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Standard & Poor’s LocalHousing Authority Evaluation

Philadelphia Housing Authority, PennsylvaniaAnalysts: Valerie White, New York 212-438-2078, Lawrence Witte, San Francisco 415-371-5037

NEW RATING

LOCAL HOUSING AUTHORITY EVALUATION

CATEGORY Very LargeRANKING Strong

Outlook: Stable

RationaleStandard & Poor’s assigns the PhiladelphiaHousing Authority (PHA), Pa. a ‘strong’ranking. PHA owns and operates 15,749family and elderly units in 44 developmentsand administers 18,000 section 8 vouchers.

The ‘strong’ ranking reflects:Strengths:� An overall vision to establish and

maintain the authority as a majorreal estate development and assetmanagement organization;

� Well-conceived and aggressive strate-gic plans and policies supporting theoverall vision of the authority;

� Extensive support from the city andthe board in the development and im-plementation of the authority’slong-term plans and related programs;

� A strong and creative developmentarm that maximizes externally lever-aged resources to create attractivenew communities that replaces de-molished housing;

� Strong financial performance in thehousing program, as evidenced by ahigh level of profitability, achievedthrough the financial support fromthe mixed-income sites; and

� Highly sophisticated technologicalcapabilities.

Challenges:� Distressed state of housing in the

City of Philadelphia and the author-ity’s burden as the city’s leading de-veloper in areas of blight;

� Severely-deteriorated conditions ofneighborhoods in which many of thescattered sites are located—signifi-cantly impacting the overall desir-ability and marketability of theproperties; and

� Lack of consistent condition ofproperties in terms of overall cleanli-ness and curb appeal.

OutlookPHA is a strong authority that has devel-oped clear, directive strategic plans to max-imize its position as a premier real estatedevelopment and management company.The authority’s major strengths in commu-nity development and asset managementare key for the authority to continue itssuccessful operation, given the currentstate of the private housing stock in certainareas of the city, the severity of housingconditions, and the overwhelming task ofredeveloping those communities.

ManagementStandard & Poor’s assigns a ‘strong’ rankingto PHA’s management. This ranking reflects:

Strengths:� A strong senior staff that has a track

record of positive achievements overthe last four years;

� Thorough strategic planning that en-compasses a range of activity de-tailed to the employee level;

� Close and cooperative interactionwith external partners, including theCity of Philadelphia;

� Innovative approaches to improvingoperations and accessing financing;and

� Effective employee relations with alarge and predominately unionworkforce.

Challenges:� Maintaining focus on clear organiza-

tional goals within a large organiza-tion, and

� Keeping open lines of communica-tion with residents.

PHA has a senior staff of 27, startingwith an executive director, general counseland human resources, and an executivedeputy director. Four executive generalmanagers, one general manager, and onespecial assistant report directly to the exec-utive deputy director. These managersoversee the areas of asset management,supply chain management (i.e., contracts,procurement, and warehouse), real estatedevelopment, operations, and finance andcommunity partnerships.

The board comprises five members—themayor appoints two, the city controller ap-points two, and the fifth member is a pub-lic housing resident. Members servefive-year terms, which are staggered sothat experienced members will be on theboard through regular turnover. The in-

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Standard & Poor's Local Housing Authority Evaluation � January 2003

herent effectiveness of the board’s compo-sition is well grounded via a 1993 writtenagreement between the city and HUD, un-der which the mayor agreed to serve as a

member along with a member of the citycouncil. This structure begs for the intrin-sic cooperation of the key members of thecity’s governmental body who are respon-

sible for housing, economic, and commu-nity development in Philadelphia. The re-sult of this structure and its effects has leadthe authority to move from a troubledagency to one of the more notable ownerand operator of rental housing in Philadel-phia. The current mayor has kept with thespirit of this agreement by appointing hischief of staff as the board chair. Othermembers are from diverse backgrounds,including a union representative and oneresident as mandated by the federal Qual-ity Housing and Work Responsibility Actof 1998 (QHWRA).

The board made a key strategic decisionin 1998 when it hired Carl Greene as exec-utive director. Greene became the sixth ex-ecutive director since 1984, the year atwhich the authority began to change exec-utive directors once every two to fouryears. Green came from the DetroitHousing Authority, which was removedfrom the ‘troubled’ list of the U.S. Depart-ment of Housing and Urban Developmentduring his tenure.

Under Greene, PHA has implemented in-ternal, external, and financial strategic ini-tiatives. Internally, the authority has a stra-tegic operational plan, which breaks downnine goals into hundreds of objectives andtasks. Each task has a starting date, sched-uled completion date, and actual endingdate, along with individual contacts foreach task. The nine goals are as follows:

� One, achieve excellence in propertymanagement;

� Two, achieve excellence in the man-agement of the section 8 programand enforce program compliance;

� Three, develop affordable quality hous-ing that supports balanced communities;

� Four, implement public safety pro-grams that promote the well being ofPhiladelphia neighborhoods and theaccountability of program participants;

� Five, engage other institutions to lever-age resources and assist in promotingeconomic enhancement and support-ive services for PHA residents;

� Six, improve the productivity and costeffectiveness of PHA’s operations;

� Seven, improve program compliance, re-porting, performance, and accountability;

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EconomyPhiladelphia, approximately 90 miles southwest of New York City, is the nation’sfifth largest city with a population of 1.5 million. The regional economy is highlydiversified, with an emphasis on health care services, pharmaceutical manufactur-ing, aerospace manufacturing, education services, and transportation services.While buffering the Philadelphia economy from more severe downturn, this diver-sity has also limited its expansion as many of the sectors that form the region’s eco-nomic base are growing slowly. The region’s other weaknesses include relativelyhigh business costs, a large number of poorly educated workers that live in Phila-delphia, and high tax rates.

