GAO/RCED-00-165R Logan Sinking Homes

B-285045

June 9, 2000

The Honorable Wayne Allard

Chairman

The Honorable Rick Santorum

Vice Chairman

Subcommittee on Housing and Transportation

Committee on Banking, Housing and Urban Affairs

United States Senate

The Honorable Arlen Specter

Chairman

Subcommittee on Labor, Health and

Human Services and Education

Committee on Appropriations

United States Senate

Subject: Community Development: Information on the Efforts by the City of

Philadelphia, Pennsylvania, to Relocate and Compensate Residents of the

Logan Triangle Area

In 1987, the city of Philadelphia, Pennsylvania, delineated the boundaries of a 17-block

area containing over 900 townhouses, known as the Logan Triangle Area, and

established a relocation plan to assist the property owners and tenants residing in this

area. The relocation of Logan Triangle residents was necessary because their homes,

which were built on an ash and cinder landfill between 1910 and 1930, were sinking.

Relocation under the city’s plan was voluntary and consisted of an offer to purchase

Logan homes and/or relocate tenants if they desired to move. It also established a cutoff date for receiving relocation benefits. Anyone who either moved into or acquired a

home in the Logan Triangle after August 29, 1986, was deemed “ineligible” to receive

benefits under the federal Uniform Relocation Assistance and Real Property Acquisition

Policies Act of 1970,1

as amended (Uniform Relocation Act), which requires payments

for the fair market value of homes, rental assistance for tenants, and reimbursements for

other costs, such as moving expenses. Because the Uniform Relocation Act does not

provide funding for these relocation activities, the city is using the Department of

Housing and Urban Development’s (HUD) Community Development Block Grant

1

The Uniform Relocation Act provides for relocation assistance, and when applicable, just compensation,

subject to state law, for the acquisition of property, to individuals who have been displaced, as a result of

programs or projects undertaken by a federal agency or with federal financial assistance. The

displacement can occur as a result of the acquisition, demolition, or rehabilitation of real property.

United States General Accounting Office

Washington, DC 20548 Resources, Community, and

Economic Development Division
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program (referred to as the block grant program) to provide the benefits mandated by

the act. This program provides federal funds to help grantees—cities and urban

counties—finance projects and services for local residents and the operating expenses

for administering the projects and services.

Benefits to residents were funneled through the Logan Assistance Corporation

(Corporation), a nonprofit organization founded by the city of Philadelphia in 1987.

Since then, the Corporation, which holds a contract with the city’s Office of Housing and

Community Development, has received about $34.3 million from the city of Philadelphia,

the state of Pennsylvania, and HUD to relocate Logan residents. HUD was the source of

most of these funds ($28.9 million, or 84 percent). This is because the city has chosen to

allocate a portion of its annual block grant program entitlement funds provided by HUD

to the Logan acquisition and relocation activities— $23.1 million. HUD has also

provided an additional $5.8 million through its Special Purpose Grants. The city pointed

out that while HUD is the source of most of the funds used to relocate and compensate

Logan residents, the city considers block grant program funds to be an entitlement to

the city and the decision to allocate these funds to Logan residents represents its

contribution to the Logan effort. In addition, the city has provided $3.7 million to

demolish unoccupied properties.

Concerned about the progress the Corporation has made in relocating Logan residents,

you asked us to address the following two questions:

• What is the status of relocations of property owners and tenants in the Logan

Triangle Area?

• What are the management challenges the Corporation faces in completing the

remaining relocations?

This letter summarizes the information presented to your staff at our briefing on

April 7, 2000. Enclosure I contain the materials we presented at that time, along with

some additional information requested by your staff as a result of the briefing and

updated information on the funding levels provided by the city.

Status of Relocations

We found that as of December 31, 1999, the Corporation had relocated and/or

compensated 499 Logan Triangle property owners and tenants, or about 70 percent of

the 714 owners and tenants eligible to be relocated and compensated. The remaining

215 eligible property owners who have not been relocated or compensated by the

Corporation consist of

• 186 property owners who moved on their own without receiving compensation and

may be difficult to locate, and

• 29 owners, with occupied properties (16 homeowners and 13 ineligible

tenants/squatters).
B-285045

3 GAO/RCED-00-165R Logan Sinking Homes

According to a March 2000 Relocation Plan authorized by the Corporation, it will cost an

estimated $15.2 million to complete the relocation and compensation effort over the

next 3 years—$13.1 million to fund the benefit payments to the remaining 215 eligible

property owners and $2.1 million to cover the Corporation’s associated operating

expenses.

