As South Street’s business district untangles ‘uncommon’ levels of mismanagement, the neighborhood’s revitalization efforts are at risk

During the pandemic, South Street saw more than its share of tragedies and setbacks. Now some local business leaders say the long-suffering nightlife quarter is primed for a renaissance — a comeback that has been imperiled by a quietly unfolding financial crisis at the South Street Headhouse District (SSHD).

Known as a “business improvement district,” the group is one of many empowered by City Hall to play a key role in the city’s provision of public services, collecting small — but mandatory — fees from hundreds of commercial property owners in its borders to fund sanitation, beautification, and marketing efforts.

But the district, which includes eastern South Street, Headhouse Square, and nearby Fabric Row, has been wracked by a mismanagement crisis — as a new director seeks to right the ship amid mounting challenges.

For years, SSHD did not pursue businesses that weren’t paying their fees. As of December, the organization had only $20,000 in its bank accounts, an unusually low figure for an organization that runs on a $930,000 annual budget. The Bearded Ladies Cabaret, a local drag troupe, filed suit against the district alleging that SSHD owes them tens of thousands of dollars, while the organization’s credit card had a $50,000 balance at year’s end. The district was operating without a formally approved budget for most of last year.

These financial challenges compounded during the final years of leadership from Michael Harris, the director who abruptly left the organization last summer after 11 years at the helm. As SSHD’s board searched for a new director, they discovered the extent of the organization’s economic problems.

Harris did not comment when reached by Inquirer reporters.

The new director, Eleanor Ingersoll, took over last year, and has hired an outside firm to audit the organization’s books. In the meantime, she’s had to make tough decisions to rein in its finances. She canceled the popular “South Street Fest,” which once drew upward of 55,000 people, and moved to cut sanitation services, which caused immediate backlash from business owners and residents.

“I had to make the very difficult decision to forego the South Street Fest in an effort to start to rebuild the strength and financial stability of the organization,” Ingersoll said. “[We’re] making some budgeting cuts with staff … and adjusting our cleaning schedule, which is one of the biggest regular duties we have.”

Ingersoll later reversed the decision to remove trash cans.

“It’s all things that won’t be permanent, but are things that were very helpful in the stabilization that’s begun to take hold,” Ingersoll said.

Started in 1993, the SSHD is one of the oldest BIDs in the city and today represents more than 450 businesses. It modeled itself on its predecessor, the Center City District, where commercial landlords pay a small property tax surcharge to fund an organization to promote nightlife and bring amenities like street cleaning, extra trash cans, and funky streetlights.

For several decades, this model worked for South Street.

However, early last year SSHD members grew concerned that the fees on commercial property owners, the lifeblood of any business improvement district, were being collected unevenly. According to minutes from board meetings, members made repeated requests for an initiative to “collect delinquent assessments” and described multiple accounts that owed more than $10,000.

Harris, the director at the time, reassured members these plans were in the works.

“Mike [Harris] is working on the accounts receivable list to pursue collecting funds from commercial and residential property owners,” the minutes state.

However, according to an Inquirer analysis of court records, SSHD did not file any court liens to collect fees owed by delinquent property owners from April 2021 through the end of 2023. In comparison, the BID filed upward of 200 liens between 2020 and March 2021.

The SSHD’s financial issues were further complicated due to a state law that requires BIDs to have a five-year plan, including a budget, approved by City Council. SSHD’s last municipal authorization lapsed in late 2022 and was not renewed until Dec. 14, 2023, just weeks before Ingersoll took over.

According to a Department of Commerce spokesperson, which oversees BIDs, Harris was warned about the pending need for budget and reauthorization before the plan expired and afterward.

That means that for about a year, the organization was acting without full legal authority.

“The law is silent on what happens if you don’t have an approved plan, but the law clearly requires an approved plan,” said Joshua L. Grimes, a lawyer who represents several other BIDs but does not work with SSHD.

Several board members said they had not been aware of the lapsed budget and plan, or the depths of the challenges at SSHD.

“You telling me is the first I’ve heard of it,” said board member Edward Garcia, who owns the gaming cafe Queen & Rook, about the failure to renew the budget with City Council.

As recently as last summer, board minutes suggested a positive outlook for SSHD’s future.

“Board members are more engaged, and we are making progress for the good,” the minutes for last July state.

But the next month’s board meeting was canceled.

Then, in September, board minutes disclosed that Harris was resigning.

At a November 2023 board meeting, according to several attendees, BID members learned that SSHD had little money left in its bank accounts.

In December, the group’s treasurer warned the board that finances were “still tight,” and that the organization needed to “act more aggressively with regards to negligent ratepayers.”

Ingersoll said that she is working on addressing the organization’s budgetary challenges and that SSHD has brought in over $270,000 since she began pursuing liens against delinquent property owners.

“We brought in the lawyer to actively go after the outstanding liens and work the way through the list,” she said. “After tax day, an auditor is coming in to assess the books. So there’s a lot of progress.”

Although the lack of an approved plan and budget could open the door for businesses to contest SSHD’s attempt to collect past-due fees, Garcia believes it’s unlikely because the amount per property is too small to be worth it.

Ingersoll said that SSHD’s struggles in recent years should be seen in context of the pandemic and the particular wave of challenges South Street faced, from fires and water main breaks to crime and police closures.

Despite her efforts, the past mismanagement continues to dog the organization today.

The BID’s stewardship of the famed Headhouse, where the SSHD has offices, is ending after complaints from neighbors about its uneven upkeep. Maintenance duties for the historic building are being shifted to a newly created conservancy backed by the Society Hill Civic Association, the Philadelphia Society for the Preservation of Landmarks, and other neighborhood interests. (The BID will have a seat on the board.)

Separately, a plan begun under Harris to reactivate vacant commercial space in the Abbotts Square condominium building, at Second and South Streets, by leasing space to a cabaret theater — called “the Bearded Ladies Cabaret” — instead resulted in a lawsuit accusing SSHD of reneging on a commitment to fund part of the project.

The complaint states that last summer, the district and the former owner of Abbotts Square, EB Realty, assured the troupe they would “jointly reimburse the Bearded Ladies” for the costs of outfitting the space as a theater.

Along with the district’s own financial issues, Eric Blumenfeld, the owner of Abbotts Square and EB Realty, was by that point enmeshed in financial troubles of his own. He would lose control of the condo building by year’s end at a sheriff sale.

The group’s lawsuit asserts both parties refused to reimburse some $51,000 in renovation costs.

Most of Philadelphia’s business improvement districts are run responsibly, said Richardson Dilworth, professor of politics at Drexel University.

But the problems facing SSHD illustrate that oversight from volunteer boards, the Commerce Department, and City Council are often nominal. Dilworth notes that most of these organizations are lightly staffed and dysfunction can go for years before they provoke a backlash from property owners.

“They very much operate like their own entities and they tend to be small, so there’s not a lot of internal oversight,” he said. “There’s not a tremendous amount of [political] oversight either. For all that, I would say it’s uncommon for there to be this level of mismanagement.”