The downturn in the Philadelphia economy has been mild relative to national andstatewide conditions. The peak to trough employment downturn has been less than1%, about half the national rate and well below declines experienced during the re-cessions of 1990-1991 (nearly 3% decline) and 1973-1975 (nearly 5% decline).The city’s 6.3% unemployment rate, in keeping with many urban centers, remainswell above the state (4.7%) and nation (4.3%). A long history of out-migration hasfostered a large disparity in education and income levels between central city andsuburban residents. Effective buying incomes within the city represent only 82% ofthe U.S. benchmark, while per capita incomes for the metro area represent 117%of the national average.

Health services comprise a large 10.5% of metro area jobs. Growth prospects aregood for the metro area’s core of knowledge-based industries, which include healthservices, pharmaceuticals, education, and biotech, chiefly due to a highly educatedworkforce drawn from suburban areas. Hospitals employ over 116,000 workers,while private colleges and universities employ more than 56,000. Leading employ-ers in the metro area include the University of Pennsylvania (27,450 jobs), Jeffer-son Health System (18,523), Merck Pharmaceuticals (10,000), and TenetHealthcare Corp. (9,070). However, hi-tech industries provide a relatively lownumber of jobs and represent only 4.5% of total employment.

Manufacturing, which lost 11,000 net jobs over the past year, appears to be bot-toming out, as recently lengthened workweeks may serve as a leading indicator forpermanent employment growth in the sector. Non-durable manufacturing employ-ment continues to outpace that of durables. In addition to Merck, leading manu-facturers include Lockheed Martin (6,770 employees) and Boeing Co. (5,400).

Tourism, an important driver of the local economy, has performed steadily asconvention bookings have been locked in and the city’s draw as a regional traveldestination has filled the void left by a downturn in long distance travel in the postSeptember 11th environment.

The Philadelphia housing market has sustained relatively well during the recenteconomic downturn. Vacancy rates are hovering near their cyclical low of 9%,which approximates the national average. The regional housing market is furthersupported by a stable supply of apartments. New multifamily housing startsdropped 10.6% from 2000 to 2001 and have remained stable through 2002. Themedian monthly rent in Philadelphia in 2000 was $569 and median cost of a homewas $59,700. Over half of the residents in Philadelphia are homeowners.

� Eight, maximize the use of technol-ogy to improve efficiency and ac-countability of PHA operations; and

� Nine, expand inter-governmentalinitiatives to enhance the ability ofPHA to deliver sound and effectivepublic services.

The wide range of goals illustrates the am-bitions and strategic vision of PHA. Goalsseven through nine seek improvement of in-ternal capacity of the authority. Goals onethrough four strive to improve specific pro-grams of PHA. Goals five and nine reach be-yond the authority and engage partners out-side of PHA. The strategic plan provides aclear and exhaustive path for the authorityto pursue. Beyond its scope, the plan is also aliving document, embedded in every em-ployee’s performance objectives. Each em-ployee has specific objectives with timeschedules related to one or more elements ofthe strategic plan. All the monitoring and ac-countability tracking is made possible by anextensive PeopleSoft computer application.

Progress is evident for all nine goals. Theauthority has improved the condition of itsproperties, enhanced its programs, ex-panded its internal efficiency, and lever-aged external resources. In addition, theauthority entered into the HUD’s “Movingto Work” demonstration program, and be-coming the second housing authority inthe country to leverage HUD’s capitalfunds through the issuance of bonds.These accomplishments have enabled theauthority to gain greater financial flexibil-ity and accelerate the revitalization of itsproperties.

The authority’s improvement over thelast four years is evident within every de-partment. Internal operations run more ef-fectively, external relations are more posi-tive, and the authority has a clearer senseof its direction. The staff deserves credit forthis change, most of which occurred fol-lowing the arrival of Greene. Under the au-thority’s succession plan, the deputy exec-utive directors would step in as the interimexecutive director until such time a perma-nent replacement has been appointed.

PHA is unique among the authorities thatStandard & Poor’s has evaluated in that ithas almost 7,500 scattered-site units. PHA’s

units blend in with various neighborhoods,blocks and streets more than most other au-thorities. As a result, the authority is woveninto the city to a larger degree, requiring astrong external presence and cooperationwith the many citizens, neighborhood busi-nesses, and community institutions. Amongthe many effects of this high level of prox-imity is mutual dependence between PHAand Philadelphia.