In addition to the 714 owners and tenants eligible to receive relocation benefits, there

are an additional 193 ineligible properties (for which relocation benefits cannot be paid

under the Uniform Relocation Act) remaining in the Logan Triangle, as of December 31,

1999. Of these 193 ineligible properties,2

• 175 were unoccupied and mostly vacant lots because of demolition,3and

• 18 were occupied by either homeowners or tenants.

Management Challenges Faced by the Corporation

The Corporation faces several management challenges in completing the remaining 215

eligible relocations and/or compensations. According to HUD, the city is obligated

under the Uniform Relocation Act to compensate some, if not all, of the 186 former

eligible Logan Triangle property owners who moved on their own without receiving

compensation. In order to do so, the city must locate these property owners, which may

be difficult, particularly if these owners moved out of town or out of state. If the city

decides to retain the Corporation to perform this task, the Corporation may need to hire

additional staff with investigative skills to locate these owners or contract out for this

type of service. Also, assisting and convincing the remaining 29 eligible property

owners to sell their properties has been a problem for the Corporation because most of

these owners have poor credit histories, multiple property liens, and/or lower incomes

because of a disability or retirement. These financial problems prevent many of the

homeowners from obtaining financing to purchase replacement housing. As of March

22, 2000, about $2.4 million4was available to the Corporation to pay for housing

acquisitions, relocations, and administrative costs.

In February 2000, HUD interviewed responsible officials of the city’s Office of Housing

and Community Development and prepared a status report, which included the

following findings related to the management challenges faced by the Corporation in

completing the remaining relocations:

• There is currently no agreed on time frame to locate and compensate the 186 eligible

property owners who previously vacated their properties.

2

The Corporation was unable to provide us with the number of ineligible tenants currently residing in the

Logan Triangle because it is not responsible for identifying or assisting these tenants.

3

As of January 2000, the city of Philadelphia had demolished 862 houses in the Logan Triangle.

4

The $2.4 million is included in the estimated $15.2 million to relocate or compensate the remaining

eligible owners.
B-285045

4 GAO/RCED-00-165R Logan Sinking Homes

• The Corporation’s office space is in poor condition. According to the Corporation’s

executive director, this makes it difficult to retain qualified staff.

In addition to the challenges associated with the remaining residents eligible for

relocation benefits, both Corporation and city officials told us that they would like to

find a way of relocating the 18 ineligible homeowners and tenants who still remain in

the Logan Triangle. As one possibility for addressing the challenge of providing

financial assistance to these remaining ineligible residents, we found that the city, at its

option, may use HUD block grant program funds to provide relocation assistance to

persons who are not subject to the Uniform Relocation Act. HUD notified the city of the

availability of this option in a letter dated March 22, 2000. It also noted that HUD block

grant program funds could be used by the city to provide additional relocation

assistance to eligible resident property owners whose financial situation limits their

relocation options to acquire comparable housing. Subsequently, the city asked HUD

for clarifying information on the option. On May 10, 2000, HUD responded to the city’s

letter for clarification, but according to the city’s Director of Housing and Community

Development, some inconsistencies remain for which the city will seek further

clarification.

Agency Comments

We provided a draft copy of this report to HUD and to the city of Philadelphia’s Office of

Housing and Community Development for their review and comment.

Both HUD and the city of Philadelphia generally agreed with the facts presented in the

draft report. HUD’s comments are in enclosure II. The city of Philadelphia’s comments

and our response are in enclosure III.

In addition, the city commented that it does not concur with the budget or the relocation

schedule of the Corporation that it will take $15.2 million and 3 years to complete the

relocations and compensations of the remaining eligible Logan property owners. We

agree that the cost of completing these compensations and the time in which they will

be completed cannot be determined with certainty. However, we have included the

Corporation’s estimate because it provides an approximation of the funds and time that

may be needed to complete the compensation of eligible property owners.

