Massachusetts Chronic Homelessness Pay for Success Initiative

Last updated Tuesday, October 17, 2017

Quick Facts

Current Phase
Issue Area
Interventions
Service Period
Project Scope
Implementation Start

Massachusetts has more than 1,500 chronically homeless people who require a myriad of costly public and emergency services, such as hospitalizations, temporary shelter, and high Medicaid payments.  This led to the development of the Home & Healthy for Good (HHG) program, a Pay for Success initiative that provides 500 units of stable supportive housing to 800 of these chronically homeless individuals.  With $3.5 million in flexible funding, the program will incorporate evidence-based practices to build long-term housing and provide supportive services, including access to preventative and primary health care.  If successful, the HHG program will have measurably improved life outcomes for this population, in addition to realizing high cost savings for the state of Massachusetts.

Analysis

  • Market Overview

    • Year Launched
      2014
    • Service Delivery Term (Years)
      6
    • Motivation for Project
      1,500 chronically homeless people in Massachusetts lack access to stable housing and are high-cost users of temporary shelters, Medicaid and other emergency services.
    • Project Objective(s)
      Provide 500 units of stable supportive housing for up to 800 chronically homeless individuals
    • Individuals Served
      800
    • Geography
      Commonwealth of MA
    • Issue Area
      Homelessness
    • Initial Investment ($ millions) [Note 2]
      3.5
    • [2] This category captures the initial private investment raised to support the project that has the potential to be repaid if the project achieves its pre-determined outcomes. Many projects, particularly those in the supportive housing and health arenas, leverage existing public resources, such as subsidized housing and health insurance, to achieve program impact; the value of these resources is not included in these dollar values but are discussed in more detail in Sections 7, 8 and 9 of this report.
  • Project Partners

    • Service Provider(s) [Note 1]
      Massachusetts Housing and Shelter Alliance [Note 11]
    • Payor(s) [Note 2]
      Commonwealth of Massachusetts
    • Transaction Coordinator(s) [Note 3]
      Massachusetts Housing and Shelter Alliance; CSH; United Way of Massachusetts Bay and Merrimack Valley
    • Evaluator [Note 4]
      Root Cause Institute
    • Validator [Note 5]
      None
    • Project Manager [Note 6]
      Massachusetts Alliance for Supportive Housing [Note 12]
    • External Legal Counsel [Note 7]
      Nixon Peabody LLC; Goulston & Storrs; Weil, Gotshal & Manges LLP
    • Technical Assistance Provider(s) [Note 8]
      Government Performance Lab; CSH
    • [1] Delivers program interventions to target population over the course of the PFS contract
    • [11] Massachusetts Housing and Shelter Alliance is the lead service provider, responsible for contracting with a number of its member organizations for PFS project implementation. Organizations eligible to participate are named in the contract with the Commonwealth of Massachusetts and include: Action, Inc.; Boston Public Health Commission; Commonwealth Land Trust, Inc.; Eliot Human Services; Father Bill's & Mainspring; Friends of the Homeless; Heading Home, Inc.; Hearth, Inc.; HomeStart, Inc.; Housing Assistance Corporation/Duffy Health Center; Lynn Shelter Association; Mental Health Associates; Pine Street Inn; and South Middlesex Opportunity Council.
    • [2] Makes payments when pre-determined outcomes have been met
    • [3]Roles and responsibilities may include: design and structure of PFS project and financing model; capital raise; stakeholder management; on-going performance management
    • [4] Design and implement plan for determining whether outcomes have been met
    • [5] Verify accuracy of data used in evaluation plan, or evaluation plan itself
    • [6] Intermediary during service delivery phase, and/or fiscal sponsor for project funds
    • [12] Massachusetts Alliance for Supportive Housing (MASH) is a wholly-owned subsidiary of the Massachusetts Housing and Shelter Alliance with its own staff and governance board. MASH contracts with the United Way of Massachusetts Bay and Merrimack Valley as the fiscal agent for the project and CSH as the technical assistance provider; both organizations are members of MASH.
    • [7] Provide assistance in drafting, reviewing and negotiating PFS contracts
    • [8] Provide support and expertise to project stakeholders in the project development and/or project implementation phases
  • Evidence and Program Design

    • Service Intervention(s) Model and/or Type
      Home and Healthy for Good Program
    • Evidence base for intervention
      Provider performance data; Medicaid data analysis [Note 6]
    • Has effectiveness of the intervention for PFS project target population been evaluated?
      Yes
    • Has the service provider provided this intervention previously?
      Yes
    • Is PFS project: Scaling an existing intervention by replicating at a larger scale? Demonstrating the effect of a new program model or combination of services? Transplanting an existing intervention(s) to a new target population and/or service delivery setting?
      Scaling
    • [6] The Home and Healthy for Good has been contracted to the Massachusetts Housing and Shelter Alliance by the Commonwealth of Massachusetts since 2006. As a condition of funding, MHSA reports on the self-reported usage of health and social services and quality of life outcomes for participants served by the program; participants are surveyed monthly, and in some cases, quarterly. State Medicaid analysts have also reviewed billing claims for a subset of participants to determine their actual Medicaid costs in the year prior to and after moving into housing. This local data informs the design of the Massachusetts PFS project, although the larger body of evidence supporting permanent supportive housing’s cost-effectiveness and impact were also weighed in making the case for this project.
  • Evaluation

    • Evaluation Design Methodology
      Validated data
    • Data Source(s) for Evaluation
      Service providers
    • Outcomes Tied to Success Payments
      1) Stable housing for at least one year
    • Outcomes Tracked, Not Tied to Success Payments
      Health care service usage; Number of nights spent in shelter; Number of days incarcerated
    • Length of Evaluation Period
      5.25 years
  • Service Provider Characteristics and Service Delivery