Anecdotally, the authority can point tobetter relations with the City of Philadel-phia regarding building demolition and ur-ban revitalization in recent years. Moresubstantially, the city has modeled the au-thority’s revitalization efforts in develop-ing its Neighborhood Transformation Ini-tiative (NTI), which is aimed at stabilizingand revitalizing Philadelphia’s neighbor-hoods. Begun in 2001, NTI’s goals are toachieve the following:

� Facilitate and support commu-nity-based planning,

� Eliminate blight,� Prevent blight,� Redevelop sections through assem-

bly of land,� Invest in housing and neighborhood

preservation, and� Leverage resources.

Although NTI is a city initiative that is dis-tinct from the authority’s revitalization pro-grams, PHA’s efforts in recent years havehelped shaped the direction of the NTIplan. PHA has the property, personnel, stra-tegic planning, and financial resources tofurther the common goals shared by its mis-sion and that of the NTI program. In fact,the city has looked to the authority to de-velop property funded from the tax creditequity investments associated with the NTIplan. The authority’s efforts have been atthe forefront of addressing the dauntingtask of revitalizing the current state of mul-tifamily housing in the city. By 1950, thecity had sufficient housing stock for 2.5 mil-lion residents, at which time the populationwas 2.1 million. The population thenshrunk to its current 1.4 million, leavingPhiladelphia with approximately 54,000abandoned houses, 31,000 vacant lots, and30,000 abandoned vehicles.

NTI took shape when the city issued itsfirst bond transaction, the first of five thatcould reach $250 million. These blight re-moval bonds will help address the over-flow of dangerous buildings in the city. An-other $195 million in bonds will fundbuilding demolition and $55 million willfund neighborhood reinvestment like

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PHA's development team has successfully completed new construction and reconstruction projects.

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Standard & Poor's Local Housing Authority Evaluation ■ January 2003

home improvement and acquisition of upto 5,000 parcels of land. These efforts willcomplement the authority’s redevelop-ment activities, which have already beenunderway in recent years.

The city has benefited from PHA’s HOPEVI development, and has demonstrated itssupport to the development and implemen-tation of plans as appropriate. PHA consid-ers its resources to be the catalyst for urbanrenewal, such as using section 8 as mortgageassistance to foster homeownership andneighborhood stability. The city is some-what constrained by its civil service labor re-quirements, so it can contract with PHA likea non-profit, allowing more flexibility. PHAwill do much of the planning, and bringmore resources than the city has available.

Like many public housing authorities,PHA has substantial unionization. Elevenunions and seven collective bargainingunits comprise the majority of the author-ity’s 2,600 employees. Limited flexibility re-garding personnel and labor costs couldemerge as a concern, but the authorityseems to have positive labor relations, as ev-idenced recently through performance indi-cators. The authority is taking a proactiveapproach to create a high-performance en-vironment through training, internshipprograms, benefits, and opportunities foradvancement. PHA has a program for re-cent graduates, aimed at recruiting and pro-moting new employees in managementroles. The authority is also developing acorporate university open to all employees.The training would be designed by IREM,Nan McCay, Deloitte and Touche, andPierce College, and is planned to be opera-tional by the end of the year.

Concerns of the residents are also impor-tant. Asset managers contact residentcouncils in their region on a weekly basisto resolve issues, provide support and tech-nical assistance, and identify new partner-ships. PHA conducts monthly pre-boardmeetings that rotate among PHA sites.PHA senior staff and resident leaders dis-cuss all resolutions anticipated to be pre-sented to the board the following week.Residents have an opportunity to com-ment on these issues and learn about newprograms and initiatives.

OperationsStandard & Poor’s assigns a ‘strong’ rank-ing to PHA’s operations. This ranking re-flects the following:

Strengths:� A strong development arm that

serves as the driving force in the pro-cess of blight elimination in the city’stransformation plan;

� Creative and aggressive financingtransactions that provide funding forthe authority’s development activity;

� Institutionalized private propertyand asset management practices;

� Improved policies for overall mainte-nance procedures; and

� Outscored resident services programprovided through a resident-basedorganization.

Challenges:� Seventy-eight percent section 8 utili-

zation rates—a challenge that is off-set by the authority’s need towarehouse vouchers for its extensiverelocation efforts; and

� High unit turnaround count—thischallenge is offset by the strategicmethod by which PHA is approach-ing its overall modernization and re-construction plan.

DevelopmentPHA demonstrated great foresight by es-tablishing a strong development team,which is an essential component to the suc-cess of the agency. PHA’s developmentagenda is aggressive, and addresses majorredevelopment needs of the city in impactedareas. As a catalyst in the urban revitaliza-tion of the city, PHA has systematicallyidentified opportunities to substantially im-prove its portfolio. In most cases, the au-thority proactively takes the lead indeveloping master plans for neighborhoodstargeted for PHA development activity.This is evidence of the city’s dependency onthe authority to lead the way in transform-ing the distressed areas of Philadelphia.

