Chester City has filed for bankruptcy and asked for federal mediation to resolve its debts

The state receiver appointed to oversee the financially distressed City of Chester filed for bankruptcy protection Thursday and asked for a federal mediator’s help to resolve a worsening fiscal crisis in Delaware County’s only city.

The filing comes three weeks after the city disclosed that it had lost $400,000 in a phishing scam in June, a development that receiver Michael T. Doweary said was “extremely troubling.”

Chester, which has been under some degree of state oversight for 27 years, is in “grave financial condition,” Doweary’s office warned in a presentation in September.

Among the many municipalities with which the receiver’s staff has worked, it said, “without a doubt, Chester’s financial situation is by far the worst that we have.” Bankruptcy was the “only path,” it said.

Said Chester Mayor Thaddeus Kirkland, “This is not the direction we wanted to go in.”

The city of 33,000, which has a 30.4% poverty rate, one of the state’s highest, confronts a $46.5 million deficit in 2023 on a budget of about $55 million. It has been running deficits since 2013, the receiver’s office said. As of Dec. 31, it said, the city was $39.8 million behind on pension payments.

» READ MORE: A phishing scheme drained $400,00 from Chester’s coffers

It has been able to pay some bills with the help of $30.4 million in federal money it received last year from the Biden administration’s American Rescue Plan Act, and $5 million in an interest-free “revenue anticipation” loan advanced by the state, said Vijay Kapoor, Doweary’s chief of staff.

The bankruptcy filing would allow the city to buy some time to negotiate with creditors and attempt to lower its pension and health-care obligations, already the subject of blowback, with more almost certainly to come.

Options in play include eliminating retiree health care for all current and future retirees and requiring city workers to increase their health-care contributions.

“We’re not cramming this down everyone’s throat,” said Kapoor. “We’re really trying to get this mediated. You need everyone around the table to make this work.”

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More than 30 municipalities in the nation had filed for bankruptcy protection, but Chester is the first in the Philadelphia region.

With a depleted tax base — it has the state’s second-highest wage tax, 3.75% — Chester has a long history of fiscal struggles, but the precipitating incident in the receiver’s decision to file for bankruptcy evidently was the phishing scam.

The theft occurred on June 6. City Councilman William Morgan, the city’s director of accounts and finance, received an email that he believed had come from a law firm that provided comp insurance for city workers. Morgan paid the bill, he later told police, only to eventually discover that the request for payment had been sent by a thief.

Kapoor told The Inquirer that the Chester receiver was “dumbfounded” when he learned that Morgan waited three months before telling his office about the theft.

The receiver’s office said the bankruptcy would give the city “a fresh start, which it desperately needs.”

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In the last 50 years, Chester’s economy has suffered from the loss of its riverfront industries that made it one of the nation’s most important manufacturing centers during the two World Wars and into the Cold War.

During World War II, the Sun Shipbuilding & Dry Dock Co., founded by the Pew family, built a ship a week and patched up over 1,500 vessels that had been damaged by bombs, mines, torpedoes, or other assaults, according to a company history.

At its peak the shipyard employed 35,633 people.

That number is greater than the city’s population today.

Staff writer Vinny Vella contributed to this article.