The advantage of this approach is that it can help an institution take on and achieve bold goals. A potential disadvantage is that without a formal, ongoing place-based investment program dedicated to supporting community health and well-being, approval from senior leadership would be required for each proposed project. This may result in challenges and limitations if leadership changes lead to less support for the initiative.
Identify Place-based Investment Opportunities across Asset Classes
Cash and Cash Equivalents
- 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
- Provide linked deposits to a financial intermediary to enable them to provide loans for specific projects
Community development financial institutions (CDFIs) are mission-driven financial institutions that serve communities and individuals that mainstream financial institutions consider either too risky or not credit worthy enough for financing. CDFIs leverage funding from private and public sources to finance businesses and projects—including small businesses, microenterprises, nonprofit organizations, commercial real estate, and affordable housing—in financially underserved communities. There are four primary kinds of CDFIs: community development banks, credit unions, loan funds, and venture capital funds.
The National Community Investment Fund is a leading information resource for CDFI and other mission-oriented banks. The National Federation of Community Development Credit Unions is a leading resource for CDFI credit unions. Opportunity Finance Network is the leading national network for community development loan funds. The Community Development Venture Capital Alliance is a leading resource for CDFI venture capital and private equity funds. The CDFI Fund, an agency housed in the US Department of Treasury, maintains a list of certified CDFIs throughout the country.9For a list of currently certified CDFIs, see: CDFI Fund, CDFI Certification, US Department of Treasury, 2016, accessed July 27, 2016, www.cdfifund.gov/programs-training/certification/cdfi/Pages/default.aspx. As of June 30, 2016, there were 1,021 federally certified CDFIs, with at least one CDFI located in every US state.
There are multiple vehicles through which health systems can invest with CDFIs, across asset classes. These include money market accounts and certificate of deposits at banks and credit unions; promissory notes, which typically come in the form of unsecured senior debt with recourse to the CDFI’s balance sheet and offer fixed, market-rate returns over varying terms; and, equity investments in local businesses through co-investing alongside a CDFI or investing in a community development venture capital fund.
Deposits in local community development banks and credit unions provide low-risk, local investments that are federally guaranteed up to certain limits. Bank deposits are insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 and typically offer fixed, market-rate returns over varying terms. Certificate of Deposit Account Registry Service, or CDARS, is a national service that enables an organization to place funds in excess of $250,000 with smaller, local financial institutions while maintaining protection of the original deposits through FDIC insurance.10CDARS, www.cdars.com.
Health systems can utilize either operating or investment dollars for increasing deposits with credit unions and community banks that provide financial resources to underserved communities. This strategy can increase community lending capacity at little additional risk to the health system. Access to capital in low-income communities is a key driver of economic health, which is closely tied in turn to mental and physical health. Neighborhoods that have suffered disinvestment over a long period tend to experience a lower life expectancy than more affluent ones, for example.
ProMedica, based in Toledo, Ohio, and located throughout twenty-seven counties in northwest Ohio and southeast Michigan, also serves its local communities by leveraging its sizable balance sheet and its leadership position as one of the largest employers within the region. Historically, ProMedica supported local and regional banks, investing in sixteen regional banks and diversified treasury management services. This effort is unique as most healthcare systems bank with only one or two institutions. The banking strategy has helped ProMedica build local relationships in the counties it serves, maintain credit in those communities, and better manage risk during economic downturns like the Great Recession.
In 2015, ProMedica launched a pilot project to position additional deposits of $250,000 to $3 million with smaller community banks, using CDs through the CDARS program noted above. ProMedica’s directive to the banks is to redeploy the deposits to create loans in those communities, with an emphasis on job creation, new and/or expanded businesses, and new community services or programs. The banks report key metrics quarterly, including how the funds were utilized. Matching services to banks’ skill sets and capabilities avoids duplication of services and ensures the strategy remains efficient for ProMedica. ProMedica sees this strategy as a powerful way to use its resources to benefit the communities it serves, all the while meeting its fiduciary responsibilities with no additional staffing.11Kate Sommerfeld, interview with David Zuckerman and Katie Parker, April 4, 2016.
