2019 Financial Innovations Roundtable: Aligning Capital, Training, and Economic Mobility - April 24–25, 2019

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Event Summary

In recent years, skills development and training as a way to help low- and moderate-income (LMI) individuals access quality jobs or career ladders have received a lot of focus. Experts have long noted that workers need to be able to access training throughout their careers to have the skills employers require. However, public funding for such programs has not risen to meet this increased demand for workforce development and training services. Instead, adjusted for inflation, the core federal workforce development funding programs are down well over 85 percent since 1980. This begs the question of whether new service delivery models and financing strategies can be developed to help scale effective training programs and use private dollars as a source of payment.

Photo of three men in a panel discussion

To help answer this question, the 2019 Financial Innovations Roundtable (FIR) brought together thought leaders in community development finance and workforce development to examine financial barriers to scaling successful training programs and discuss opportunities for investments to be made in high-impact businesses and programs. These two industries serve many of the same people and communities, although they have not collaborated extensively.

At the conference, speakers noted the highly decentralized and fragmented nature of the public workforce development system, which includes workforce investment boards, career and technical education, apprenticeships, and adult basic education programs. They also noted that the largest funding sources include federal Pell grants and employers, with the latter investing a half a trillion a year in skills and training. Unfortunately, employer investments do not usually focus on midlevel or front-line workers. Many saw finance as a powerful tool that could help redistribute risk and better align incentives between individuals, employers, training providers, and governments to improve economic outcomes for LMI workers.

The roundtable highlighted a number of innovative training models, including an outcomes-based finance program that funds nonprofit training providers in the state of Massachusetts and another that funds community colleges in Virginia, as well as a social enterprise that finds job placements for individuals with multiple barriers to employment at scale.

Among the discussions about opportunities for community development financial institutions (CDFI) to support training and skills development were:

  • Small-dollar consumer loans to allow individuals to access training programs that can help them secure a quality job
  • Working capital loans to training providers or providers of wraparound services, especially those who provide childcare and transportation services
  • Term loans to high-quality training providers to scale their services
  • Business advisory services or lower-cost loans to small business borrowers to improve their compensation or benefits packages

Photo of people sitting around a table in discussion

CDFI experts stressed that training providers need to consider possible repayment sources if they want to access financing for their operations instead of relying purely on grants or fees. Three potential repayment sources identified included employers, who may see higher profits from increased productivity or decreased staff turnover; workers, who may see wage gains from the new skills; and governments, which might see savings in other public programs like social safety net programs resulting from workers' wage gains. They also discussed the critical role philanthropy plays as the risk capital to support community development financial innovations and the role CDFIs can play raising and deploying capital from investors with a range of financial and impact return expectation.

Participants expressed concern about the difficulty lower-income individuals can experience when comparing training programs and the risk of enrolling in costly programs that place them in lower-wage jobs. They also discussed the important role employers need to play if training programs are to generate true economic mobility for workers. Participants also identified chambers of commerce as key local organizations that can help small and medium-sized employers share the investment in training programs at the local and regional levels.

Now in its 20th year, the FIR is a discussion-oriented conference that seeks to envision ways to improve the flow of capital and financial services to low-income communities. The 2019 roundtable was cohosted by the Federal Reserve Bank of Atlanta, the Federal Reserve Board of Governors, the University of New Hampshire's Carsey School of Public Policy, and the Federal Reserve Banks of Richmond and St. Louis. More information about the FIR, including past topics, is available on the website.

For questions related to this forum, please contact Sameera Fazili at Sameera.Fazili@atl.frb.org.