How Philly’s Office of Homeless Services overspent $15 million: ‘Things got away from everybody’

On paper, the Philadelphia agency that is tasked with sheltering the city’s thousands of homeless people weathered the pandemic well.

Officials say the city’s homeless population is down, and the agency appears flush with cash as more dollars flowed and it received an infusion of federal money.

But in reality, Philadelphia’s Office of Homeless Services was for several years under immense pressure to keep people housed amid intersecting and expensive crises, including pandemic-related emergencies complicating life inside shelters, increased security costs during a spike in gun violence, and an influx of migrants who needed shelter.

The office struggled to pay its bills, using questionable accounting practices to do so, then overspending its budget for four years.

Liz Hersh, the former executive director of the office, said in her first interview since news of the overspending emerged that her office was operating under an imperative “to save lives” while navigating cumbersome city financial systems.

“When you’re in a situation where you’re trying to respond quickly, it’s really challenging to get things done, and you have to make choices,” she said. “Sometimes you have to choose: Am I going to be a good bureaucrat? Or am I going to save people’s lives?”

Others say the Office of Homeless Services should have been able to work within its budget — which increased substantially during the period in question — and the ordeal has raised fresh questions about how a city agency could overspend for several years without more scrutiny.

According to Hersh, top city officials were aware that the Office of Homeless Services paid a growing network of nonprofits to house and treat the city’s homeless population, repeatedly amending their contracts so they could take on more work.

» READ MORE: Some Philadelphia homeless shelters have gone months or years without being paid by the city

Beginning in 2021, the amount of work those contractors performed exceeded what the Office of Homeless Services could afford. So officials in some cases delayed paying contractors — many of them nonprofits — for months until the next city budget was approved and new dollars flowed into the office’s coffers.

The problem snowballed. By this year, city officials estimated that the Office of Homeless Services had overspent its budget by almost $15 million, and it’s now the subject of at least three separate investigations into financial mismanagement.

The city inspector general is conducting one of those probes, and Mayor Cherelle L. Parker said last month that the preliminary findings were of such “grave concern” that she ordered a forensic investigation by outside accountants. Her administration has noted that the overspending happened under former Mayor Jim Kenney, and officials said new layers of monitoring and oversight are already in place in the office.

“We are going to make sure that we have our house in order in OHS,” Managing Director Adam K. Thiel said, adding that Parker is “keenly interested in this.”

City Council has also been critical. Councilmember Katherine Gilmore Richardson, the Democratic majority leader, was one of the first to raise alarm about the office’s budgeting practices and said she’s “deeply concerned that this has gotten so far and that it has gone on for so long.”

She said pandemic-related complications don’t justify “misappropriating” taxpayer dollars.

“Now that we’ve figured out to a degree what’s happening at OHS, they are not going to do this another year,” Gilmore Richardson said. “We all did what we needed to do [during the pandemic]. It’s no excuse for poor budgeting practices. Excuses are the tools of the weak and incompetent.”

The Office of Homeless Services for years had a ping-ponging budget and an influx of federal grant dollars, complicating its financial picture.

For example, in the midst of a massive pandemic-related shortfall in 2020, the city slashed the department’s budget by nearly $17 million, but only because the federal government had approved legislation to send more than $33 million to the city for homeless services.

Through a mix of city and federal funds, the Office of Homeless Services was budgeted nearly $130 million in the most recent budget, which lasts through June, according to city finance records. That’s well above its $95 million budget in 2019.

The majority of this additional funding — about $31 million — was allocated to pay for increased contract costs tied to an ever-changing list of dozens of outside firms retained primarily to operate emergency shelters or other forms of temporary housing.

» READ MORE: Philadelphia Mayor Cherelle Parker orders independent investigation of the Office of Homeless Services

Hersh, who resigned last year to work at a national nonprofit, said many of the cost overruns were attributable to the pandemic. COVID-19 social distancing protocols reduced capacity at shelters. Some operators switched to round-the-clock operations as opposed to only offering overnight bed space to keep people from going in and out, exposing others to the virus.

“We couldn’t have people sleeping next to each other. We couldn’t have elderly people together,” Hersh said. “When they said ‘stay at home,’ we had all these people who didn’t have a home, and so we had to move quickly to save people’s lives. So what we did was attach a lot of those services to OHS contracts.”

That meant windfalls for some contractors.

For example, in 2019, the largest single emergency shelter contract was a $4.2 million arrangement with shelter provider SELF Inc., an organization cofounded by former Mayor Wilson Goode. Five years later, the office’s contracts linked to SELF are nearly $9.2 million.

The office’s payments to private security firm Scotlandyard jumped from less than $900,000 in 2019 to $3.8 million last year, a rise Hersh said funded guards at shelters in the Kensington neighborhood amid a record-setting increase in gun violence.

Other costs also increased. Inflation sent food prices skyrocketing. Over the last several years, the city grappled with an influx of migrants, many of whom have been housed at a homeless shelter in Kensington run by a provider that contracts with the Office of Homeless Services.

