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Fostering Innovation through Pay for Success, An Interview with Yennie Tse

Innovating within the federal government takes focus, creativity, persistence, and flexibility. One key example of this was the Office for International and Philanthropic Innovation’s (IPI’s) work with Pay for Success (PFS) and the recently announced permanent supportive housing demonstration. IPI’s own Yennie Tse was a central figure in the early success of PFS, and below she shares the story of how this innovation took root at HUD.

Photograph of the façade of a three story residential building.

What is PFS?

PFS is a strategy of procuring positive social or environmental outcomes by paying for an intervention only after it produces those outcomes. In addition to a contract for the government (or another entity) to provide payment only when an intervention achieves positive outcomes at predetermined levels, PFS projects often also involve PFS financing, which is mission-driven capital that covers the upfront costs of service provision and possibly other project costs. It is an innovative financing model that can leverage philanthropic and private dollars to provide upfront funding for preventive services, which are often the first services to get cut from budgets during times of fiscal austerity.

When did HUD first consider PFS strategies, and how is HUD incorporating PFS into its programs and initiatives?

Social Impact Bonds (SIBs) and the concept of PFS were introduced to IPI a few years before I joined the team. As part of IPI’s mission to source innovation from external partners, our office learned of SIBs from the Young Foundation in London, which was developing the first SIB with Peterborough Prison with the goal of reducing the likelihood of recidivism among prisoners with sentences of less than 1 year.

As a partnerships and innovation office at HUD, IPI has the opportunity to engage with our fellow federal agencies as well as our social investment and international partners to assess great ideas. Implementing new ideas that challenge the way the agency has generally done business requires new capacity and an ability to shift the way we have traditionally thought about programs.

One PFS Notice of Funding Availability (NOFA) explores the possibility of using PFS to finance permanent supportive housing as an intervention to reduce the reentry population. Can you describe that in more detail?

HUD, in partnership with the U.S. Department of Justice (DOJ), is evaluating the viability of using a PFS financing framework to improve outcomes for people experiencing homelessness who have frequent contact with the criminal justice, homeless services, and healthcare systems through the provision of permanent housing linked with supportive services. DOJ and HUD are partnering to advance PFS and have entered into an interagency agreement that designates HUD as the agency responsible for implementing the PFS Demonstration. HUD is making $8,679,000 available through this NOFA.

What makes this demonstration innovative?

The purpose of the PFS Demonstration is to strengthen communities’ ability to prevent and end homelessness and reduce avoidable incarceration by providing more permanent supportive housing, a proven, evidence-based practice. The PFS Demonstration offers communities an opportunity to employ a new financing mechanism for funding permanent supportive housing projects that will prevent returns to homelessness and reduce recidivism among the reentry population. The PFS Demonstration is also a valuable opportunity to test more cost-effective ways of providing homeless assistance while expanding communities’ access to available funding for permanent supportive housing.

It seems that IPI — and you, in particular — have been crucial in implementing this innovation. Can you describe some of the various roles IPI has played in the PFS process over the past few years?

Before funds became available for HUD and DOJ to draft a concept note for a PFS initiative, IPI wanted to learn more about PFS and share that knowledge with the rest of HUD.

  • Served as HUD’s liaison with White House Office of Social Innovation’s Interagency Working Group. IPI has represented HUD in a learning group composed of other agencies, including the U.S. Department of Health and Human Services (HHS), DOJ, the U.S. Department of Labor, the Corporation for National and Community Service (CNCS), and the U.S. Agency for International Development, to learn more about PFS and help these agencies identify ways to use PFS in their program areas.

  • Educated HUD staff about PFS. To raise awareness about PFS at HUD, IPI established a learning series in the second half of 2013 that was composed of both staff and leadership from various HUD divisions. These learning sessions brought in experts from philanthropies, federal agencies, and the fields of finance and evaluation to share their knowledge about the limited closed PFS deals in the field. IPI worked with former Deputy Chief of Staff Jonathan Harwitz with support from former Secretary Shaun Donovan in 2013 to develop this awareness-building platform on PFS.

After DOJ authorized funds for fiscal year 2014, we began implementation of this new concept, and IPI had to play new roles.

  • Shepherded the process. When fiscal year 2014 funds were first approved for PFS under the Second Chance Act, the only element of the initiative that had been established at that time was that it was going to use housing to reduce homelessness and the number of frequent users of systems. We still needed to establish how the funds could actually be used. Our DOJ and HUD meetings started as small meetings that included IPI, HUD’s Office of Public and Indian Housing, and representatives from DOJ’s Office of the General Counsel and Bureau of Justice Assistance. The more the ideas shifted over several months, the more the players in the room evolved from DOJ and HUD.

  • Led the concept note drafting. As the small DOJ and HUD group established what methods and approach this PFS initiative was going to take, the members determined that an as-yet unknown program office from HUD’s side would be the implementation lead and would convert the detailed concept note into the current NOFA. I call this the courtship phase. IPI was seeking and courting a program office to become the owner and implementation office for this initiative. Eventually, after about 10 months of finalizing the approach and deciding that permanent supportive housing was going to be the intervention, the Office of Community Planning and Development – Special Needs Assistance Programs became a strong partner in establishing the concept note. When the concept note was ready, the program office took ownership of the NOFA drafting process and formal implementation.

  • Led the HUD – DOJ working group. During the process of drafting this concept note, the group agreed that it would be advantageous to involve as many experienced PFS, permanent supportive housing, and reentry experts from federal agencies in the meetings as possible. Bringing in these experts gave us a wide range of ideas and made our brainstorming sessions more effective. We called on specialists from DOJ, HUD, HHS, CNCS, the Office of Management and Budget, the U.S. Interagency Council on Homelessness, and the White House Office of Social Innovation. HUD drew on experts from the Office of Policy Development and Research, the Office of Public and Indian Housing, and the Office of Community Planning and Development.

  • What personal qualities helped you push this innovation forward?

    Being nimble and adaptable. For any new concept or untapped innovation, there will always be new policies your team will need to learn about. We need to learn how to understand the challenges new policies and protocols present and work with them to foster innovation and expand the capacity of HUD’s program offices.