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ReThinking the Quest for Sustainable Financing: Sustainable Financing Is A Frame of Mind

Stacy Becker, Vice President, Programs | 09/08/2015

Part 5: ReThinking the Quest for Sustainable Financing Blog Series

This series had focused mostly on what sustainable financing is not. Before I suggest what I think it is, let me add one more thing about what it is not—it’s not for experts only!

Within a few weeks of being appointed Public Works Director in Saint Paul, the accounting manager came to me with bad news: the sewer fund no longer had enough cash to meet its debt service reserve requirements (i.e., back up cash) and as a result, the fund’s bond rating would be downgraded. WHAT?? I knew from my stint as budget director that the sewer fund was sitting on a mountain of cash only two years earlier.

The answer I got back: “It’s too complicated to explain.” String theory might be too complicated to explain. Why humans rape and war and enslave one another might be too complicated to explain. Why your sister insists on wearing that god-awful neon paisley dress may even be too complicated too explain. But financing? It never should be. If it is, either beware! or someone is falling down on the job. The answer is usually not found on spreadsheets, but in the underlying conditions.

In the case of the missing sewer fund cash, the underlying condition was management’s incompetence in working with the City Council. We focused on that; the fund began to grow solvent again, and two years later the bond rating was restored.

Sustainable financing is a way of seeing the world, and you can practice it everyday as part of your normal routine. The key question is “Do our financing arrangements help us create and capture the value of health?” This implies:

  • Taking the long view. A recent World Economic Forum report showed that health is a competitive advantage for countries, and thus important to invest in. Yet the current practice in corporate America, as described by this study, is “short-termism”. Where does most of the pressure for short-term results come from? Internally from the board and executive team.
  • Recognizing system linkages. A more humane and cost-effective way to deal with substance abuse and mental illness, for example, is to prevent and treat it, not throw people in prison. See how a Chicago jail is starting to change this paradigm.
  • Valuing outcomes. This is simply putting your money where your mouth is. Over the years I have repeatedly witnessed instances of institutional interests trumping their mission. Enough said.
  • Attending to policy incentives. Remember when, prior to the spectacular burst in 2008, economists were debating whether there was a housing bubble? Yes, hindsight is 20/20—but look at all the perverse incentives (outlined here in Forbes): people enabled to purchase and speculate in housing beyond their means through no down payment, “no-doc” and sub-prime mortgages. Real estate and financial professionals reaping in the dough. Financing mechanisms (securitization and derivatives) that disguised risk. (These were complicated—and guess what—about two people in the whole country understood it. A bad sign!)
  • Becoming adaptable. In a world where a 3-D printer will soon print a human liver or heart, sticking to the rules is indeed getting stuck. At Public Works, the common reason for not doing something was that “it would set a precedent.” Arghh. Get over it. We live in a world of precedents.

It starts simply with awareness. Become a financing scout. Pregnant women see pregnant women everywhere. When I was Public Works Director I noticed dirty sidewalks (disgusting…). You’ll begin to see financing opportunities…in longer-term choices, linkages between sectors, putting outcomes first, improved incentives, more adaptable rules. You may discover new comrades—for information, support, or even partnering. In fact, I’ll wager that within the next three times you read a newspaper, you’ll see at least one story that fits these patterns. I’m happy to have you prove me wrong, but I’m more interested in the stories that come to light. Please write and let me know what you find!

When we get the conditions right, the financing mechanisms will fall in line. Like the sewer fund.

Scouts honor.

Stacey Becker is the regional financing and investment director for ReThink Health. Becker is also a public policy consultant and former budget director for San Francisco and St. Paul.