PHA development activity is grounded ingenerally accepted real estate developmentprincipals and practices. The PhiladelphiaHousing Authority Development Corp., a501(c)(3) affiliate of the organization,serves as its development arm. Special pur-pose entities are created for mixed-fi-nanced projects. Development projects arecarefully planned and include componentsdesigned to alleviate the existing blight inthe area. PHA has maximized the HOPEVI redevelopment program through fourHOPE VI revitalization grants and sevenHOPE VI demolition grants over the lastnine years. In addition, the authority has a

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Table 1

PHA Key Statistics

2001 2000 1999 1998 1997Average senior income (as of 10/02) $8,900 N.A. N.A. N.A. N.A.

Average family income (as of 10/02) $11,100 N.A. N.A. N.A. N.A.

Average senior tenant income (% of area median) N.A. N.A. N.A. N.A. N.A.

Average family tenant income (% of area median) N.A. N.A. N.A. N.A. N.A.

Total population (public housing) 31,200 30600* 33500* 36000* 38200*

Total households (public housing - occupied) 12,464 12,074 13,210 13,760 14,370

Units of federal public housing (standing units**) 17,218 18,831 20,446 20,692 21,070

PHAS score 79 75 70.66 N/A N/A

PHMAP score N/A N/A N/A 67.99 60.24

HUD performance designation Advisory Advisory Standard Standard Standard

Percent of non-senior heads of household withemployment as a major source of income N.A. N.A. N.A. N.A. N.A.

Units of section 8 (as of 9/30) 15,996 N.A. N.A. N.A. N.A.

Units of non-federal public housing

N/A—Not applicable. N.A.—Not available. * Estimations—data not tracked.

number of other mixed-finance transac-tions for new development and major con-struction. These projects have or will resultin the elimination of distressed conditionsthrough demolition and reconstruction.New development projects are designed toreduce density, to create a sense of commu-nity and provide the general amenities thatare consistent with the standard marketrate housing in Philadelphia.

PHA’s foresight and private market ap-proach is impressive, and it has allowed fora number of creatively financed projectswith significant support from the Pennsyl-vania Housing Finance Authority. Amountstotal $623 million in tax-exempt bonds andtax credit equity for 10 development, in-cluding the securitization of capital fundsfor the redesign and development of TaskerHomes—the second major capital fund se-curitization project undertaken by a hous-ing authority in the country. The authorityhas garnered a significant amount of sup-port from the state housing finance agency.No other housing authority evaluated byStandard & Poor’s to date has received sup-port of this level from their respective statehousing finance agencies. In addition, PHAhas secured an additional $223 million infunds, including HOME, CDBG, and

HOPE VI, for the substantial rehabilitationof another seven developments. The devel-opment pipeline includes the constructionor substantial rehabilitation of more than4,600 of the agency 15,000 units.

The development staff is highly trainedand has the wherewithal to complete so-phisticated development projects. Newlydeveloped neighborhoods are attractiveand make a significant impact on the areasin which they are located. PHA acknowl-edges that its most significant developmentchallenge is coming up with a plan to dealwith the numerous scattered-site units in itsportfolio that are either in poor conditionor are in severely distressed neighborhoods.Because the city is plagued with vacant lotsand vacant, deteriorated structures, it is dif-ficult for the authority to address collec-tively many of its scattered sites in an effi-cient manner. One pending plan with thecity under the NTI calls for unit swaps be-tween the city and PHA, which will moveresidents from an area of blight where theunit may be only one or two on a blockstanding to a unit on a more stable block.This swap plan will permit the city to createassemblages of lots to offer for develop-ment while moving the PHA resident into abetter neighborhood.

Standard & Poor’s believes that, givensufficient funding, the authority’s develop-ment team can construct and redesign ex-isting housing that will be useful and mar-ketable for years to come. Nonetheless,funding and the severe impact of the condi-tion of some areas present a timely and sig-nificant challenge for the authority.

Property and Asset ManagementPHA employs private market property andasset management practices. More than94% of the management and asset man-agement staff are accredited as residentialmanagers under the Institute for Real Es-tate Management.

Effective management of the portfolio ismade even more difficult for the authoritydue to the fact that almost 40% of its port-folio is scattered sites. To get a handle onmanaging these units, the authority insti-tuted 10 community management officesthroughout the city, from which the scat-tered sites are managed. This allows PHAstaff to focus efforts in specific geographicregions of the city and address residents’needs more quickly. Conventional sites aremonitored by six area supervisory assetmanagers who oversee the property man-agement of the developments in their re-spective geographic areas.

As with conventional developments, scat-tered sites are inspected annually. However,property managers have occasion to visitunits at least once on a quarterly basis. Thispermits staff to monitor closely the condi-tion of the units as well as to provide indi-vidualized service to the residents.

PHA prudently established an independ-ent asset management function—much likea private market owner of a diverse portfo-lio. Asset managers monitor properties on amonthly basis by reviewing vacancy, rentcollection, and other relevant performancefactors on a monthly basis and identifyingvariances from the projected performanceratios for the specific property. Asset man-agers work with managers to bring proper-ties within planned numbers, as well to en-sure that the authority is adhering to allcompliance issues. This department workswith all properties—conventional, scat-tered sites, and unsubsidized/privately

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Severly deteriorated developments have been slated for demolition and reconstruction.

managed units. All asset management func-tions are computerized and feed directlyinto the PeopleSoft system.