Other health systems have invested cash in local banks and credit unions.
Dignity Health currently has more than $400,000 in community credit unions. Catholic Health Initiatives, based in Englewood, Colorado, has also used this strategy, purchasing a certificate of deposit (CD) in HOPE, a community development credit union and certified CDFI serving the Mid-South.12Pablo Bravo, phone interview by David Zuckerman and Katie Parker, March 18, 2016.
Health systems can also link specific CDs to projects at a CDFI bank or credit union. St. Joseph has used this investment tool on occasion. Lisa Laird, vice president for investments and cash management, shared the example of a small church that needed a loan but did not qualify. Using its Community Investment Fund, St. Joseph posted a CD as collateral with a local bank. The local bank then provided the church with the loan. As the church makes payment to the bank, St. Joseph’s CD becomes smaller each year it matures.13Lisa Laird, interview by David Zuckerman and Katie Parker, May 9, 2016.
Direct vs Indirect Investing
Health systems have the option of financing local businesses and nonprofits through underwriting investments directly, or indirectly through community development financial intermediaries and impact investment managers. The primary difference between direct and indirect investing is the staff resources necessary. Laird, who oversees St. Joseph’s direct lending to nonprofit borrowers, explained, “If you only had [CDFI] fund investments then that wouldn’t take much to oversee. Small direct investments take more manpower.”
Working with financial intermediaries such as CDFIs and fund managers allows health systems to engage in place-based investment without undertaking the same depth of due diligence associated with direct investment. Although institutions can direct intermediaries to target their capital to specific geographies, even within commingled funds—such as RBC’s Access Capital Community Investment Fund or Community Capital Management’s CRA Qualified Investment Fund—indirect investment does not allow an institution as much direct control over investments. Therefore, it might be more difficult to align place-based investments with other financial and human capital supports the health system may be providing in the community.
Ed Gerardo, director of community commitment and social investments at Bon Secours, explained, “The big trade-off in this is that we are not able to direct those investments to particular projects. We do not have the capability to vet specific project opportunities outside our healthcare expertise. We rely on the intermediary’s evaluation and respect their determinations. Our assurance is that risk is substantially reduced and we look for a more modest financial return of about 2 percent. Our requirement of the intermediary is that they place and utilize the funds within our local geography.”14Ed Gerardo and Ross Darrow, interview by David Zuckerman and Katie Parker, Marriottsville, MD, December 16, 2015.
Alternatively, direct investment strategies create the potential for greater alignment, but require increased internal capacity to conduct the due diligence and financial analysis needed to make responsible investments without the support of a financial institution. For example, many CDFI-certified loan funds offer low-risk unsecured, senior debt notes with recourse to their balance sheets. With direct investment, the health system is taking on increased risk. But this is not always the case. As Laird emphasized, “For us, it is not risky because we have relationships with most of our direct borrowers. We know them, we know the services they provide to the community, we have someone on their board, and know how they will be paying us back.”
- Allocate to financial intermediaries, including CDFI loan funds and other investment managers offering place-based private debt strategies
- Provide secured and unsecured direct loans to local nonprofits and businesses
- Provide loan guarantees to a nonprofit organization for specific projects
- Align place-based loans to complement community benefit strategies
Numerous health systems allocate a portion of their fixed income assets to community-focused financial intermediaries, including CDFI loan funds and investment managers offering place-based private debt strategies. There are also investment managers and other platforms that are providing debt capital to organizations and projects with geographically targeted, positive social, economic, and environmental impact.
Although Mercy Health does not have an official place-based investment program, it embraces opportunities to invest locally when they arise. In partnership with the Cincinnati Chamber of Commerce, it has invested $100,000 in a local private debt fund that will make low-interest loans to minority-owned small businesses that are capped out of federal small business administration programs.
This fund was created because access to capital during this interim stage of business growth was a need within the minority-owned business community in Cincinnati. Ten investors each invested $100,000 into this fund and the local chamber administers it. The rate of return for investors ranges from 2 to 4 percent.
