#509 2016 · City and County of Denver / Colorado Coalition for the Homeless / Mental Health Center of Denver · Public policy / homelessness services finance
Denver paid private investors to fix chronic homelessness because no single city budget line owned the problem
the problem
The cost of chronic homelessness was real but scattered across budgets that individually couldn't justify the fix
background
By 2015, Denver had identified over 850 people experiencing chronic homelessness, a population with disproportionately high rates of jail bookings, arrests and emergency-room visits. The city was spending heavily on this population every year through policing, jail costs and emergency health services, with little improvement, because permanent supportive housing — the intervention with the strongest evidence of actually breaking the cycle — was expensive to build and scale, and no single department's budget was set up to fund it.
The problem wasn't that the fix was unknown — the Housing First model, giving people stable housing without preconditions and adding intensive support services, had already been validated elsewhere. The problem was that police, jails and hospitals each separately absorbed a share of the cost chronic homelessness generated, and none of those departments individually saved enough by funding permanent housing to justify paying for all of it out of its own budget, even though the city as a whole was clearly losing money to the status quo.
what everyone would do
The standard approach available to any single city department facing this population was to keep funding its own piece of the problem as it arose — more jail capacity, more emergency-room capacity, more police contacts — since building and funding permanent supportive housing at scale was a large upfront capital cost no single department's annual budget could absorb on the promise of savings that would show up in other departments' budgets, not its own.
what they saw
Denver's leadership saw that the real savings from fixing chronic homelessness were genuine and large, but fragmented across police, jail and hospital budgets in a way no single department could capture or justify funding alone. Bringing in outside capital to fund the housing fix directly, and repaying it from outcomes measured citywide rather than from any one department's line item, let the city capture value that had been sitting unclaimed because it belonged to no single budget.
the move
In 2016, Denver structured a social impact bond: private and philanthropic investors fronted $8.6 million in upfront capital to the Colorado Coalition for the Homeless and the Mental Health Center of Denver, who used it to provide permanent supportive housing and services to chronically homeless individuals — condition-free housing plus intensive case management, with no sobriety or employment requirements to qualify. The city agreed to repay investors, with a return, only for measurable outcomes actually achieved — days in stable housing and reductions in jail days — tracked through a randomized controlled trial against a comparison group.
why it works
Structuring the deal so investors were paid only for outcomes actually measured — days in stable housing, reduced jail days — meant the city bore no financial risk if the program underperformed, while investors had a direct financial incentive to make sure the service providers delivered real results rather than just spending the upfront capital. Because the repayment came from the city's general finances rather than any single department, it didn't matter that the savings from reduced arrests landed in the police budget while the savings from reduced ER visits landed in the health budget — the city could aggregate value across all of them to fund a single upfront investment no individual department could have justified alone.
the payoff
The program housed 346 people between 2016 and 2020, with 86 percent remaining in stable housing after one year and 77 percent after three years; participants saw a 40 percent reduction in arrests and a 34 percent reduction in police contacts over three years compared to the control group. Denver repaid investors more than $9.6 million against their original $8.6 million, a return of roughly $1 million, and after seeing the results the city separately funded permanent supportive housing for 75 additional people outside the bond structure.
where it breaks
The mechanism depends on being able to measure the outcome cleanly enough, and attribute it credibly enough to the intervention, that both the city and outside investors can agree on what counts as success — a randomized controlled trial made that possible here, but is expensive and slow to run, and a program without a comparably rigorous evaluation design would leave both sides arguing over whether the outcome was real. It also requires investors willing to accept genuine repayment risk tied to a social outcome rather than a guaranteed return, a pool of capital that isn't available for every city or every problem, and a service provider capable of actually delivering the intervention at the scale the bond assumes.
what came after
The Denver Supportive Housing Social Impact Bond became one of the most closely studied social impact bonds in the United States specifically because of its randomized controlled trial design, and its results have been cited by housing and justice-reform researchers as evidence that outcomes-based, cross-budget financing can fund interventions that no single government department's normal budgeting process would approve on its own.
references
- [1]New Study Shows Housing-First Model a "Huge Success" in DenverWestword, 2021westword.com
- [2]Permanent supportive housing: Denver, COResults for America, 2021catalog.results4america.org