Upon the decentralization of the scat-tered-site operation and the creation of theasset management department, there wasan immediate increase in the administra-tive expenses per unit from almost $1,400in 1999 to more than $2,300 in 2000.However, the year 2000 has seen a de-crease to $2000 per unit. Standard &Poor’s believes that the initial costs indi-cated in 2000 will begin to trend down, asmarketed improvements in efficiency willoccur. One increase of efficiency evidencedin the agency’s performance is its rent col-lection efforts. Rent collection has im-proved dramatically by more than 16%points, going from about 81% in 1997 toalmost 97% in 2001.

Occupancy has remained steady at 92%over the last five years, with its low at 88%in 2001. The decrease in occupancy is di-rectly attributed to the massive relocation ef-forts being undertaken by the authority, andthe need to have sufficient units to house res-idents as properties are demolished and re-constructed, or substantially rehabilitated.PHAS advisory scores improved slightlyfrom 75 in 2000 to 79 in 2001. AlthoughPhiladelphia is an MTW and exempt toPHAS scoring, it continues to submit reportsin an effort to measure and record the effec-tiveness of its procedures.

PHA’s security efforts are impres-sive—due to the existence of its own policeforce. More than 200 officers and 50 civil-ians provide security on PHA property,oversee section 8 inspections, perform allrecord checks, and provide alternativedrug prevention programming for youngresidents. Positive effects of the police de-partment’s efforts are evidenced in the26% reduction from year-to-date 2001 toyear-to-date 2002 in reported incidents incriminal activity, and a 35% decrease in ar-rests for the same period.

Maintenance and Construction. Mainte-nance policy and procedures are institu-tionalized in detailed policy and proceduremanuals. Unit turnover is handled in twocategories—units that can be turned overin 10 days (handled by the maintenance

staff), and units that need more time(which are handled by a special turn-around reduction team).

Unit turnover averaged 177 days over thelast five years, with a peak of 187 days in2000. The agency attributes high unit turn-over to the significant age of its stock, andthe large number of scattered sites (by farthe most of any public housing authority inthe country). Because much of the housingstock, both the scattered sites and publichousing, ages from 60-150 years old andmany conditions’ are obsolete, the author-ity must take great pains to ensure that unitsare brought up to code, and are marketableand desirable units. This requires additionaltime, and negatively affects the unit turn-around number. Even given these factors,PHA turns an average of 5-10 units perweek in its scattered sites portfolio.

In addition, the PHA has units within itsportfolio that are in historic districts, aswell as units that must be retrofitted to becompliant with the American with Disabil-ities Act. Additional work and time is oftenassociated with addressing the specialneeds of these units. Also, under its strate-

gic plan, the authority is identifying theunits in the most distressed condition todetermine the feasibility of repairing theseunits or demolishing them—thereby re-moving them off the unit turnaroundcount. Nonetheless, PHA must continue tocarefully monitor its unit turnaround days,and ensure that the approach to these unitsare feasible, given their condition, and thatthe overall modernization plan addressesthe need to turn over units more quickly.

Work orders average three days for com-pletion, and the authority handles morethan 800 work orders per month. Since1998, the work order backlog has been re-duced from 25,000 to 1,000. This was ac-complished through establishing the spe-cial unit turnaround teams and freeing upmaintenance workers to address work or-ders. Emergency work orders are handledwithin 24 hours.

Inventory is managed through a central-ized warehouse, and through 13 stockinglocations, which are necessary due to thewide geographic area covered by the port-folio. The inventory system is fully com-puterized and monitored through the

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Table 2

PHMAP Submission Statistics

Rents Collections - (Public Housing Only) 2001 2000 1999 1998 1997Rent collected (% of gross rents) 96.82 96.38 86.81 82.67 80.79

Occupancy % (adjusted for HUD approved exclusions) 88.64 92.19 95 95.95 90.26

Unit turnaround days 182.55 186.79 176 183 159

Total vacant units 3,590 4,490 4,081 5,424 5,672

Weak (13%)

Below Average (40%)Average (40%)

Above Average (7%)

Chart 1

Scattered Sites Property Condition Distribution

PeopleSoft computerized system. PHAplans to move to the e-procurement sys-tem, which will allow for total computer-ized ordering and inventory monitoring.

Section 8. PHA administers more than18,000 vouchers—of which 14,000 are uti-lized. Units are located diversely around thecity and include private homes, high-rises,elderly units, and PHA homeownershipprogrammed units.

PHA recently took eight months to purgeits 10-year old waiting list of 10,000 fami-lies, and reopened its waiting list and re-ceived 27,000 applications. At present,

PHA is working to certify 7,500 familiesfor the 4,000 unused vouchers. Thesevouchers will also provide alternativehousing for resident relocation due to ongoing demolition or substantial rehabilita-tion projects.

Inspections are covered by staff reportingto the security department, and are madeupon move-in/move-out, resident or land-lord complaint, and annually. Regularlyscheduled landlord briefings and tenantbriefings permit staff to keep landlordsand participants informed on programpolicies. In addition, the unit regularly

holds landlord fairs to recruit new ownersand educated them on the benefits of thesection 8 program.

