The sexual indiscretions of Michael Kelly, D.C. Mayor Vincent Gray's choice to lead the District's housing department, while he ran the Philadelphia Housing Authority threatened to obstruct the troubled Pennsylvania agency from moving forward, a federal official said Wednesday.

"Just the fact that you have a whistleblower calling in illustrates that there is a perception issue," said Jerry Brown, a U.S. Department of Housing and Urban Development spokesman. "When you're talking about a housing authority that is in receivership where the goal is to rebuild morale and to show the team that everything is aboveboard, this wasn't the right direction."

Gray's office acknowledged Tuesday that Kelly had engaged in an extramarital affair with a subordinate while he was the executive director of Philadelphia's housing agency.

Citing family reasons, Kelly publicly resigned from the Pennsylvania job Friday, weeks after federal investigators privately presented evidence of sexual misconduct. Gray, who knew of Kelly's affair before the appointment was announced, revealed Kelly's hiring Monday.

Although Brown said a probe found "no illegal, improper use of federal funds to support the inappropriate relationship," federal housing officials still felt Kelly had conducted himself poorly.

"What this has to do with is the executive director being held to a higher standard," said Brown, who said federal guidelines don't prohibit relationships between employees. "We have well over 3,000 [housing] authorities, and we do not see many cases like this."

Linda Trevino, a Pennsylvania State University professor who specializes in ethics, said companies and government agencies often permit romantic relationships, but they generally bar such ties between supervisors and employees.

"I think most organizations today recognize that there will be sexual relationships," Trevino said. "What they almost all say, though, is that you can't have a sexual relationship with someone you're in a supervisory relationship with."

Trevino said that word of Kelly's actions in Philadelphia could impact his reputation among employees in the agency he will lead if the D.C. Council approves his nomination.

"He's starting out with a reputation deficit," Trevino said. "It's hard to get that kind of thing out of your mind."

Gray reiterated Wednesday that he is standing behind the nomination of Kelly, who previously served a nine-year stint as the leader of the D.C. Housing Authority.

"If you look at his record here, which I invite you to do, I think you'll find a sterling performance," Gray said.

At-large Councilman Michael Brown, the chairman of the council's housing committee, indicated he wouldn't hold the relationship against Kelly.

David Meadows, Brown's spokesman, said the lawmaker "understands that this is a personal situation and not a personnel situation."

Examiner Staff Writer Liz Farmer contributed to this report.