Scope and Methodology

In conducting our review, we visited the city of Philadelphia in February 2000 and

interviewed HUD Philadelphia field office officials; city officials from its Office of

Housing and Community Development and Redevelopment Authority and the

Councilwoman representing the Logan Triangle Area; the Corporation’s board chairman

and staff; and Logan residents and clergymen. We also interviewed HUD officials in

Washington, D.C. In addition, we reviewed HUD and Office of Housing and Community

Development monitoring reports on the Corporation; documents and plans provided by

the Corporation and the Office of Housing and Community Development related to

funding sources, expenditures, and the number of relocations completed and that
B-285045

5 GAO/RCED-00-165R Logan Sinking Homes

remain to be completed; the Corporation’s contract with Office of Housing and

Community Development; and the last two financial audits of the Corporation prepared

by an independent public accountant for fiscal years 1998 and 1999.

We performed our review from January through April 2000 in accordance with generally

accepted government auditing standards.

-----

As arranged with your offices, unless you publicly announce its contents earlier, we plan

no further distribution of this report until 3 days from the date of this letter. At that

time, we will send copies of this report to the Honorable Andrew Cuomo, the Secretary

of Housing and Urban Development; Philadelphia’s Office of Housing and Community

Development; the Corporation; and Councilwoman Marian Tasco. We will make copies

available to others on request.

Please call me at (202) 512-7632 if you or your staff have any questions about this report.

Key contributors to this report were James Vitarello, Patrick Doerning, and Robert

Procaccini.

Stanley J. Czerwinski

Associate Director, Housing and Community

Development Issues

Enclosures - 3
Enclosure III

6 GAO/RCED-00-165R Logan Sinking Homes

Homes Sinking in Logan Triangle Area of

Philadelphia, Pennsylvania

• Briefing for Senators:

• Rick Santorum,

• Arlen Specter, and

• Wayne Allard

• April 7, 2000
Enclosure III

7 GAO/RCED-00-165R Logan Sinking Homes

Briefing Overview

• Requesters’ Concerns

• Objectives

• Background

• Objective 1: Status of Relocations of Logan

Property Owners and Tenants

• Objective 2: Remaining Management Challenges
Enclosure III

8 GAO/RCED-00-165R Logan Sinking Homes

Requesters’ Concerns

• Logan Triangle - 17 square blocks in Philadelphia where

nearly all homes were sinking.

• In 1987, the city of Philadelphia committed to offer to

purchase homes and relocate residents.

• Logan Assistance Corporation (LAC) formed in 1987 by the

city to manage relocations.

• After 13 years and the receipt of $34.3 million (mostly from

HUD), LAC has yet to complete all relocations and

compensations.
Enclosure III

9 GAO/RCED-00-165R Logan Sinking Homes

Objectives

• What is the status of relocations of property

owners and tenants in Logan Triangle?

• What are the management challenges LAC

faces in completing the remaining

relocations?
Enclosure III

10 GAO/RCED-00-165R Logan Sinking Homes

Background:

Logan Triangle Problem

• Over 900 townhouses and a few commercial

properties.

• Homes built on unstable landfill of ash and cinder.

• To be eligible for acquisition and relocation benefits

under the federal Uniform Relocation Act:

• A property owner must have owned a Logan

home at least 180 days before August 29, 1986.

• A tenant must have moved into a Logan home

before August 29, 1986.
Enclosure III

11 GAO/RCED-00-165R Logan Sinking Homes

Background:

Funding

• $38 million provided for Logan activities from 1987

through June 30, 2000

• $34.3 million to LAC for acquisition and relocation

activities

• $20.7 million in city’s Section 108 loan funds

• $5.8 million in HUD Special Purpose Grants

• $5.3 million in state funds

• $2.4 million in city’s discretionary CDBG

entitlement

• $60,000 from city’s general fund

• $3.7 million from city funds for demolitions

• $35.6 million, or 94%, expended through March 22,

2000
Enclosure III

12 GAO/RCED-00-165R Logan Sinking Homes

Background:

Relocation Assistance

• LAC provided the following relocation benefits to

homeowners and tenants based on the Uniform

Relocation Act:

• Homeowners - fair market value of home, as if not

sinking, additional benefits if comparable

replacement home costs are more than the Logan

home, and other costs, such as moving;

• Tenants - 42 months of rental assistance payments

and moving expenses; and

• Absentee property owners, primarily limited to fair

market value of the home, have not yet received

benefits.
Enclosure III

13 GAO/RCED-00-165R Logan Sinking Homes

Background: LAC Board of Directors

and Staffing Levels per LAC Contract

Staff Positions

-----------------------------

Executive Director

Deputy Director

Finance Director

Secretary

Relocation Supervisor

Relocation Specialist

Relocation Specialist

Relocation Specialist

Real Estate Manager

R/E Special Trainee

Housing Maintenance

Status

-------------

Filled

Filled

Filled

Filled

Filled

Filled

Filled

Filled (part-time)