Residents Services. PHA was designated a“Moving to Work” (MTW) agency in2001. One of the major goals of the plan isto improve the overall quality of life of resi-dents through job training, education, andself-sufficiency opportunities. The Com-munity Resources Department successfullyoversees contracts for resident and commu-nity services, and will coordinate the MTWsupportive services efforts. Staff are in-volved in grant writing to support consul-tants and homeownership programming.Since 1999, the department has increasedits supportive services grant awardsamount seven times over. This has helpedthe authority to provide the funds to sup-port more service programs through its af-filiate organization.

As part of the authority’s mission to limitits functions to real estate developmentand property management, PHA con-tracted out its resident services to one of its501(c)(3) arms—the Tenant Support Ser-vices Inc. The nonprofit was established inthe late 1980’s and resurrected in 1998 inorder to oversee the provision of support-ive services to residents. This predomi-nantly resident-staffed entity now pro-vides PHA services, including conductingthe PHAS portion of the resident survey,coordinating volunteers, raising funds forsupportive programming, and overseeingthe Family Self Sufficiency program. In ad-dition, the nonprofit oversees contractswith agencies providing on-site Head Startand senior services, as well as after schooland summer programming.

Standard & Poor’s believes that it is pru-dent for the authority to focus on develop-ing its capacity as a real estate business en-tity, and that contracting out residentservices is a prudent means to ensure thatquality of life programs are offered to itsconstituency. This allows organizationswith expertise in the provision of these ser-vices to accurately identify and meet theneeds of PHA residents. Relations betweenthe authority and PHA are good, as evi-denced by the score of 9 (out of a possible

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PHA's portfolio includes a diverse property type, including high-rise buildings.

10) in the resident survey section of the2001 PHAS score.

PHA also promotes resident self-suffi-ciency through its section 5(h), Lease toPurchase Turnkey, and section 8homeownership programs. Under thesethree programs, more than 200 units ofhomeownership have been sold to resi-dents in the last five years. Many homes goto participants in the Family Self Suffi-ciency program—which will be expandedunder the MTW program to include publichousing residents. At present, there aremore than 273 residents in the escrow ac-count program, up from 70 in 1999. Thesavings from the escrow account programcan be used for homeownership.

Modernization. PHA has an aggressivemodernization plan that is designed to al-leviate distressed housing from its portfo-lio. All units benefit from the authority’sSPARKLE program, under which modern-ization funds are used to improve the over-all curb appeal of the properties throughextensive landscaping and exterior work.

In reviewing the authority’s overall mod-ernization efforts, Standard & Poor’sfound that modernization efforts generallyfall within three categories. The first areproperties that have outlived their usefullives either due to their distressed condi-tion or due to the obsolescence of the de-sign and the community lay out. Theseproperties are handled through the devel-opment department and are included inthe master revitalization planning, includ-ing HOPE VI and NTI efforts for demoli-tion and reconstruction. The second cate-gory includes older properties that areviable and still have some useful life forwhich the authority targets its generalmodernization. PHA established theSMART team program—which identifiesproperties in need of modernization anddisburses teams to complete rehabilitationon these units, including kitchen and bath-room upgrades, windows, flooring, etc.Nonetheless, the condition of some unitshas affected the authority’s ability to turnaround the units in a timely manner whenthey do become vacant. PHA will need tobe sure that a plan is developed to addressall of the properties in this category.

Finally, there are the newly rehabilitatedand/or constructed units. Although theseunits are in excellent condition, PHA hasdeveloped a timeline to proactively main-tain their useful lives through preventivemaintenance and modernization efforts.

Standard & Poor’s finds this approach tomodernization an effective way for the au-thority to approach its large and diverseportfolio—with a wide range in propertycondition. This plan should, however, con-tinue to be monitored carefully as it relatesto the reduction of unit turnaround. It isessential that the authority continue to useits scarce modernization funds wisely inorder to maximize modernization efforts.Leveraging private resources, capital fundsecuritization, and other such effortsshould continue to be part of the author-ity’s plan to address its overwhelmingmodernization needs.

Portfolio AssessmentStandard & Poor’s assigns an ‘average’ranking to PHA’s portfolio. This rankingreflects:

Strengths:� New construction, mixed-financed,

and HOPE VI properties;� Overall rehabilitation of a portion of

the older portfolio; and� A fairly well maintained scat-

tered-site portfolio.Challenges:� Poor condition and/or physical obso-

lescence of some older properties forwhich there is no immediate plan torevitalize due to funding availability;

� Neighborhoods in which the majorityof the scattered-site units are locatedare in complete deterioration, whichhas a significant impact on the over-all marketability of those sites; and

� Lack of consistent property manage-ment practices negatively affectingthe curb appeal of some sites.

Standard & Poor’s conducted an in-depthsite assessment of the authority’s portfolioby visiting all 44 public housing andnon-subsidized developments, and a repre-sentative sample of the scattered sites. Theportfolio is diversely located throughoutthe city, with developments in neighbor-

hoods ranging from the most deterioratedto historic districts.