Molly Murphy, former chief investment officer at Mercy Health, explained, “One of the pushbacks we often encounter here is that this is a lot of extra work and due diligence for a small amount of money. It does seem like a small amount, but when working with [a local partner like the] Chamber of Commerce, they can only do what they are ready for. You have to be ready to do the small things so they become bigger and have more impact.”15Molly Murphy, interview by David Zuckerman and Katie Parker, Cincinnati, OH, January 14, 2016.
By providing secured and unsecured direct loans directly to nonprofit organizations, health systems can provide access to capital and overhead that is cheaper than financial intermediaries and serve as a lender of last resort—filling a gap in the market created by traditional lender practices. This strategy also allows health systems to target more strategically the impact of investments and minimize the financial burden for the borrower. Finally, this approach allows a health system to invest in communities where there is limited lending activity or little to no CDFI presence.
Dignity Health and St. Joseph Health utilize this strategy. Pablo Bravo, vice president of community health at Dignity Health, explained the benefit of this approach, “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.”
Laird at St. Joseph reflected, “Our program does both fund investments and direct investments. With the direct lending, it is right in our backyard and we can name organizations that have meaningfully benefited from participating in the program. It has created really great connections to the local community.”
A loan guarantee is a promise by one party (the guarantor)—in this case, a health system—to assume the debt obligation of a borrower if that borrower defaults. Of Dignity Health’s $100 million allocation for its community investment program, $10 million is specifically designated for loan guarantees. Although Dignity has only made one loan guarantee to Mercy Housing for affordable housing construction, this instrument expands the resources at Dignity’s disposal to address market gaps that prevent communities from having access to this needed health-improvement strategy.16Pablo Bravo, phone interview by David Zuckerman and Katie Parker, March 18, 2016.
As noted above, an integrated capital approach that aligns investments, grants, and technical assistance may be required to create the conditions for health and well-being in all communities. Coordinating these resources will help ensure more effective and sustainable solutions. In 2016, for example, Trinity Health initiated the first phase of its Transforming Communities Initiative, which aims to connect grants, loans, technical support, and evaluation over a five-year period to address pressing community health challenges.
The initiative is focused on reducing tobacco use and obesity and promoting overall healthy living. Through a competitive application process, teams in Trenton, New Jersey; Springfield, Massachusetts; Maywood, Illinois; Silver Spring, Maryland; Boise, Idaho; and Syracuse, New York will receive up to $500,000 annually for at least the next five years. The funding requires a full-time liaison to support the efforts, and each community partnership is focused on areas of greatest need in their community. The initiative will also include the availability of $40 million in low-interest loans to support complementary interventions (e.g. to address food access, housing, and early childhood issues).17Betsy Taylor, “Trinity Health Grant Initiative Seeks Community Transformations,” Catholic Health Association of the United States, March 15, 2016, www.chausa.org/publications/catholic-health-world/article/march-15-2016/trinity-health-grant-initiative-seeks-community-transformations.
Public Fixed Income
- Invest in locally issued municipal bonds that support community mission
- Allocate capital to place-based public fixed income strategies
Health systems can dedicate a portion of their publicly traded fixed income allocation to place-based investments as well. This can be done by investing directly in municipal bonds and securitized agency debt that helps finance local infrastructure, schools, facilities, affordable housing, or mortgage finance. If health systems lack the capacity to invest directly in the public debt capital markets, then fixed-income managers such as Community Capital Management and RBC Global Asset Management’s Access Capital Strategies can geographically target their own bond buying to their clients’ specifications, through vehicles such as mutual funds, commingled funds, and separate accounts.
Private Equity and Venture Capital
- Commit capital to impact investment private equity funds or community development venture capital funds that target geographies that overlap with the health system’s service areas
- Make direct equity investments in local, sustainable, minority-owned, and/or employee-owned businesses in the community
- Purchase stock in community development banks or related enterprises
Place-based private equity and venture capital is characterized by investments made in funds or directly into privately held companies that improve economic, environmental, and/or social conditions in local communities. These investments can be either market-rate or concessionary.
