Like any investor, we at the Low Income Investment Fund (LIIF) use financial return and other commonly accepted output metrics as key indicators of our performance. We are proud of having invested $1.5 billion in community projects that have served 1.7 million people over our 30-year history, as well as of our track record of financial sustainability and growth. Over the past decade alone, we have doubled our invested capital and tripled the number of people served. These metrics are part of a common language that allows us to easily communicate our performance to a wide range of audiences, such as other investors, policymakers, and programmatic partners.
But LIIF is not just any investor. As a mission-oriented community development financial institution (CDFI), we support projects that aim to generate profound and sustained improvements for disadvantaged children, families, and communities. We also aim to catalyze systems-level changes that deliver more resources to high-impact projects and organizations. In order to achieve our mission, we need to be able to both understand and express the social value of our investments, and not just their financial value. Put differently, we want to measure social impact in addition to financial return, as a way to gain a deeper understanding of how well we are achieving our social objectives. This means pushing ourselves beyond measuring outputs—such as child care spaces created, or number of patients served per year in a health clinic—to measuring factors like income boosts to families and individuals; health value associated with improved health and reduced medical expenditures; and societal benefits, mostly in the form of reduced government expenditures.
The current fiscal and policy climate is also pushing us to develop this capacity. Like other organizations in our sector, we must be able to describe exactly why and how our work is important in order to unlock new sources of capital, form new partnerships—such as with health institutions and transit agencies—and channel public and private investment to the most impactful strategies.
For these reasons and more, we developed a new tool called the Social Impact Calculator (“the Calculator”) that monetizes—puts a dollar value on—the social value of the projects that we support. In creating the Calculator, our goal was to develop a tool that could powerfully express our impact, but also be easy to use and leverage existing evidence. We do not claim to have developed the single best approach to impact assessment for our sector, but we hope that the tool helps advance a broader discussion about the value of social investments. In this spirit, we developed it as an “open source” online tool for the public to use, learn about its methodology, offer feedback, and download a customizable version at no cost.
The Calculator’s approach and mechanics are straightforward: using an “impact by proxy” design, we leverage high-quality social science research to translate project-level output data that we collect over the normal course of our business into monetized impact estimates. We limit the Calculator to indicators that are central to our mission of poverty alleviation, and which relate to our “impact pathways” or program areas: affordable housing, early care and education, K-12 education, health, and equitable transit-oriented development. At the portfolio level, we believe it generates directionally accurate monetary impact estimates for the projects we finance.
For instance, we estimate the monetary societal impact of the early childhood education centers that we support using return-on-investment figures that researchers have developed using longitudinal data from randomized control trials—evidence whose statistical power we could never produce ourselves, and which we are happy to leave to academic experts. Another example is our estimate of medical cost savings from weight loss generated by LIIF-supported affordable housing developments near transit stations—where, as studies have shown, residents are more likely to commute via public transportation and thus have higher levels of physical activity. Figure 1 shows the historical impact of projects LIIF has financed in each of the Calculator’s ten sections.
There are several advantages to the Calculator’s approach. First, leveraging existing evidence makes sense given LIIF’s capacity and institutional context. As a CDFI, we are not in the position to conduct the analysis to answer the counterfactual question of what would have happened “but for” the intervention that LIIF supported. But high-quality social science research exists that can help us address many of these questions, and we believe it is up to us to take advantage of it. The Calculator also makes use of “lying around” output data that we can easily collect, reducing strain on both LIIF and our customers. Beyond our own constraints, we cannot expect overburdened nonprofit borrowers to take on the added task of developing sophisticated social outcome-tracking systems without grant support, which we are rarely able to offer.
We also recognize that the Calculator has limitations. First, its outputs are not precise enough for it to be used as decision-making tool to distinguish between the merits of one project versus another. And for the moment, most of its monetary estimates do not account for the time value of money. Most critically, very few studies meet all criteria that would make them applicable to the Calculator. The research we use to generate our estimates must be rigorous, using randomized control trials or other longitudinal analyses with large datasets; they must relate to the LIIF impact pathways, and apply across a sizable portion of our portfolio; they must fit output data that is easily available to us; and must show a way to monetize impact. Our strict criteria mean that many stones are left unturned. For example, we do not have the evidence base that tells us the efficacy of cross-sector and comprehensive community development work—an increasingly popular model that LIIF and other partners have supported in recent years. Finally, we recognize that we depend on many partners—other CDFIs, public subsidies, private capital—to support the projects we invest in. Rarely or never is there a project that is accomplished solely through the efforts of one investor or one subsidy source. In its present form, the calculator does not try to estimate the field-wide social value of the entire community development sector in the United States, and adjust for the overlap and interdependence of our collective efforts. Rather, the calculator only estimates the social value of the projects supported by the entity using it.
Although we are still in an exploratory phase of using the Calculator, it has already helped us engage with new partners—especially from other sectors—while also revealing industry-wide commonalities that we would not have otherwise discovered. We are committed to learning from and with others as we refine the tool, and are excited to continue to engage partners in advancing our efforts to measure social impact.