Because the properties are of varyingquality, Standard & Poor’s applied aweighted average analysis to determine theoverall portfolio’s condition. The averageranking reflects the wide range of condi-tions of the properties. One key observa-tion was the range of the overall mainte-nance of the properties. Some properties,while in good overall condition, were notmaintained as well as others—affecting themarketability and curb appeal for thatproperty. PHA must ensure that propertycondition policies are consistently applied

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Table 3

Conventional Sites Visited by S&P

Property UnitsAbbottsford Homes 700Arch Homes 77Bartram 500Bently Hall 100Emlen Arms 158Germantown House 219Gladys B. Jackobs 80Haddington 148Harrison 300Haverford 24Hill Creek 335Home Crest 84Johnson Homes 535Katie B. Jackson 59Liddonfield 450Mantua 153Martin Luther King UCMill Creek 0Norman Blumberg 508Norris 324Oxford Village 200Pascall Apartments 223Point Breeze 72Queen Lane 120Raymond Rosen 300Richard Allen 150Schylkill Falls UCSpring Garden 203Tasker UCWest Park 325Wilson Park 152

to preserve the long-term condition of theproperty and to maintain an overall ap-pealing curb appeal authority wide.

Standard & Poor’s found that the proper-ties fall within four major categories:

� One, the scattered-sites portfolio;� Two, new construction properties;� Three, major rehabilitation units;

and� Four, obsolete sites and properties in

poor condition.Scattered Sites. The scattered-site portfo-

lio consists primarily of single-family rowhomes located throughout the city. Manyof the residents have lived in the units inupwards of 20 years. With as many as sixbedrooms, these properties range in qual-ity from poor to strong. PHA began to ad-dress the condition of these units throughits SMART rehabilitation program to alle-viate hazardous and habitability condi-tions in some of the units. The authoritycontinues to upgrade a number of theseunits as turnover occurs. In addition, manyresidents make improvements to theirunits, with the authority’s permission, thatenhance the value of the property.

The single factor most impacting thescattered sites, however, is the severity ofthe distressed environments in whichmany scattered-site units are located, andthe significant impact on the overall mar-ketability of these properties. The level ofblight is such that, despite PHA’s best ef-forts to maintain the property, some scat-tered-site units have outlived their useful-ness merely due to their location. This is asignificant challenge to the authority be-cause it does not have management or de-velopment authority over these surround-ings. The authority should continue itswork with the city’s NTI program to iden-tify these highly impacted areas, relocateresidents to more desirable communities,and make these units available to the cityto permit the city to assemble contiguouslots for redevelopment.

Nonetheless, the authority’s aggressiveexterior maintenance program, SPAR-KLE, has been successful in upgrading theexterior of the buildings and maintaininggood overall curb appeal. This effort, cou-pled with the resident’s efforts to make im-

provements on their units, have oftenmade some of the scattered sites thebest-maintained property in the area.

New Development. The newer units inthe mixed-finance and HOPE VI portfolio,such as the Raymond Rosen development,are in excellent condition and provide awelcome revitalization of the areas in whichthey are located. These properties, whichinclude the single-family homeownershipfeatured at Richard Allen, town house rent-als and multi-family senior dwellings(Gladys B. Jacobs), have been designed toblend with the overall area and provide asense of community where large traditionalpublic housing developments formerlystood. Amenities and services proposed in-clude on-site health facilities, full servicecommunity centers, and retail strip malls.

Rehabilitated Properties. There are also anumber of older developments that haveextended their useful lives due to moderateand substantial rehabilitation in recentyears, including Emlem Arms, NormanBlumberg, and Abbottsford. These proper-ties have or are being modernized to pro-vide a good quality housing that is sorely

needed. However, it is essential that PHAaggressively continue its upkeep of theseunits through capital improvement pro-jects, and to ensure that proactive propertymanagement practices are consistently ap-plied, so that they can remain a useful andmarketable part of the authority’s portfolio.

Site Obsolescence and/or Properties inPoor Condition. Finally, a portion ofPHA’s portfolio is in either poor conditionor in a distressed state. This includes thevacated Mill Creek development, which isslated for demolition under the authority’smost recent HOPE VI grant award, andthe Tasker development, which will un-dergo substantial redesign and rehabilita-tion funding under a Capital Fund Securi-tization bond issue. Standard & Poor’sbelieves that the authority should continueits creative funding approach throughbond financing, tax credit investment,HOPE VI grant awards, and other finan-cial leveraging opportunities to either de-molish or significantly improve the condi-tion of the properties over time.

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Some of PHA's units are located in very stable neighborhoods of Philadelphia.

Financial ManagementStandard & Poor’s assigns a ‘strong’ rank-ing to PHA’s financial management. Thisranking reflects:

Strengths:� High level of financial sophistication

and innovation,� Unit-based accounting and budgeting,� Long-term financial planning,� Positive net income and sufficient re-

serves, and� Extensive information system.Challenges:� High reliance on HUD revenues,

particularly in public housing rentsubsidies.

The Finance Department consists of ap-proximately 33 staff working in six areas:budget, general ledger, accounts payable,accounts receivable, treasury, and fixed as-sets. PHA’s financial management benefitsfrom thorough planning and budgeting,and implementation enhanced through anextensive financial reporting system.