Of any asset class, private equity and venture capital investors typically have the greatest amount of influence over the management of a company. Investors usually hold board positions and can reinforce the importance of maximizing positive impact through engagement with corporate leadership. Private equity and venture capital investors often provide expertise, mentorship, and other resources to support the success of high impact companies.
Allocating to a financial intermediary, typically an investment manager or a CDFI, allows healthcare systems to outsource the expertise and intensive due diligence associated with investing in place-based private equity and venture capital strategies.
Direct private equity investments require more internal resources to undertake extensive due diligence on prospective investees, but returns may typically be higher and the ability to influence corporate management may also be greater.
Gundersen Health System utilized this strategy to help retain Logistics Health Incorporated (LHI), a veteran-owned, local business that employs veterans. During a period of rapid growth, LHI became one of the largest employers in La Crosse, Wisconsin and its founder one of the largest investors in the community. When the company needed growth capital to expand but could not find local investors, the growing likelihood was that the business would be acquired by a company that would relocate it outside of La Crosse.
To retain this business in La Crosse, then-CEO of Gundersen, Dr. Jeff Thompson, pushed his team to come up with a solution. Ultimately, Gundersen made an equity investment in LHI of tens of millions of dollars. Leveraging the expertise of some of its board members—including one that was a banker and another an accountant—along with the knowledge of his own staff, Thompson recalled, “We did our due diligence. We’d have to stay invested for three years and it did tie up some assets. It wasn’t a unanimous decision of the board.”
Thompson positioned this decision internally as aligned with the institution’s mission to improve the health and well-being of the patients and the communities it served by ensuring an important employer stayed and continued to support the local economy. “This was a growing company with a strong track record and it was well-run. Turns out, we were able to sell in sixteen months, not three years. When we sold, we drove a hard bargain since we didn’t have to sell.” Gundersen had two non-negotiable conditions in the sale: remain and grow in La Crosse.18Mark Platt, Jeff Rich and Jeff Thompson, interview by David Zuckerman and Katie Parker, La Crosse, WI, March 16-17, 2016.
Direct private equity strategies can also provide capital to increase responsible lending by local banks in low-income communities. For example, Dignity Health 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.19Pablo Bravo, phone interview by David Zuckerman and Katie Parker, March 18, 2016.
- Allocate to investment managers offering sustainable, place-based real assets strategies, which may range from commercial or residential real estate investment to farmland and timberland, or clean energy infrastructure
- Make direct investments in local real assets that contribute to community health and well-being
Real assets offer health systems an opportunity to invest in physical assets, such as real estate, farmland, forestland, and infrastructure that contribute to improving community health, well-being, and economic prosperity. Health systems can invest via intermediaries or directly by purchasing physical assets outright.
Investing in local renewable energy projects offers an opportunity to improve environmental health, diversify the portfolio, and potentially receive above-market rates of return. Through its Envision initiative, in 2014, Gundersen Health System in La Crosse, Wisconsin, became the first health system in the world to produce more energy from renewables than it consumes from fossil fuel sources.
It accomplished this goal over six years through leveraging approximately 5 percent of its long-term savings, or about $30 million, to invest in energy efficiency measures and local renewable energy projects. Senior Vice President Mark Platt shared, “We chose to look at these investments not in terms of other medical competing needs, but in comparison to how those dollars would be invested in the market…Our investment portfolio is pretty conservative. We chose instead to invest in local energy projects that have a greater return and improve community health.”
Gundersen leadership could have chosen to achieve this goal by purchasing clean energy from other communities. Instead, they made an intentional decision to prioritize this investment in their own community. To do so, they considered both financial return and community impact. Jeff Rich, CEO of Envision LLC (a subsidiary of Gundersen established to lead its sustainability efforts) remarked, “We focused on four things: 1) making care more affordable for our patients, 2) improved community health, 3) job creation, and 4) the environment.”
