Strategies for Financing Workforce Intermediaries: Options for LongTerm Sustainability

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Strategies for Financing Workforce
Intermediaries Options for Long-Term
Sustainability
Jobs for the Future and Kirkwood Community
College NAWB Conference February 24, 2008
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Research Overview

• Origins in 2003 American Assembly forum on
  alternative workforce development delivery
• Workforce Intermediaries identified as
  dual-customer workforce development provider
• Investing in Workforce Intermediaries launched as
  pilot for national initiative
• National Fund for Workforce Solutions resulted
  from successful pilot
• How to create long-term sustainability for the
  initiative

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Research Overview, cont.

• Alternative financing strategies identified
• Financing sources that could fund functions
• Financing strategies that could be implemented at
  state level-- need to reach scale quickly
• Bond financing
• Unemployment Insurance diversion
• Tuition-based Strategies
• Food Stamp Employment and Training
• Program-related Investments

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Bond Financing

• Sale of general obligation bonds to the public to
  fund training programs
• Bonds are retired through a diversion of a
  portion of the state withholding tax associated
  with trained worker
• Community colleges act as intermediaries, issuing
  bonds and managing training contracts with
  employers
• Secured by either state bonding authority or
  community college tax levies

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Bond Financing, cont.

• Iowa community colleges have trained 140k
  workers since 1983 through bond-financing
• Missouri will finance the training for 87k new
  jobs by 2010
• Kansas used over 11m in bond proceeds in 2005 to
  train over 12k workers
• Complex legislative process
• Requires high-level of capacity on part of
  workforce partnerships to manage

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UI Diversion

• 23 states use some form of UI diversion or
  UI-based fees to finance training programs
• Funds are typically available to employers
  through grants
• Employers typically submit proposals in
  partnership with training providers or workforce
  intermediaries
• Tight focus on training and advancement
• Strong dual-customer focus

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UI Diversion, cont.

• Politically sensitive strategy
• Rarely accessible solely by workforce
  partnerships
• Most states require matching funds to draw down
  UI funds
• CA ETP, since 1983 over 1billion to train 600k
• TX Employment Training Investment Assessment
  allocated 8.6 m to fund 23 Skills Development
  Fund projects in 2005
• RI, in 2006 allocated 850k to fund 4 Industry
  Partnerships

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Tuition-Based Strategies

• Approached from two angles
• How might workforce partnerships assess tuition
  or leverage tuition-based funding sources?
• How might community and technical colleges
  strengthen workforce partnership functions?

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Workforce Partnerships Leveraging Tuition-Based
Funding

• Charge tuition for training and access federal
  student financial aid, i.e, FocusHOPE
• Partner with community or technical college,
  i.e., Project QUEST and adult student outreach
  efforts
• Create a boutique product that leverages
  private funding for education, i.e., LiLAs
• Leverage IRS Section 127 employer tuition
  assistance programs

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Community/Technical Colleges as Home for
Workforce Partnerships

• Advantages
• Have infrastructure
• Many colleges are on both sides of the labor
  market - workers and employers
• Many are key players in regional economy
• Many serve our target populations - low-income,
  low-skilled, I.e., remedial education, short-term
  occupational programs
• Many are responsive to employers skill needs
• Nearly 1,200 throughout the country -- system

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Community/Technical Colleges, cont.

• Disadvantages
• Bias toward education/training as the primary
  solution to workforce challenges
• Struggle to balance multiple missions
• Each side of the labor market may be in silos -
  low-skilled workers in developmental or adult
  education and workers in business and industry
  centers
• Can they aggregate business/industry needs and
  solutions?
• Are they responsive enough to low-skilled and
  economically disadvantaged populations?

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Food Stamp Employment and Training (FSET)

• USDA administered program provides employment and
  training services to clients receiving food stamp
  assistance, but not receiving other benefits
  (TANF)
• Key provision allows states to draw a 50 percent
  match in federal funding for use of non-federal
  funds in ET service provision to food stamp
  recipients
• Cost reimbursement structure

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FSET, cont.

• Advantages
• State have some leeway in writing plans for use
  of funds
• Can potentially increase to state to spend on
  education and training
• Free up funds for supporting core intermediary
  functions, since reimbursement funds are flexible
  
• Challenges
• FSET reimbursement is restricted to eligible
  populations, limiting its use
• Process of creating and operating an FSET
  program is resource intensive

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Program Related Investments (PRIs)

• Foundation based financing strategy
• Take the form of low cost loans, recoverable
  grants, loan guarantees that must be repaid
• Require recipients to have an assured or
• reasonable expectation of revenue - to repay the
  PRI
• Not new but limited use (housing, capital
  projects)-- risky
• Growing interest stretch
• Limited use in workforce development

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PRIs for Workforce Partnerships

• Advantages for funders and partnerships
• Foundation led - funder collaboratives can play
  special role
• Stretch foundation dollars, leverage other
  funding
• Flexible - can capitalize operations, support
  core functions, not tied to particular
  populations
• Bridge Financing -- cover gaps or lags in
  financing
• Drive accountability
• Confer credibility to organization, leverage more
  funds
• Disadvantages for funders and partnerships
• Risky-for both -- Revenue may not materialize --
  financial liability
• Require cultural shift
• Requires good financial health and accountability
  system
• Management and tracking complex

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PRIs for Workforce Partnerships

• Can be paid through another source of revenue-
  blended financing
• There are ways to structure PRIs to minimize
  risks
• Recoverable grants
• Can be paired with grants

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Blended Financing
Strategies can be complementary Two sides of
financing coin. Front end financing Raise
revenue for training e.g., PRIs, Bonds. Back
end Cost reimbursement mechanisms e.g. FSET, UI
diversions, LiLas. Exploring Combinations e.g.
PRIs and FSET Bonds and UI offsets, PRIs and
LILAs Legal and regulatory questions in each
pairing Key Issue is whether and how
partnerships can access these sources
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For More Information

• Strategies for Financing Workforce
  Intermediaries Working Papers -
  http//www.nfwsolutions.org (first item under
  Whats New at right)
• Radha Roy Biswas - rrbiswas_at_jff.org
• Vickie Choitz - vchoitz_at_jff.org
• Heath Prince - hprince_at_jff.org
• Steve Ovel - sovel_at_kirkwood.edu