The budget cycle is most advanced forpublic housing. Each site receives trainingon budget preparation in the fall. The Fi-nance Department provides sites with twoto three years of historical information.Draft budgets are complete by January orFebruary. The budget request is alwayshigher than available revenues, so cut backadjustments are made by March.

Other programs have a more streamlined pro-cess. The section 8 budget is divided between the“Moving to Work” and non-"Moving toWork"programs.For“MovingtoWork,”PHAreceives block grants and an inflation factor.Multiplying the two together yields the MTWsection8allocation.Non-MTWisbasedonunitleasing schedules. Social services are budgetedbased on the grants received. PHA works closelywith affiliates for non-public housing units.Much of the detail regarding expenditures andrevenues depends on contract. Generally, the au-thority revisitsbudgetsandprojectionsonanan-nual basis.

The authority prepares a HUD-man-dated five-year agency plan, but does lon-ger-term planning at its own initiative. Theauthority has a 20-year capital needs pro-jection and has detailed 10- and 20-yearoperational plans for its new develop-

ments. This level of financial projection isimportant for an authority of PHA’s size,with its diversity of units, and its increas-ing portfolio of market-based units, whichshould increase revenues, but add uncer-tainty to its income.

In addition to strategic financial planning,PHA monitors its budget very effectively ona daily basis. The reporting level goes downto the individual unit so that the authoritycan budget and allocate costs per unit. Thetechnological infrastructure, which is dis-cussed later, enables data to be accessed ona real-time basis from remote sites.

The authority’s revenue stream is almostentirely from federal subsidies, with rentsubsidies covering an average of 90% ofoperating expenses over the last five yearsin the public housing program, which in-cludes some market rate units. Rental in-come covers only about 13% of operatingexpenses. This is a high percentage fromrental subsidies for public housing, whichis probably higher since the public housingprogram also includes expenses fornon-public housing units.

Despite the reliance on federal subsidies,PHA has shown positive net income overthe last five years. Adjusting for a one-timeinflux of revenue from the sale of homes in1999, and for depreciation in 2000 and2001, net income has averaged $22 millionover the last five years. At the same time,reserves have remained relatively high. Re-serves have been at least $3,000 per unitover the last three years, with a high of$4,200 in 1999. These reserves have gener-ally covered half of all operating expenses,enabling the authority to operate for sixmonths with no additional income.

Another positive development for PHA isits innovative financing strategies, primar-ily the securitization of HUD capital grantsto support the issuance of $150 million inrevenue bonds. The funds will go towardthe rehabilitation, renovation, or con-struction of more than 1,000 units. PHA isonly the second housing authority in thecountry to pursue this type of financing.

Technology. PHA has the most sophisti-cated information technology systems ofany authority that Standard & Poor’s hasevaluated. The technological sophistica-

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PHA has the difficult task of managing severely deteriorated scattered sites units.

tion is part of the authority’s strategic op-erational goals. A staff of 24 plans andmaintains a technological infrastructurethat includes 2,000 personal computersand web applications. The authority usesPeopleSoft as its main application, han-dling human resources and payroll, tenantaccounting for section 8, general ledger,purchase orders, accounts receivable,work orders, inventory, grants, and pro-jects. Emphasis Computer Systems man-ages housing eligibility. Lotus Notes isused for email, section 8 management, va-cancy tracking, and tracking progress onthe strategic plan. The authority is plan-ning to provide web access to all applica-

tions so that employees can work on appli-cations from non-PHA locations.

Virtually every aspect of PHA operationsruns through the information system. Unitinspections are done on handheld devicesand then loaded into the system. Inventoryis tracked by location in various ware-houses and expensed to units when de-ployed. Strategic planning and employeeperformance is tracked through the system.Units are managed for vacancy and turn-around through the computer. In large part,the information system permits the author-ity to achieve a high level of performance inmany key areas: strategic planning, projectmanagement, daily financial operations,and long-term financial planning.

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Standard & Poor’s Local Housing Authority Evaluations are published by Standard & Poor’s, a Division of The McGraw-Hill Companies, Inc. Executive offices: 1221 Avenue of the Americas, New York, NY10020. Editorial offices: 55 Water Street, New York, NY 10041. Subscriber services: (1) 212-438-7280. ©2003 by The McGraw-Hill Companies, Inc. Reproduction in whole or in part prohibited except by per-mission. All rights reserved. Information has been obtained by Standard & Poor’s from sources believed to be reliable. However, because of the possibility of human or mechanical error by our sources, Stan-dard & Poor’s or others, Standard & Poor’s does not guarantee the accuracy, adequacy, or completeness of any information and is not responsible for any errors or omissions or the result obtained from theuse of such information. Local Housing Authority Evaluations are statements of opinion, not statements of fact or recommendations to buy, hold, or sell any securities.

Philadelphia Housing Authority12 South 23rd StreetPhiladelphia, PA 19103(215) 684-4000

Board of CommissionersJoyce WilkersonJannie L. BlackwellDebra L. BradyJoseph RauscherNellie W. Reynolds

Executive DirectorCarl R. Greene

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