Key strategies employed:
- Designate a portion of investible reserves for place-based investments
- Provide secured and unsecured direct loans to local nonprofits and businesses
- Allocate to financial intermediaries, including community development financial institutions (CDFIs) and other investment managers offering place-based private debt strategies
- Provide linked deposits to a financial intermediary to enable them to provide loans for specific projects
- Align community benefit with place-based investing strategies
Location: Headquartered in Orange, California, St. Joseph Health serves the regions of Northern California, Southern California, and West Texas/Eastern New Mexico. St. Joseph Health recently merged with Providence Health and Services, forming Providence St. Joseph Health. This merger extended the institution’s reach into the Pacific Northwest and created one of the nation’s largest nonprofit healthcare systems.
Employees: about 25,000
Revenues: $5.6 Billion
Investment portfolio: $2 billion
Focus of the Program
As a Catholic institution, St. Joseph Health extends its healing mission with special focus on the poor and vulnerable. St. Joseph Health recognizes that the health of any community depends on strong support structures—both physical and social—that sustain the long-term well-being of the population. This emphasis on building healthy communities inspired the establishment of the Community Investment Fund, to aid organizations serving the common good.
The Community Investment Fund (the Fund) provides capital in the form of loans, deposits and other support to nonprofit organizations and programs focused on affordable housing, economic development, social services, food banks, job expansion, and education. The fund makes available whichever is greater, 2 percent of St. Joseph’s long-term reserves sub account or $50 million. Currently, St. Joseph has approximately $10 million in loans outstanding to nonprofit and community development financial intermediaries.
In 1986, St. Joseph Health created the St. Joseph Health Community Partnership Fund (formerly the St. Joseph Health Foundation) to improve the health of low-income individuals in the local community. The fund’s foundational document and vision and values statement requires that all system hospitals return 10 percent of their net income to the Community Partnership Fund “to support outreach efforts for the materially poor.” Although the Community Investment Fund is not funded through this 10 percent contribution, it complements and reinforces St. Joseph’s broader strategies to improve community health.
As Lisa Laird, fund manager and vice president of cash and investments, explains, “The Community Investment Fund is a way for us to use our investment portfolio to serve the needs of the poor and vulnerable, which is intrinsic to our mission. It allows us to more effectively use our assets to further this effort at the heart of our organization.”
The Fund offers direct loans to nonprofits as well as capital for community development financial intermediaries. Organizations must provide collateral and demonstrate ability to repay the loans. At least 50 percent of the Fund must be invested in St. Joseph Health’s service area, although in practice this number is typically more than 95 percent.
Gabriela Robles, vice president of community partnerships, helps identify prospective borrowers: “From my point of view, a good fit would be a stable second or third generation nonprofit that would have already tried to get a bank loan but found it difficult to do so. Another example would be a nonprofit looking for capital investments or exploring social entrepreneurship.”
Interested organizations may complete a pre-qualification scan on St. Joseph’s website to determine if they are suitable candidates.1The More Resources section of the online version of this toolkit provides a link to St. Joseph’s pre-qualification scan. Due diligence is then completed using an internal template, metrics adapted from Dignity Health’s Community Investment Program, and other tools to assess the financials of potential nonprofit borrowers. To facilitate ongoing due diligence, the health system also requires that direct loan recipients appoint a St. Joseph staff person to their organization’s boards. This practice strengthens relationships between the system and local nonprofits, which can encourage further collaboration and partnership.
St. Joseph Health aims to make at least 20 percent of the Fund’s assets available each year to borrowers. To date, no loans have exceeded $2 million, and most are under $1 million. Laird shared that the biggest challenge has been underutilization. To inform potential borrowers about the Fund, St. Joseph Health has developed marketing materials, raised awareness among its local facilities, and maintained a website for the Fund.2A copy of St. Joseph’s brochure is included in The More Resources section of the online version of this toolkit.
The Fund’s portfolio is benchmarked to the current money market rate, although in practice no specific rate is set. Terms depend on the community benefit impacts, general market conditions, and other financial metrics. The fund portfolio currently earns around 2 percent annually, above prevailing money market rates.
Loan terms are normally five years, with a few exceptions for organizations with a strong history of repayment. To assist borrowers at risk of defaulting or missing the balloon repayment required at the end of the loan term, St. Joseph works to maintain communication and detect issues early. St. Joseph will also consider rolling over the loan for another five years. As Laird described this process, “These loans are not designed to be forgiven. To ensure continuity of the program, it is important we get our funds back.” To date, among more than eighty loans underwritten by St. Joseph Health, only one default has occurred.
