Why one nonprofit wants to change the way Minnesota distributes equity money

At Twin Cities Rise, a nonprofit focused on helping black men and others in poverty, most participants enter an intensive eight-week program with personal empowerment training and career skills classes to help them land a stable job.

“At its core, it’s this really long-term program designed to help people really change the economic trajectory of their lives,” said Tom Streitz, Twin Cities Rise’s president and CEO. 

Streitz’s organization is one of a number of similar nonprofits that get taxpayer money from the Legislature to help shrink Minnesota’s racial disparities — and its workforce shortage — through job training and education. The state’s unemployment rate for black Minnesotans is roughly double the rate of that for whites.

But Twin Cities Rise is unique from its peers in at least one respect: how it gets paid. 

The nonprofit only gets state money when a low-income person who graduates from its program is hired for a job with benefits and stays for at least a year. Typically, other nonprofits that get money via the state’s equity package have a smattering of goals they pledge to meet — enrolling a certain number of people in a training program, say — but are handpicked by the Legislature for a set cash grant.

While that model has its defenders, it has also led to sharp debates in the Legislature over how to judge workforce development programs and the value of metrics and data collection. Streitz said his model, called “pay for performance,” rewards positive outcomes and could be replicated to create a more uniform standard of success in the equity grants. In turn, that might convince skeptics of the grants’ value — and clear up the “opaque” state process by which the Legislature and state agencies decide how to dole out taxpayer money.

“The point here is to try to inject some sense of quantitative objectivity to the system,” he said.

A source of debate at the Legislature

The equity spending program at the Legislature began in 2016, and totaled $59.3 million in its first 3 years. It’s divided between competitive grants administered by the Department of Employment and Economic Development (DEED) and large payments made to nonprofits or government programs specifically chosen by the Legislature, which are known as “direct appropriations.”

While the equity money makes up a significant chunk of state spending on workforce development, those direct payments have ignited considerable debate at the state Capitol.

DEED officials have struggled to quantify how successful the programs have been, leading some lawmakers to question the spending, complain about a lack of metrics or call for more competitive grants. Others argue nonprofits should be given space and flexibility to help underserved communities and say the push for rigorous data comes from an unfair distrust in programs that help people of color.

On top of that, a share of nonprofits have complained that DEED’s use of existing data has led to punitive, inconsistent or disruptive oversight. 

Streitz said he believes the debate has become a “Sisyphean” struggle at the Legislature between fiscal conservatives, who doubt the effectiveness of equity spending because Minnesota’s economic disparities remain stark, and others who say it’s “desperately needed” for the same reason. That has led to less money for important work, Streitz said.

“What’s missing I think, is really a conversation — how do we define success?” Streitz said. “How do we know when we’re moving the needle?”

‘Outcomes’ vs. ‘outputs’

For Twin Cities Rise, success is simple. The organization receives a flat $11,000 payment from its direct appropriation when someone enrolled in the program gets a job that pays $9 per hour with health care benefits — as long as the person was earning 100 percent or less of the federal poverty level for Minnesota. 

Twin Cities Rise gets another $11,000 if that person gets a job with benefits paying $10 an hour and stays for at least a year. If the person doesn’t meet those wage and benefit benchmarks, Twin Cities Rise doesn’t get money. The nonprofit has a cap of $1.4 million in the latest two-year budget. It also must spend, on average, at least $15,000 on each graduate of its program.

Streitz said the organization has been getting state money for more than two decades, long before the equity package began. Former General Mills executive Steven Rothschild, who founded Twin Cities Rise in 1994, has long argued for the pay-for-performance idea as a way to reward good “outcomes,” like a high-paying job, not “outputs,” such as the number of people enrolled in the training program, Streitz said. (DEED contracts with other nonprofits show a mix of goals and program planning, such as the number of people who enroll, but also attain a credential or get a job.)

In 2018, after an economic analysis found savings for the state when unemployed people get stable work with benefits, the Legislature approved a pay-for-performance statute.

Streitz also suggested developing more criteria to reward nonprofits with higher pay-outs for helping people overcome barriers to employment, like a criminal history or lack of transportation. 

Streitz acknowledged Twin Cities Rise has sizable private donors — and an annual budget of around $4 million — so it can take on more up-front risk that it won’t get state money. But he said the Legislature could also award funding reserves to smaller nonprofits.

The pay-for-performance model is not unique across the country. A workforce development book published in 2018 by the Federal Reserve highlighted it as a positive innovation that rewards creativity and organizations that “achieve results.”

Officials in Northern Virginia, for example, gave bonuses to programs helping children in foster care or the juvenile justice system if the kids exceeded federal benchmarks for career training. “Because the outcomes payments were piloted as bonuses, providers are able to take a risk in serving a new population and increasing their own capacity to use data to adjust programming to meet the ambitious goals,” notes the book.

Streitz’s prediction that pay-for-success could help win more confidence from Republicans may be true. Sen. Eric Pratt, a Prior Lake Republican who chairs the Senate’s Jobs and Economic Growth Finance and Policy Committee, calls Twin Cities Rise’s approach “fabulous.”

“I would like to see it on a larger scale,” Pratt said. “To me, it’s the outcomes that are important. I want to make sure that we’re using state funds that help the most people the most effectively and the most efficiently.”

Pratt said he and fellow Republicans have fought for better metrics and tougher data collection requirements for nonprofits in all workforce programs — not just in equity spending. He also said he wanted to help nonprofits succeed and grow on their own, but is wary of creating “de-facto state agencies” by consistently funding them for years.

Not a solution for all

Yet pay-for-performance has also drawn plenty of criticism. In health care, a range of studies have found little evidence that the payment model made a difference in patient outcomes long term. Some question whether pay for success bonuses can warp the motivations of providers to center more on money than helping people.

Sen. Bobby Joe Champion, a Minneapolis DFLer who was an architect of the initial equity package and has been a fierce defender of direct appropriations, said he’s a fan of Twin Cities Rise and its work. But he said the Legislature “should not try to make a one size fit all for everyone.” 

Champion, also the top Democrat on Pratt’s committee, said Twin Cities Rise can raise more money than most nonprofits and can afford to take a risk missing out on state cash. The Legislature has supported nonprofits with less of a private donor base in an effort to think outside the box, fight inequities and target specific demographics for workforce development. Those nonprofits get state dollars for a range of work that may help people but isn’t as easy to measure, Champion added.

For example, a March 2019 state contract with Comunidades Latinas Unidas En Servicio, or CLUES, pays the nonprofit $60,000 for “youth summits” in the Twin Cities and Greater Minnesota. Some direct appropriation money has helped nonprofits expand their services.

Champion also thinks lawmakers shouldn’t bend over backwards to win trust from those who don’t see the value in the work being done or don’t believe nonprofits are using the money well. “The underlying issue is trust and why?” he said. “It boils down to race and the people that you’re going to serve.”

Streitz acknowledged pay-for-performance may not be “perfect” for all, but he said it could eventually result in more money for nonprofits down the road. He noted he has even used the payment model with “a couple of wealthy individuals who invest through their foundations” because “they love the concept” and “know what they’re paying for.”

Streitz said it can be unclear why the Legislature picks a nonprofit to get state money right now or what is being achieved with taxpayer money. That might change under a more consistent pay-for-performance model. 

“In order for us to get to the place where there’s more trust on both sides of the aisle and a deeper sense that we’re really doing what we need to do to move the dial around disparities, we need to get to a system that has more transparency,” Streitz said.