Mayor Cherelle Parker has launched an ambitious initiative called H.O.M.E., short for Housing Opportunities Made Easy, aimed at tackling Philadelphia’s pressing affordable housing challenges.
Included in the city budget passed last month, the H.O.M.E. initiative promises the creation or preservation of 30,000 affordable housing units throughout the city, with an estimated cost of around $2 billion.
In an effort to fund this plan, Parker’s administration intends to issue $800 million in housing bonds over the next three years.
However, a report by the Parker administration in April 2025 acknowledges a significant issue: the declining federal investment in affordable housing has made municipal bonds crucial for financing local housing programs.
Typically, the intricate details behind municipal bonds are closely scrutinized by city treasurers and the finance committees of city councils.
Yet, it is imperative for Philadelphia residents to gain a deeper understanding of how these bonds function, given their essential role in the H.O.M.E. initiative.
While these municipal bonds are pivotal in increasing access to both affordable and market-rate housing, they also come with hidden costs and requirements.
Such hidden costs may inadvertently raise prices, which could render city services unaffordable for lower-income residents.
Municipal bonds essentially serve as a means for state and local governments to raise capital, similar to how corporations sell shares on the stock market.
When a local government issues municipal bonds, it incurs debt by promising to repay investors with interest over a specified time frame.
This borrowing mechanism helps spread the financial burden across multiple generations of taxpayers, avoiding a hefty one-time financial burden on current residents.
This model allows for the gradual repayment of costs, like constructing a bridge, which will benefit services for years to come.
However, this borrowing does introduce additional costs: interest payments on the debt can substantially increase the overall price of projects.
Historically, the market has deemed these costs a reasonable trade-off to fund public infrastructure.
Within the framework of municipal bonds, Parker’s administration has various routes for raising capital in the municipal market.
The most common method utilized is through general obligation bonds, which depend on the city’s authority to impose taxes.
Investors typically rely on the city’s “full faith and credit” pledging that, if needed, the city will raise taxes to ensure the debt is repaid.
While the city plans to launch general obligation bonds to fund its affordable housing initiative, there are specific limits governing how much debt it can accrue this way.
According to the state constitution, Philadelphia’s capacity to take on debt is capped at 13.5% of the assessed value of its taxable real estate, averaged over the preceding decade.
Fortunately for the city, it has another option for financing: revenue bonds.
Revenue bonds do not rely on the government’s taxing authority; instead, they are based on specific sources of revenue.
These types of bonds are commonly issued to fund projects that generate income from user fees, such as water and sewage fees for a public utility or tolls for a toll road.
A significant advantage of revenue bonds is that, under state law, they are considered “non-debt debts.”
This means the debt is not owed directly by the city, as there’s no promise for repayment through taxing authority.
Rather, residents pay the fees associated with the services to cover the debt repayment.
In recent decades, cities across the U.S. have increasingly turned to revenue bonds to work around state debt limits, allowing them to continue funding vital public projects, including those aimed at affordable housing.
An additional layer of complexity comes from conduit debt, where another government entity issues the bond while the city pays a service fee for utilizing that debt.
This service fee, which the city must pay from its general fund, becomes a part of the conduit debt the city has to account for.
In Philadelphia, conduits include revenue bonds issued by the Philadelphia Authority for Industrial Development and Philadelphia Redevelopment Authority.
From fiscal years 2012 to 2021, Philadelphia’s outstanding debt from general obligation bonds stood between $1.3 billion to $1.7 billion per year.
In contrast, the city’s conduit debt consistently exceeded this amount, ranging from $1.8 billion to nearly $2.3 billion annually.
Interestingly, in the more recent years, conduit debt has been lower than general obligation bonds.
Though the city has to keep conduit debt on its books, it is often routed through development authorities, making the city a client of these agencies.
The city typically is bound by contract to pay service fees to these agencies, a commitment that often cannot be canceled.
It’s crucial to note that the revenue that services these bonds does not come from residents’ out-of-pocket costs, such as ticket sales from a stadium financed with revenue bonds.
Rather, the city treasury funds this, which raises important implications for city finances.
In essence, this scenario creates a workaround for Philadelphia to bypass the state-mandated debt limits.
While it may seem like a necessary innovative approach to government finance, concerns remain as to the long-term impacts on the city’s financial health.
To illustrate this concept further, one might think of a situation where a sibling takes out a bank loan to purchase a car for their maxed-out sibling’s credit limit, relying on that sibling to repay.
In this analogy, the negligent sibling’s financial responsibilities are handled by another party, but the underlying debt remains theirs.
If the Parker administration manages its finances responsibly, using conduit debt could effectively bolster affordability in housing construction.
However, it’s essential for the mayor’s office to clarify whether they intend to utilize conduit debt issued by development authorities, the potential service fee implications, and the sourcing of funds for these fees.
Potential sources for these may include the sale of city-owned land, fees charged to developers, or other revenues.
Without careful consideration, taxpayers could face an indeterminate and potentially overwhelming financial obligation.
The Parker administration’s pursuit of accessible affordable housing must weigh the long-term consequences of these financial strategies.
As the residents of Philadelphia look forward to the potential benefits of the H.O.M.E. initiative, it becomes increasingly vital to ensure transparency and fiscal responsibility in implementing such significant financial undertakings.
image source from：metrophiladelphia
