Bankrupt Chester could cease to exist as a city without fiscal change, state receiver says

Once one of the nation’s most important shipbuilding centers, Chester has taken on so much financial water that its very existence as a city is seriously threatened, the state official who filed for bankruptcy on the city’s behalf said Tuesday.

“Disincorporation,” in which the government of the 300-year-old municipality would be dissolved, all its employees furloughed, and all its laws and ordinances would be nullified, is “a possibility,” Michael Doweary, the city’s state-appointed receiver, said at meeting of the Municipal Financial Recovery Advisory Committee.

“This is a very real warning.”

An audit of Chester’s 2019 budget showed a five-year $27.7 million deficit, not including $39.8 million in missed annual pension payments, the receiver’s office said. Audits of the 2020, 2021, and 2022 budgets haven’t been completed yet, and the city is “on pace to face an insurmountable deficit in 2025,” it said.

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In a presentation to the committee, the receiver’s office said that unless a plan for a long-term “comprehensive solution” to the fiscal woes was developed by the end of the year, disincorporation may be the only alternative for the city of 33,000.

The receiver’s office contends that the city’s ongoing intransigence and litigation has impaired efforts to resolve the crisis during what has been contentious bankruptcy proceedings.

» READ MORE: A judge called the city administration 'dysfunctional'

Chester, Delaware County’s only city, was placed in “distressed” status in 1995, and into receivership on July 1, 2020. Doweary filed the bankruptcy petition on Nov. 10, three weeks after learning that the city lost $400,000 in a phishing scam. Only 31 of the nation’s 38,000 municipalities have filed for bankruptcy.

Mayor Thaddeus Kirkland said the city had submitted a rescue plan that the receiver’s office ignored. Doweary, however, said the city’s only proposal involved the controversial sale of the Chester Water Authority to Aqua Pennsylvania and was not a long-term solution to fiscal problems that have been festering for decades.

An industrial powerhouse during the world wars and into the ‘50s and ‘60s, Chester has undergone a stunning decline over seven decades as its once-robust manufacturing base evaporated.

Kirkland, who is running for re-election, said he had just learned of the potential for disincorporation at Tuesday’s meeting. He has argued that he is being unfairly blamed for inherited problems.

However, in issuing a ruling that had stripped council members of some of their powers, state Commonwealth Court Judge Ellen Ceisler placed some of the blame on his administration. “City officials frequently ignore” the receiver’s advice and orders and “even direct other employees in their departments to ignore his directives,” she wrote.

She also cited “unauthorized payroll payments to an incarcerated employee” and the city’s default on pension payments.

After Chester appealed, the state Supreme Court issued a stay of her order, temporarily restoring council’s power. Oral arguments are scheduled on the appeal on May 24. It is not known when the court might rule.

» READ MORE: The city lost $400,000 in a phishing scam, and the receiver found out months later

“Time is running out,” said Vijay Kapoor, the receiver’s chief of staff. “We want our focus to be on finding a comprehensive solution to Chester’s financial and operational problems, not on having to deal with court appeals. Nobody wins if Chester is effectively disincorporated.”

He said he knew of no instances of disincorporation in Pennsylvania. However, a 2012 Yale Law Review article noted that the nation has had a long history of municipalities that ceased to exist for any number of reasons, including the loss of tax base or population. It said that since 2000, 130 towns had been “dissolved.”

If Chester were disincorporated, the receiver’s office said, it would become an “unincorporated service district” and “all city employees would be laid off.” In addition, “elected officials would be removed,” and the state would appoint an administrator to work out provisions for vital services. Under state law, the ordinance would require approval by Delaware County Court.

But, “If we’re out of money,” said Kapoor, “we can’t keep the lights on.”