And in early 2022, the city health department closed its COVID-19 prevention site at a downtown hotel, where rooms were reserved for people who had the virus but had nowhere to quarantine.

Still, the Centers for Disease Control and Prevention required people living in congregate shelters to isolate for as long as 10 days if they tested positive. The Office of Homeless Services assumed responsibility, moving people and services to a city-owned care home in Holmesburg.

Last year, that shelter developed mold, so the office moved people again — this time to the shuttered Philadelphia Nursing Home in North Philadelphia, a sprawling complex that takes up a large portion of a city block. The nonprofit Resources for Human Development has run the shelter.

Hersh said her office was responsible for making the building inhabitable, despite it having millions of dollars in deferred maintenance, a busted HVAC system, and a refrigerator that broke shortly after people moved in.

“[We were] tacking on, amending contracts for things that ordinarily we would not be responsible for,” she said. “In the best of all possible circumstances, the Office of Homeless Services would not be responsible for an entire block of a defunct nursing home.”

There are also broader concerns about whether the increase in dollars spent by the Office of Homeless Services has corresponded with improved conditions. Gilmore Richardson questions it.

“There’s no excuse why we have so many issues with our homeless and unhoused population,” she said. “Especially with all the money that was flowing through the city during the COVID-19 period to keep people housed and keep people safe.”

City officials argue they’ve made progress. A recent report released by the Brookings Institution showed the rate of homelessness in Philadelphia is far below other cities, including New York, Los Angeles, and Washington.

And the Office of Homeless Services data show the number of unsheltered people in Philadelphia has decreased over the last five years, including during the pandemic, dropping from more than 1,000 in 2018 to about 800 last year.

» READ MORE: They spent the night in the streets cataloging the extent of homelessness in Philadelphia

But Sister Mary Scullion, president and executive director of the anti-homelessness nonprofit Project HOME, said those numbers aren’t consistent with her organization’s experience and data, which indicate that the overall number of people living on the street has been increasing over the last several years. She attributed the trend to an especially high number of people unsheltered in Kensington.

Scullion, a nationally renowned activist who is retiring at the end of the year, said the city has not prioritized boosting its stock of shelter beds and that there aren’t enough to meet demand.

Despite the increase in spending by the Office of Homeless Services over the last five years, the amount of available shelter beds has remained roughly the same. According to a report released by the city, there were 3,667 emergency shelter beds in 2022, down from 3,725 in 2019.

Hersh said the stock of shelter space is adequate, and that much of the federal dollars allocated to the city was earmarked for rental assistance or spent on bolstering permanent housing options for people experiencing chronic homelessness. She said the city developed several new initiatives with the money, including launching a “shared housing” program that allows multiple people to live in the same home under a single subsidy.

But Scullion said front-line shelters should be a priority.

“They were very good advocates for affordable housing in many ways,” she said of the Office of Homeless Services. “But for operations and the way the system worked to serve people, not so much.”

Hersh said Kenney’s administration agreed that the city needed to maintain service for homeless people. She said the office wasn’t “flouting any rules” and that the finance department was aware when contracts were amended.

“Things got away from everybody a little bit,” Hersh said. “We did not have the big picture.”

» READ MORE: Philly City Council wants more oversight of the Office of Homeless Services amid questions about its finances

But some questioned how a department could overrun its budget for multiple years without drawing more scrutiny from the finance department, City Council, or watchdogs like the City Controller — or if other departments could do the same.

Controller Christy Brady, whose office guards against waste and fraud, said there are controls in place to ensure that departments stay within budget and pay vendors only for contracted work. Analysts in the city’s finance department assess payments, and auditors in the controller’s office review outgoing dollars to ensure they align with contracts.

But agencies have latitude to amend contracts. And it’s possible for departments to use money from one year’s budget to cover expenses incurred in the previous fiscal year. Brady said the agency has to account for it.

The Office of Homeless Services is likely to seek new funding in two weeks when Parker unveils her first budget proposal. The office last year requested more than $14 million in additional city funding to help close its gap, but Council rejected the request, funding an additional $9.6 million instead — only enough to cover previous years’ overruns.

For weeks, the Office of Homeless Services has noted on its website that it “no longer has funds for homelessness prevention.”

Thiel said the city is “doing whatever we can do with existing resources” and may make the case for more funding to “accomplish what I think everybody believes is a need for additional capacity in our system.”

» READ MORE: Philly says there’s space for the homeless despite some full shelters and confusion about where to turn

Meanwhile, city officials are awaiting the results of the investigations. Hersh said she welcomes the scrutiny and hopes the city upgrades internal systems to make it easier for departments to manage complex revenue streams. She said she looks forward to the probes showing there was no ill intent.

“One of the things that has been really hurtful about this situation and kind of implied accusations is that it undermines morale,” Hersh said. “And for the people who do this work, it’s selfless work.”