    • Single or multiple service providers?
      Multiple
    • Service provider type(s) (nonprofit, government, private)
      Nonprofit
    • Service provider OR site selection method
      Selected by project manager from list of qualified providers pre-approved by state
    • Service Provider Experience with PFS Intervention
      Existing sites for Home and Healthy for Good model
    • Referral Method for PFS Target Population
      Voluntary enrollment with referrals made through providers’ outreach and networks; participant eligibility determined using uniform risk/needs assessment
    • Did the project have a ramp-up phase? (Y/N; brief description)
      Yes: 6-month early-start clause to allow for service delivery before financing was finalized; 2 year ramp-up to get to full housing unit capacity
  • PFS Contracting and Governance

    • Operational Oversight Structure [Note 1]
      Board of Managers includes two representatives of project manager, and one representative each of fiscal agent and technical assistance provider
    • Frequency of meetings and/or reports
      Monthly
    • Executive Oversight Structure [Note 2]
      Includes representatives of Commonwealth Department of Housing and Community Development and Executive Office of Administration and Finance, and Government Performance Lab
    • Frequency of meetings
      Quarterly
    • Investor role in project governance?
      Can attend any operating or steering committee meeting as non-voting member [Note 5]
    • Frequency of reporting to investors
      As needed, with quarterly reports to state
    • Non-standard Contract Termination Events [Note 3]
      1) Availability of 200 housing units by end of Year 2; 2) State failure to allocate housing and Medicaid resources; 3) Low retention of participants in housing
    • Appropriations Risk Mitigation Strategy [Note 4]
      Success payments backed by full faith and credit of Commonwealth
    • [1] Committee or working group involved in regular and/or day-to-day monitoring of project progress
    • [2] Oversight and decision-making body for PFS project
    • [5] CSH and the United Way of Massachusetts Bay and Merrimack Valley are both investors in the project. They are also part of the MASH Board of Directors as members of the project intermediary and the technical assistance provider and fiscal agent, respectively.
    • [3] Events that allow stakeholders to exit their contractual obligations, beyond those typically found in loan agreements and contracts
    • [4] Means by which to mitigate risk that funding is not available for investor repayment
  • Investors

    • Senior Investor/ Lender and Total Senior Investment ($MM)
      Santander Bank ($1); United Way of Massachusetts Bay and Merrimack Valley ($1); CSH ($0.5); ($2.5 total)
    • Subordinate Investor/ Lender and Total Subordinate Investment ($MM)
      None
    • Deferred Fee Source and Total Deferred Fees ($MM)[Note 1]
      None
    • Recoverable Grant Source and Total Recoverable Grants($MM)[Note 2]
      None
    • Non-recoverable Grant Source and Total Non-recoverable Grants ($MM)[Note 3]
      Santander Bank ($0.25); United Way of Massachusetts Bay and Merrimack Valley ($0.75); ($1 total)
    • Guarantor and Guarantee ($MM) [Note 4]
      None
    • Illinois Dually-Involved Youth Project
    • [1] Deferred fees are delayed payments for the services provided by service providers, transaction coordinators and/or project managers. Deferred fees are one way of structuring projects so that more stakeholders have a financial interest in ensuring project success.
    • [2]Philanthropies can use either their regular grant making protocols, or protocols for program-related investments (PRIs), to contribute to PFS capital stacks. If a foundation does not use a PRI, their investment may be structured as either a loan or a recoverable grant. The distinction between the two is in the expectation of repayment. A loan, even if from a philanthropic source, is expected to be repaid, and structured accordingly. A recoverable grant does not bear the same expectation of repayment.
    • [3] Non-recoverable grants are traditional grants contributed to capital stacks; if the project is successful and generates full repayment, the non-recoverable grants can remain with the service provider or project manager, or be recycled by the original funder.
  • Basic Repayment Structure

    • Initial Investment ($Millions)
      3.5
    • Maximum Repayment Funds Committed by Payor ($Millions)
      6
    • Full service delivery term (years)
      5
    • Full repayment period (years)
      6
    • Interim outcomes reported? Tied to payments?
      Yes/Yes
    • Sustainability/ Recycling of Funds
      1) Housing vouchers and Medicaid services will remain with participants
  • Detailed Repayment Terms

    • Interest
      0 – 5.33% annually, based on success rates [Note 5]
    • Trigger for initial repayment of principal [Note 1]
      40% rate of 12 months of housing stability
    • Threshold for full repayment of principal
      80% rate of 12 months of housing stability
    • Threshold for full repayment of principal plus maximum success payments
      94% rate of 12 months of housing stability
    • Repayment timing
      Year 6
    • Return to Investor [Note 2]
      See Note 5
    • Success Payment to Other Stakeholders? [Note 3]
      No
    • [5] Private investors receive interest at a rate calculated and paid annually, starting at the end of Year 2, based upon level of success that is achieved by service providers.
    • [1] Initial repayment does not equate to full principal return. Investors may recover only part of their principal if projects do not meet a certain level of success.
    • [2] There is no standard methodology for calculating investor return. These numbers are what is publically reported, and comparing from one project to another may not be an apples-to-apples comparison for the reason of potentially different calculation methodologies. Calculation methodologies may be provided in investor agreements, which are not available publically and were not available for this report’s analysis.
    • [3] Success payments for other stakeholders such as project managers and service providers create a financial incentive for project success.
  • Project Costs

    • Project Development Costs Not Covered by PFS Capital Raise
      Government Performance Lab fellow; Legal services
    • Funding source(s) for project development costs, if any
      Pro bono legal support
    • Project Implementation Costs not covered by PFS Capital
      $7 million in housing vouchers; $11 million in Medicaid services
    • Funding sources for implementation costs not covered by PFS capital
      -Commonwealth of Massachusetts