Philadelphia’s $2B affordable housing plan relies heavily on municipal bonds, which can come with hidden costs for taxpayers
- Written by Jade Craig, Assistant Professor of Law, University of Mississippi
Philadelphia[1] Mayor Cherelle Parker’s Housing Opportunities Made Easy[2] initiative, which was included in the city budget passed June 12, 2025[3], is an ambitious effort to address the city’s affordable housing challenges[4].
Parker has promised to create or preserve 30,000 affordable housing units[5] throughout the city, at a cost of roughly US$2 billion.
To help fund the plan, the Parker administration says it will issue $800 million in housing bonds[6] over the next three years.
In an April 2025 report on the housing plan[7], the Parker administration admits that, in light of declining federal investment in affordable housing[8], proceeds from municipal bonds issued by the local government “have taken on an outsized role” in Philadelphia’s housing programs.
Often, only city treasurers and the finance committees of city councils pay attention to the details behind these municipal bonds.
As a law professor who studies the social impact of municipal bonds[9], I believe it’s important that city residents understand how these bonds work as well.
While municipal bonds are integral to the city’s effort to increase access to affordable and market-rate housing, they can include hidden costs and requirements[10] that raise prices in ways that make city services unaffordable for lower-income residents.
How municipal bonds work
Most people are aware that companies sell shares on the stock market to raise capital. State and local governments do the same thing in the form of municipal bonds[13], which help them raise money to cover their expenses and to finance infrastructure projects.
These bonds are a form of debt. Investors can purchase an interest in the bond and, in exchange, the local government promises to pay the money back with interest in a specified time period. The money from investors functions like a loan to the government.
Municipal bonds are often used so that one generation of taxpayers is not having to bear the full cost of a project that will benefit multiple generations of residents. The cost of building a bridge, for example, which will be in use for decades, can be spread out over 30 years so that residents pay back the loan slowly over time rather than saddle residents with huge tax increases one year to cover the cost.
However, the cost of borrowing pushes up the cost of projects by adding interest payments the same way a mortgage adds to the overall cost of buying a house. Overall, the market and state and local governments have historically viewed this cost as a worthy trade-off.
Some municipal bonds have limits
The Parker administration has several options[14] when it comes to raising capital on the municipal market.
The most common method is through general obligation bonds, which are backed by the city’s authority to impose and collect taxes. Bondholders rely on the city’s “full faith and credit[15]” to assure them that if the city has difficulty paying back the debt, the city will raise taxes on residents to secure the payment.
The city plans to use general obligation bonds to help fund its affordable housing plan, but there are limits on how much it can borrow this way. The state constitution limits Philadelphia’s ability to incur debt to a total of 13.5% of the value of its assessed taxable real estate[16], based on an average of this amount for the preceding 10 years.
Philly has another option
The city, however, also has the authority to take on another form of debt: revenue bonds. Revenue bonds rely on specific sources of revenue instead of the government’s taxing power. Jurisdictions issue revenue bonds to fund particular projects or services – usually ones that generate income from fees paid by users.
For example, a publicly owned water utility or electric company relies on water and sewage fees or electricity rates and charges to pay back their revenue bonds. Likewise, a transportation authority will rely on tolls to pay back revenue bonds issued to build a toll road, such as the Pennsylvania Turnpike.
Under state law, revenue bonds are “non-debt debts[19].” They are not debts owed by the city, because the city has not promised to repay the debt through the use of its own taxing powers. Instead, the people who pay the fees to use the service are paying back the debt.
Since states began to place stricter limits on debt in the wake of the Great Depression in the 1930s, cities across the U.S. have increasingly used revenue bonds[20] to get around state debt limits[21] and still fund valuable public services, including affordable housing projects.
When another government entity – rather than the city – issues the bond, and the city pays them a service fee for doing so, it’s a form of what’s called conduit debt. That obligation to pay the service fee to the other government entity is the conduit debt[22] that the city pays out of its general fund.
In Philadelphia, conduit debt includes revenue bonds issued by the Philadelphia Authority for Industrial Development[23] and Philadelphia Redevelopment Authority[24].
From fiscal years 2012 to 2021, the city’s outstanding debt from general obligation bonds paid for out of its general fund was between $1.3 billion to $1.7 billion per year. However, the city’s conduit debt outstripped that number every year, ranging from $1.8 billion to nearly $2.3 billion. In more recent years, conduit debt has been less than the city’s debt from general obligation bonds.
The city keeps conduit debt on its books – and is obligated to pay it back – even though it comes from bonds issued by the development authorities, because these debts loop back to the city. In the bonds issued by these agencies, the city actually becomes like a client of the agency. The city is typically obligated to pay the agency service fees as part of a contractual obligation that cannot be canceled.
The revenue on which the development agencies’ bonds rely, the money from which bondholders expect to be paid back, does not come from fees that residents pay out of their own pocket – for example through ticket sales from a sports stadium built with revenue bonds. The money instead comes out of the city’s treasury.
A loophole to affordable housing
Essentially this is a loophole for the city to bypass debt limits set for Philadelphia in the state constitution. Sometimes creativity in government requires using loopholes to get the job done[25] – to get to yes instead of a stalemate.
Consider this analogy. Say your sister takes out a bank loan to buy a car for you because your credit limit is maxed out. She is relying on you to pay her back, and she uses your payment to pay the bank. But if you don’t pay her back, she’s not responsible by law for paying the bank herself. So, it’s your debt, but she is the conduit.
If the city holds itself accountable, it can use conduit debt responsibly to make affordable housing construction a reality.
The mayor’s office did not respond to my questions about whether they plan to use conduit debt issued by a development authority, whether that conduit debt would include service fees, and what funds would be used to pay those fees.
In its quest to increase access to affordable housing, the Parker administration should, in my view, be mindful of limiting the service fees it agrees to pay – which have no legally prescribed limits – and also account for where it will find income to cover these costs. For example, will it come from the sale of city-owned land? Fees charged to developers? Or some other source?
Otherwise, taxpayers may be left to foot a bill that is essentially unlimited.
Read more of our stories about Philadelphia[26].
References
- ^ Philadelphia (theconversation.com)
- ^ Housing Opportunities Made Easy (www.phila.gov)
- ^ city budget passed June 12, 2025 (metrophiladelphia.com)
- ^ affordable housing challenges (www.pew.org)
- ^ 30,000 affordable housing units (whyy.org)
- ^ $800 million in housing bonds (www.phila.gov)
- ^ report on the housing plan (www.phila.gov)
- ^ declining federal investment in affordable housing (www.urban.org)
- ^ social impact of municipal bonds (scholar.google.com)
- ^ hidden costs and requirements (www.denverlawrev.org)
- ^ Jeff Fusco/The Conversation (www.flickr.com)
- ^ CC BY-SA (creativecommons.org)
- ^ municipal bonds (www.investor.gov)
- ^ has several options (www.msrb.org)
- ^ full faith and credit (www.nabl.org)
- ^ 13.5% of the value of its assessed taxable real estate (www.palegis.us)
- ^ Jeff Fusco/The Conversation (www.flickr.com)
- ^ CC BY-SA (creativecommons.org)
- ^ non-debt debts (heinonline.org)
- ^ increasingly used revenue bonds (store.legal.thomsonreuters.com)
- ^ get around state debt limits (www.denverlawrev.org)
- ^ conduit debt (www.phila.gov)
- ^ Philadelphia Authority for Industrial Development (pidcphila.com)
- ^ Philadelphia Redevelopment Authority (www.phila.gov)
- ^ requires using loopholes to get the job done (www.simonandschuster.com)
- ^ Philadelphia (theconversation.com)