Gundersen’s investments directly and in partnership helped support the creation of two wind turbines, a biomass boiler, a landfill gas project, two dairy manure digesters, a geothermal heat pump, and several solar projects. Executing these investments would not have been possible without two-full time program staff leading the projects’ implementation and internal support from Gundersen’s legal, finance, marketing, communications, accounting, and external affairs departments. Support from senior leadership was key throughout. The Gundersen Health System case study in this toolkit provides additional information on this important example.20Mark Platt, Jeff Rich and Jeff Thompson, interview by David Zuckerman and Katie Parker, La Crosse, WI, March 16-17, 2016.
Nationwide Children’s Hospital in Columbus, Ohio, has been supporting affordable housing development in the neighborhoods surrounding its health system for several years. As it has deepened its understanding around the importance of stable housing for community health and well-being, it has shifted the type of dollars it has committed to this work. The Hospital chooses to make project-specific investments around long-term plans for the particular neighborhood rather than setting a dollar amount.
Initially, working in partnership with many local community development actors and the City, it allocated an initial $2 million from operating dollars set aside to implement priorities within its strategic plan. Following that commitment, it allocated dollars from its shared savings earned through its accountable care organization and continued funds from operating dollars to the point that a total of $10 million of Hospital funds have been used with approximately $20 million from other partners to move forward specific projects.
Most recently, it has explored how it can leverage its large endowment investment portfolio within the local real estate market for a specific project on improving low-income rental stock in the target neighborhood. To begin, Nationwide is examining the portion of its overall portfolio allocated to real estate and deploying a sufficient amount to a nonprofit real estate company to develop approximately fifteen affordable rental housing units/annum locally over the next five years. In this way it can maximize its impact on a key determinant of health and well-being, while earning a healthy rate of return through rents that will pay interest and long term principal curtailment.21Kelly Kelleher, phone interview by David Zuckerman, September 1, 2016.
Upstream Community Benefit
As a result of the need for an integrated capital approach that aligns investments and grants, health systems should examine how to more deliberately allocate discretionary operating dollars to complement place-based investment strategies in order to achieve greater impact. Here we highlight a few innovative examples of how health systems are taking this next step, helping create a sustainable community economic development infrastructure in low-income communities.
Dedicating a funding source
Create a formula for resourcing upstream community benefit strategies
Similar to place-based investment programs, the ability to have a secure source of flexible funding to allocate toward long-term upstream community benefit strategies will determine the sustainability and impact of those commitments over time, and their ability to effectively complement the place-based investment strategies explored above. Health systems have adopted a variety of formulas for deciding on the community benefit allocation for community building efforts, including:
- Percentage of prior year audited expenses: Each Dignity Health hospital contributes .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 annually).22Pablo Bravo, phone interview by David Zuckerman and Katie Parker, March 18, 2016.
- Percentage of net income: Joseph requires that 10 percent of net income be allocated to the Community Partnership Fund; Three-quarters of those contributions support Care for the Poor programs selected locally by each hospital; 17.5 percent support Community Partnership Fund initiatives; and, the remaining 7.5 percent is added to the Fund’s endowment to help ensure the sustainability of future programs that assist low-income and underserved populations.23Gabriela Robles, interview by David Zuckerman and Katie Parker, April 15, 2016.
- Allocation from long-term investment portfolio: As discussed above, Mercy Health and Dartmouth-Hitchcock Health have utilized investment portfolio returns to create a pool of grant dollars to address community needs.
Address community health needs by allocating discretionary operating dollars to sustainable solutions
Support inclusive, local economic development
A thriving local economy is a key component of a healthy community. The Evergreen Cooperatives in Cleveland, Ohio, represent a model of economic inclusion that seeks to leverage the purchasing power of University Hospitals, Cleveland Clinic, and other significant nonprofit and public employers to incubate new businesses that will hire hard-to-employ, low-income residents. A vital component of the model is a revolving loan fund housed under a nonprofit holding company. The nonprofit helps incubate new businesses, leveraging significant outside resources, including New Markets Tax Credits, HUD108 loans, and other federal resources. University Hospitals and Cleveland Clinic, contributing $1.25 million and $250,000 respectively, along with a number of other philanthropic and anchor partners, helped seed this multi-million-dollar loan fund.