Staffing and budget
St. Joseph Health does not have dedicated staff managing the Fund. Laird provides primary oversight for the program, and several staff on her team help with preliminary analysis, due diligence, payment tracking, meeting with borrowers, and examining financials annually. Gabriela Robles assists with “identifying organizations that would be more mature and ready for a loan, versus a grant,” referring them to Laird.
Currently, none of the staff spend more than 10 percent of their time administering the Fund. The workload depends on program utilization. Laird noted, “Having one third of an FTE would be ideal, but it would also depend on the size of the program. If you only had fund investment, it wouldn’t take much to oversee. Small direct investments require more focus.”
Key strategies employed
Designate a portion of investible reserves for place-based investments
St. Joseph Health makes available whichever is greater, 2 percent of its long-term reserves sub account or $50 million. Currently, St. Joseph Health has about $10 million in loans outstanding to nonprofit and community development financial intermediaries. By effectively leveraging investible assets, these loans extend St. Joseph’s mission to improve the health of its local communities.
Provide secured and unsecured direct loans to local nonprofits and businesses
Currently, about two thirds of the $10 million St. Joseph Health has invested is in the form of direct loans to nonprofits. St. Joseph requires borrowers to secure these loans with collateral.
Allocate to financial intermediaries, including CDFIs and other investment managers offering place-based private debt strategies
Currently, about one third of the $10 million St. Joseph Health has invested is in the form of low-interest loans to community development financial intermediaries. These loans enhance intermediaries’ ability to address critical community needs, such as access to affordable housing, healthy food, and federally qualified healthcare centers.
Provide linked deposits to a financial intermediary to enable them to provide loans for specific projects
St. Joseph Health has used this investment tool infrequently, but Laird shared the example of a small church that had been unable to secure a loan. Through the Fund, St. Joseph Health posted a certificate of deposit (CD) as collateral with a local bank. The local bank then provided the church the loan. As the church repays the bank, the CD decreases.
St. Joseph Health has invested capital, often in the form of loans, in a number of community organizations, including:
- Mercy Housing, which offers affordable housing and supportive services to low-income families, seniors, and people with special needs.
- MOMS Orange County, which provides health coordination, education, and access to community services to help mothers and their families deliver and raise healthy babies.
- Illumination Foundation, which is working to break the cycle of homelessness in Orange County and Southern California.
- THINK Together, which seeks to improve academic outcomes for children and youth living in under-resourced communities.
Align community benefit with place-based investing strategies
In addition to the Fund, St. Joseph Health directs community benefit dollars further upstream and leverages its intellectual resources in response to community identified health needs. St. Joseph Health allows staff paid time to volunteer up to four days a month. This generous volunteer policy gives staff time to serve on nonprofit boards and expands local capacity. Robles shared, “Grants are great, but we also think about human capital on boards. In my role, I identify community needs and match them with executives at our system office or hospital who can help out.”
St. Joseph Health requires that all system hospitals return 10 percent of their net income to the Community Partnership Fund. Beyond traditional community health grants, a significant portion of this fund supports St. Joseph’s Community Building Initiative and other upstream interventions.3The More Resources section of the online version of this toolkit provides more information. These three-year grants help organizations build community capacity, make measurable progress toward identified goals, and develop longer-term sustainability plans. Robles emphasized, “In developing our Community Building Initiative, we had many philosophical conversations about models. Ours is slightly different from most [faith-based] community-focused organizations, but we really seek to create a voice for community change.”((For more on other models of faith-based community organizations working to create positive change, see: Pico National Network, www.piconetwork.org/.))
Laird explained, “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.”
She continued, “If we can keep someone healthy by bolstering local nonprofits which help eradicate poverty and disease, then there’s a benefit to this type of investment.”
For more information
Gabriela Robles, Vice President, Community Partnerships
Lisa Laird, Vice President, Cash and Investments
Lisa Laird, interview by David Zuckerman and Katie Parker, May 9, 2016.
Gabriela Robles, interview by David Zuckerman and Katie Parker, April 15, 2016.
References [ + ]
|1.||↑||The More Resources section of the online version of this toolkit provides a link to St. Joseph’s pre-qualification scan.|
|2.||↑||A copy of St. Joseph’s brochure is included in The More Resources section of the online version of this toolkit.|
|3.||↑||The More Resources section of the online version of this toolkit provides more information.|