Vacant

Vacant

Vacant

Board of Directors: 12 Members (4 vacancies)
Enclosure III

14 GAO/RCED-00-165R Logan Sinking Homes

Objective 1: Status of Relocations and Compensation of

Logan Property Owners and Tenants, as of December

31, 1999
Enclosure III

15 GAO/RCED-00-165R Logan Sinking Homes

Relocations by

Calendar Year
Enclosure III

16 GAO/RCED-00-165R Logan Sinking Homes

Objective 1:

Status of Relocations

• Of the 499 Logan owners (434) and tenants (65)

who were paid relocation benefits, 184 were

relocated in the last 3 years (more than any

comparable time).

• Of the 215 owners not yet provided benefits:

• 186 no longer live in the Logan Triangle and

may be difficult to locate.
Enclosure III

17 GAO/RCED-00-165R Logan Sinking Homes

Objective 1:

Status of Relocations

• 29 owners with occupied properties in the Logan

Triangle (16 homeowners and 13 absentee

owners) either

• Have property liens or financial problems, and/or

• Are unwilling to leave their Logan homes.

• As of March 22, 2000, LAC estimates it will cost $15.2

million (including operating expenses) and take 3

years to complete the Logan relocations and

compensations.

• 18 of the 193 homes owned by ineligible property

owners were occupied by homeowners or tenants.
Enclosure III

18 GAO/RCED-00-165R Logan Sinking Homes

Objective 2:

Remaining Management Challenges

• Identify and compensate up to 186 eligible property

owners who no longer live in the Logan Triangle.

• City believes LAC could identify and

compensate these property owners, provided it

acquires additional investigative skills to locate

them.

• City has not decided on whether to use LAC to

do this work.

• City will need to devote funding in future years

to compensate up to 186 of these owners.
Enclosure III

19 GAO/RCED-00-165R Logan Sinking Homes

Objective 2: Remaining Management

Challenges

• Acquire 29 eligible occupied properties and relocate

current eligible households.

• For owners with financial problems, LAC is trying to

reduce the amount of property liens and find them

affordable replacement homes.

• Since acquisitions under the city’s operations plan

are voluntary, some owners may continue to be

unwilling to relocate.

• About $2.4 million of the $34.3 million was available

to pay for and manage these relocations as of

March 22, 2000.
Enclosure III

20 GAO/RCED-00-165R Logan Sinking Homes

Comments From the Department of Housing and Urban Development
Enclosure III

21 GAO/RCED-00-165R Logan Sinking Homes

Comments From the City of Philadelphia
Enclosure III

22 GAO/RCED-00-165R Logan Sinking Homes
Enclosure III

23 GAO/RCED-00-165R Logan Sinking Homes
Enclosure III

24 GAO/RCED-00-165R Logan Sinking Homes

GAO Comments

The following are GAO’s comments on the city of Philadelphia’s letter dated

May 19, 2000.

1. We have included these 13 properties with the 16 homeowner properties rather than

add them to the 186 eligible property owners who do not now live in Logan in order to

maintain the distinction between occupied and unoccupied properties.

Since the city acknowledges that the real number of resident owners, as opposed to the

absentee owners, cannot be precisely determined at this time, we have decided not to

change the “186 property owners who moved on their own without receiving

compensation.” Moreover, both resident and absentee property owners may be eligible

to receive relocation benefits.

2. We have modified our report to reflect the suggested changes.

3. The city commented that it does not concur with the budget or the relocation

schedule of the Corporation, and that it will take $15.2 million and 3 years to complete

the relocations and compensations of the remaining eligible Logan property owners. We

agree that the cost of completing these compensations and the time in which they will

be completed cannot be determined with certainty. However, we have included the

Corporation’s estimate because it provides an approximation of the funds and time that

may be needed to complete the compensation of eligible property owners.

4. The city commented that it disagreed with this statement regarding the competitive

nature of the Corporation’s salaries and the condition of the Corporation’s office space.

Subsequently, the Deputy Director of the Office of Housing and Community

Development told us that the city agreed that the Corporation’s office space is in poor

condition. As a result, we deleted the statement in the draft report that staff salaries

were not competitive.

5. We have modified our report to reflect the suggested changes.

(385857)
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