Over time, the cooperative businesses pay down their debt to the loan fund, allowing it to finance additional businesses. Currently, more than 100 people are employed at the three companies created to date. Ongoing philanthropic support from the Cleveland Foundation was also critical to ensuring the businesses had enough resources to reach profitability and be sustainable.24An in-depth case study of the Evergreen Cooperatives can be found in the More Resources section of the online version of this toolkit. see: REDF, “Evergreen Cooperatives,” Impact to Last: Lessons from the Front Lines of Social Enterprise, San Francisco, CA: REDF, 2015, redf.org/wordpress/wp-content/uploads/2015/12/Evergreen-Case-Study-FINAL.pdf;
Responding to the need for job creation and business development in the communities it serves in Richmond, Virginia, Bon Secours Health System partnered with Virginia Local Initiatives Support Corporation (LISC)—a local affiliate of a national community development intermediary—to launch the Supporting East End Entrepreneurship (SEED) initiative in 2011. Over four years SEED granted more than $400,000 ($100,000 a year) to support locally owned businesses and recently committed to providing another $150,000 in 2015.25Ed Gerardo and Ross Darrow, interview by David Zuckerman and Katie Parker, Marriottsville, MD, December 16, 2015.
Increase stable and affordable housing
As the link between improved health outcomes and safe, affordable housing is increasingly understood, health systems around the country have explored their role in addressing this key determinant of health. Through loans to financial intermediaries such as CDFIs or direct loans and loan guarantees to nonprofit housing providers, Dignity Health, Catholic Health Initiatives, St. Joseph Health, Trinity Health, and Bon Secours Health System have supported providers that build and renovate affordable, supportive, and transitional housing.
Other health systems have used discretionary operating dollars through community benefit allocations or philanthropic resources from their foundations to leverage additional philanthropic and public dollars to support affordable housing development. In almost all of these instances, health systems have utilized local collaborations, including partners such as city governments, community development organizations, community foundations, the United Way, and state housing agencies to realize these projects.
For example, in partnership with Rochester Area Foundation, Greater Minnesota Housing Fund, Minnesota Housing Finance Agency, and the United States Department of Agriculture’s Rural Development, Mayo Clinic provided $7 million for the $13 million community land trust, First Homes, in Rochester, Minnesota. First Homes, administered by the Rochester Area Foundation, launched in 2001 and aims to permanently preserve affordable housing for community members as well as Mayo Clinic employees. First Homes has constructed more than 875 units of housing and represents the state’s largest-ever community-based assisted-housing program.26David Zuckerman, Hospitals Building Healthier Communities: Embracing the anchor mission, The Democracy Collaborative, (College Park, MD: 2013), 62.
A non-exhaustive list of other health systems that have provided operating dollar or philanthropic support for affordable or supportive housing include: Nationwide Children’s in Columbus, Ohio; Florida Hospital in Orlando; Bon Secours Health System in Baltimore, Maryland; Swedish American Hospital in Rockford, Illinois; St. Joseph’s Hospital Health Center in Syracuse, New York; and St. Mary’s Health System in Lewiston, Maine.27David Zuckerman, Hospitals Building Healthier Communities: Embracing the anchor mission, The Democracy Collaborative, (College Park, MD: 2013), 49-51
Improve access to healthy and affordable food
Driven to improve the health and well-being of the communities it serves, ProMedica began exploring non-clinical solutions for the high local rates of obesity. In December 2015, ProMedica partnered with philanthropist Russell Ebeid, establishing the Ebeid Institute for Population Health to improve access to healthy food, deliver nutritional education, and provide job training. The cornerstone of the Institute is a 6,500-square-foot, full-service grocery store that offers healthy, affordable food to low-income neighborhoods in Toledo. The store, owned and operated by ProMedica, prioritizes sourcing from local vendors and hires hard-to-employ residents.
The Institute will also soon house a Financial Opportunity Center (FOC), jointly operated by local branches of the United Way and LISC (Local Initiatives Support Corporation), a national community development intermediary. In addition, ProMedica has established a local job-training program at the Institute to create a workforce pipeline for community residents into health system employment. ProMedica’s comprehensive community engagement plan includes creating a Community Advisory Committee with neighborhood stakeholders and establishing a Population Health Steering Team for the Institute. This operational planning team brings together internal champions from ProMedica and outside industry experts.
