Ending months of speculation and pleas from service providers, city officials said Friday that Seattle would impose financial penalties for missing contracted goals intended to boost the number of people who found "permanent exits" from homelessness.

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Seattle homeless-service providers are helping more homeless people off the streets this year than last, but 35 percent of programs funded by the city fell short of new performance targets in their contracts, according to data released on Friday.

City officials said Friday that Seattle would impose financial penalties for missing contracted goals intended to boost the number of people who found “permanent exits” from homelessness, ending months of speculation among service providers, some of which have previously asked city officials to reconsider how performance figures are calculated.

Interim Seattle Human Services Director Jason Johnson acknowledged that there’s room for improvement for some agencies, but said some of the city’s strategies for addressing homelessness — including rental-voucher, diversion and transitional-housing programs — showed significant improvement, and were evidence that Seattle’s new approach is on the right track. Around 65 percent of all agency programs are meeting their performance goals.

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Earlier this year, the city announced $34 million in new contract awards, marking the first time homeless-services contracts were competitively rebid in a decade. In another important development, the city tied pay to performance and set an ambitious goal to double the number of people who would be moved out of homelessness and into permanent housing. All told, Seattle has planned to spend more than $86 million on more than a dozen departments to address the homelessness crisis this year.

The data released Friday offers a snapshot of efforts to make Seattle’s homeless-response system more efficient and effective, but did not offer an indication whether homelessness is actually falling nearly three years into the city’s declared state of emergency. Overall, homelessness in King County has risen nearly 25 percent in the past five years, and Seattle’s population of people sleeping outside is one of the largest in the nation, according to annual point-in-time counts.

According to the new data, through the second quarter of 2018, agencies funded by Seattle have recorded 2,644 “permanent exits” out of homelessness, a 35 percent increase over the numbers at the same point in 2017. Efforts to blunt racial disparities in the number of people living on the streets are showing success, Johnson said.

The city defined a “permanent exit” as someone leaving homelessness for stable housing, subsidized or not. The city sets the lowest expectations for permanent exits for  shelter programs that serve youth and young adults, and the highest for family shelters.

“The changes that we’ve made are taking root,” Johnson said. “While we’re not where we want to be, and we have a lot of work to do to make sure this system works, better is better.”

But other aspects of Seattle’s approach are flagging. Data show that 4 percent of people who stayed in emergency overnight shelters funded by Seattle left for permanent housing, well short of the contracted goals. Enhanced shelters, which are open around-the-clock and offer clients on-site social services, reported a 21 percent permanent exit rate — also short of the city’s goals.

Programs that missed the benchmarks are facing a three percent pay reduction, which some providers have argued will severely reduce their ability to operate. Seattle did not release agency-specific performance data.

In July, directors of some local youth and young-adult shelter providers sent a letter to Johnson’s department, protesting that they were being penalized for shelter-stayers whom they cannot immediately move into stable housing, or who decline offers of help.

Johnson said that while the city has no immediate plans to revamp the benchmarks, the requirements for emergency shelters, which he said still provide an important service to the homeless, may not be realistic. The city is currently in discussion about whether to rethink the benchmarks. In the meantime, city authorities will work closely with agencies that are not meeting minimum standards to help them improve, he said.

DESC is just one of several providers that will face penalties. Director Dan Malone said most of the organizations’ programs are meeting performance expectations, though one missed its goal. DESC does not have any immediate plans on scaling back its operations, he said. .

“It’s possible that that particular cut for one quarter may be something we can absorb without cutting things back,” he said.

At the city’s controversial sanctioned encampments, the rate of people leaving for permanent housing remained low. Through the first six months of the year, the number stands at 17 percent, a five-point drop from last year. In these encampments, otherwise known as permitted villages, people live in a mix of tents and tiny homes.

The city has struggled to overcome logistical pains in opening and operating the villages. A July Seattle Times report revealed that a village in Seattle’s Wallingford neighborhood operated for months without case-management services considered crucial to helping the homeless move into stable housing.

Despite the low exit numbers, Johnson said the villages play a vital role in the system, serving as an attractive landing spot for people who have spent long periods of time living outdoors. The city plans to open another village, bringing the total to nine.

The bottom line, Johnson said, is that villages “are a better option than having people living outdoors on the streets, on the sidewalks or in city parks — and they’re having an impact.”

The villages are not currently tied to performance goals.

Staff reporter Scott Greenstone contributed to this article.