In Chester’s historic bankruptcy, a court ruling affirms the state receiver’s powers in a fiscal ‘emergency’

In a ruling that is a game changer in Chester’s historic bankruptcy — and may have impacts on economically struggling towns elsewhere — the Pennsylvania Supreme Court has affirmed the state-appointed receiver’s plans to rescue one of the nation’s most-distressed cities from “financial doom.”

The sometimes-acerbic majority opinion handed down last Monday, which affirmed a Commonwealth Court decision that the city had appealed, stated that Chester has suffered “from a municipal government that is internally dysfunctional.”

Among its provisions, the ruling gives receiver Michael Doweary the power to review all hiring decisions in the administration of newly inaugurated Mayor Stefan Roots, who has been working with the receiver’s office for months. He also helped develop a reorganization plan and has invited the receiver staff to move back to City Hall, from which they had been evicted.

Of potentially broader significance, the justices held that the state has “sovereign” power over municipal governments in “emergency fiscal conditions. ... .

“The City of Chester’s local officials must accept the exercise of that power, whether they like it or not,” the ruling said.

» READ MORE: Chester's bankruptcy was 70 years in the making

The decision “will have a significant impact not only on Chester, but other distressed municipalities as well,” said Tiffany Allen, the attorney who argued the receiver’s case before the justices in May. Mark Pfeiffer, the city’s attorney, did not respond to a request for comment.

Justice Kevin M. Dougherty dissented, saying the outcome was tantamount to “the total takeover of the elected officials’ responsibilities to conduct the day-to-day affairs of the City.”

Vijay Kapoor, Doweary’s chief of staff, pushed back on that reading. “The statute gives the receiver significant deference,” he said, but “a judge can still review his actions. So while the receiver has significant shared control over city government, he does not have absolute control.”

He added that focus of the receiver’s plan “was to ensure that qualified professionals” were running the city.

Roots said Friday night that council members had shown their willingness to work with the receiver and that “I anticipate a streamlined execution of important decisions to move the city forward.”

That, the court affirmed, was not happening in the previous administration under former Mayor Thaddeus Kirkland, who had an acrimonious relationship with Doweary and Kapoor.

The court devoted several pages recounting issues that occurred during the Kirkland administration after the receiver was appointed in 2020, under the Act 47 distressed cities law, to oversee Chester’s finances.

They included:

Kapoor said that the opinion “clearly recognized the urgency of Chester’s dire situation and seemed to be almost outraged as to what had occurred.”

He said that although it was eight months in the making, the timing of the decision aligned well with mediation with creditors and the new administration.

”This decision requires Chester to be run like every other city in Pennsylvania,” he said.

Roots and the receiver’s office agree that the first step would be to restore fiscal order to a city with a $71 million 2024 budget and a projected $2 million shortfall. Only about 40% of the budget comes from wage and real estate taxes.

The Covanta incinerator plant and Harrah’s Casino are major contributors to the treasury, but ultimately Chester must find ways to attract new businesses — and residents. The population, about 35,400, is half what it was during its postwar peak, and Roots says he sees room to grow.

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Despite the city’s financial needs, Roots and Doweary both oppose the potential siting of a liquefied natural gas plant in Chester, even though it could generate jobs and millions in tax revenue. In a town that already hosts the incinerator and a waste-treatment plant, Doweary feels Chester needs to look at “cleaner” alternatives.

For the time being, that is moot: President Joe Biden has imposed a “pause” on approvals for all future LNG facilities.

» READ MORE: Unlike Pa.’s senators, Chester’s new mayor hailed Biden’s decision to pause LNG approvals

As so many industrial towns, Chester went into a precipitous economic decline in the 1950s and 1960s. During World War II, its shipyard alone employed 36,000.

After decades of hemorrhaging people and jobs, the city entered the distressed status in 1995, where it’s been going on almost 30 years.

Kirkland has maintained that he is being blamed unfairly for the city’s woes and that the problems were an unwanted inheritance. He said he had tried to “correct the problems.”

He also has pointed out that during his administration, the murder rate plunged in what was once the nation’s per-capita homicide capital.

But it was also under his watch that the city went into bankruptcy in November 2022, a rarity among U.S. cities. Of more than 35,000 municipalities, only about 30 have filed for bankruptcy.

Among the nation’s cities, Chester ranked in the top 4% for “distress” — which included poverty rate and median income — according to the Economic Innovation Group, a Washington, D.C.-based bipartisan policy organization.

The median household income in the most recent census calculation was $39,000, a little more than half of the state’s median. The poverty rate was 28%, compared to just under 12% for Pennsylvania’s rate.

The group’s analysis found that the home-vacancy rate for the 2016-through-2020 period was double the national average.

In terms of jobs and business growth, “things are headed in the wrong direction,” said Karen Fikri, the group’s research director.

“That equates to ‘extreme’ distress.”