ProMedica has also emerged as an advocate for Toledo, helping spearhead revitalization and economic development downtown. The Promedica case study in this toolkit provides additional information.28Kate Sommerfeld, interview with David Zuckerman and Katie Parker, April 4, 2016.
The Power of Partnership
The impact of all of these strategies can be amplified through partnership and collaboration with other key local actors, such as place-based foundations, local governments and other nonprofit and public anchor institutions. As Bravo emphasized, “Collaboration is key to the success of place-based investment initiatives. We all must act, but if we’re really going to have a positive impact on community health needs, one institution cannot do this alone. We need actors across the spectrum of community development— from businesses and banks to health systems and foundations, to the public and nonprofit sectors—to partner and share vital resources in order to ensure ongoing success of community investment.”29Pablo Bravo, phone interview by David Zuckerman and Katie Parker, March 18, 2016.
References [ + ]
|1, 12, 16, 19, 22, 29.||↑||Pablo Bravo, phone interview by David Zuckerman and Katie Parker, March 18, 2016.|
|2, 14, 25.||↑||Ed Gerardo and Ross Darrow, interview by David Zuckerman and Katie Parker, Marriottsville, MD, December 16, 2015.|
|3.||↑||Cathy Rowan, interview by David Zuckerman and Katie Parker, Bronx, NY, January 29, 2016.|
|4.||↑||Dartmouth-Hitchcock Health Population Health Innovation Project Proposal application.|
|5.||↑||Laura Landy, “Using Systems Change to Create a New Health Ecosystem,” ReThink Health, July 11, 2016, http://www.rethinkhealth.org/the-rethinkers-blog/using-systems-change-to-create-a-new-health-ecosystem/.|
|6, 15.||↑||Molly Murphy, interview by David Zuckerman and Katie Parker, Cincinnati, OH, January 14, 2016.|
|7, 13.||↑||Lisa Laird, interview by David Zuckerman and Katie Parker, May 9, 2016.|
|8, 18, 20.||↑||Mark Platt, Jeff Rich and Jeff Thompson, interview by David Zuckerman and Katie Parker, La Crosse, WI, March 16-17, 2016.|
|9.||↑||For a list of currently certified CDFIs, see: CDFI Fund, CDFI Certification, US Department of Treasury, 2016, accessed July 27, 2016, www.cdfifund.gov/programs-training/certification/cdfi/Pages/default.aspx. As of June 30, 2016, there were 1,021 federally certified CDFIs, with at least one CDFI located in every US state.|
|11, 28.||↑||Kate Sommerfeld, interview with David Zuckerman and Katie Parker, April 4, 2016.|
|17.||↑||Betsy Taylor, “Trinity Health Grant Initiative Seeks Community Transformations,” Catholic Health Association of the United States, March 15, 2016, www.chausa.org/publications/catholic-health-world/article/march-15-2016/trinity-health-grant-initiative-seeks-community-transformations.|
|21.||↑||Kelly Kelleher, phone interview by David Zuckerman, September 1, 2016.|
|23.||↑||Gabriela Robles, interview by David Zuckerman and Katie Parker, April 15, 2016.|
|24.||↑||An in-depth case study of the Evergreen Cooperatives can be found in the More Resources section of the online version of this toolkit. see: REDF, “Evergreen Cooperatives,” Impact to Last: Lessons from the Front Lines of Social Enterprise, San Francisco, CA: REDF, 2015, redf.org/wordpress/wp-content/uploads/2015/12/Evergreen-Case-Study-FINAL.pdf;|
|26.||↑||David Zuckerman, Hospitals Building Healthier Communities: Embracing the anchor mission, The Democracy Collaborative, (College Park, MD: 2013), 62.|
|27.||↑||David Zuckerman, Hospitals Building Healthier Communities: Embracing the anchor mission, The Democracy Collaborative, (College Park, MD: 2013), 49-51|