The Ascension of an Innovator

Can the president-elect's choice to lead HUD teach a tough bureaucracy how to say yes?
December 17, 2008 AT 3:00 AM
By Stephen Goldsmith  |  Contributor
Professor of practice at the Harvard Kennedy School and director of the Innovations in American Government Program

Last week, President-elect Barack Obama announced his intention to nominate Shaun Donovan, the talented and innovative commissioner of the New York City Department of Housing Preservation and Development, as secretary of the Department of Housing and Urban Development. Donovan will face many challenges in his new role, but one in particular should be high on his list of priorities: how will he unlock opportunity for other innovators at the local level, especially when they are struggling in the face of tough markets and stifling regulations? Can even the best secretary execute important programs in a fashion that leverages the creativity of those closest to the problems and the answers?

This year, at Harvard Kennedy School, we presented our top Innovations in American Government award to Donovan and his New York City Acquisition Fund, a $230 million partnership that finances the purchase of land and buildings for affordable housing. The Acquisition Fund is supported through a collaboration of the city of New York, the city's leading financial institutions and 10 national philanthropies. The fund encourages banks to offer credit to smaller developers by insulating their contributions from the highest-risk positions within the fund. By combining innovative private-sector structured finance techniques with the mission-driven commitment of the public sector, the Fund gives small affordable-housing developers faster access to equity and predevelopment capital, achieving remarkable results.

The work of local mayors and community development and finance agencies will benefit greatly if "Secretary Donovan" wakes up every day remembering "Housing Commissioner Donovan." This orientation would lead him to unlock local talent and resources by applying the following principles:

1. Measure performance, not activities: Harvard recognized Donovan for designing and executing a creative way to restore over 82,000 affordable-housing units, not because he filled out the forms correctly. When I was mayor of Indianapolis, the HUD bureaucracy repeatedly told me that the outcomes were secondary to the process, even if the latter came at the expense of the former. The new secretary should immediately begin a targeted process to strip out every unnecessary requirement that does not contribute to performance accountability.

2. De-layer the bureaucracy: All of us who pay attention to urban policy, regardless of party affiliation, agree that the HUD bureaucracy is suffocating. It is not, however, because agency employees set out to create obstacles. It is most often because the bureaucracy requires too many layers of approval for decisions. Digital tools now allow for much better information sharing than when the HUD bureaucracy was created. Because of the availability of these tools, and the fortuitous retirement of record numbers of federal retirees over the next four years, there is no better time to effect change. Program officers need more discretion, allowing them to assign employees doing unnecessary jobs to special project teams and substantive projects in the field. It's time to allow those who really want to make a difference to do just that.

Large organizations, no matter how hard they try, inevitably create friction when they innovate. Even though New York City has one of the better public housing agencies, Donovan created his value for Mayor Michael Bloomberg in a much smaller agency with a specific purpose. The size of the weight on your chest does make a difference.

3. Recognize that individual choice and market forces drive innovation: The Acquisition Fund did a brilliant job of injecting talent and capital in a way that facilitated the market by unlocking opportunity for small developers and community development and finance agencies. Nor should HUD overlook demand-side tools that facilitate the power that comes from individual choice. Housing assistance initiatives, such as Section 8 vouchers that offer subsidized housing for low-income families and individuals, provide housing with less overhead and more individual choice.

4. Try a little trust and support public-private partnerships: I remember one startling moment, while testifying before a congressional housing committee regarding my request for more discretion. I pledged to create 125 percent more units for 90 percent of the money if Washington would just send me a check and measure the results. The congressman with the microphone responded that, essentially, Washington just didn't trust mayors enough to let them control local housing funds. It's time for a little trust. The Acquisition Fund brought together private capital, government, not-for-profits and local developers in a way that required great flexibility and was done best at the local level.

5. Block grants are better than program grants: The last five years have witnessed some serious wrangling about the community development block grants on which many mayors rely for their innovation capital, but which a few others abuse. Somehow, Washington never seems capable of punishing the abusers without also punishing the performers. Congress should not continue to send funds to those who misbehave, but nor should it throw the baby out with the bathwater.

I was fortunate as mayor to have what I thought were great, and personal, relationships with two exceptional HUD secretaries -- Jack Kemp and Henry Cisneros. These were men with new ideas and terrific intentions. But even after I would walk away from encouraging conversations with the secretaries, it seemed to me that of the tens of thousands of people who worked at HUD, only the secretary could say yes, and everyone else was there to say no.

Secretary Donovan has the opportunity to produce unparalleled value by faithfully keeping in mind the work of Housing Commissioner Donovan.