2025 may be a watershed year for bankrupt Chester after 3 decades of ‘distress’ in Pa.’s oldest town

Chester will be preparing for what it hopes will be a prominent role in the nation’s 250th birthday party. And the new year looms as one of the most-eventful ones in a history that predates even William Penn’s landing where the Delaware River meets Chester Creek.

But in 2025, Delaware County’s only city will reach a milestone it would prefer not to mark.

Confronting overwhelming debts, on Jan. 24, 1995, then-Mayor Barbara Bohannan-Sheppard asked Pennsylvania to declare Chester officially “distressed,” and after finding what they described as “municipal chaos,” state investigators assented three months later.

Three decades and over $30 million in state aid later, the city essentially is panning for gold in its water pipes to rescue itself from a historic municipal bankruptcy.

“We are at the brink,” said lifelong Chester resident Adelaide Evans, 45. “If we don’t get it resolved right now, who knows what Chester is going to end up being.”

In a town that hosts a daunting menu of urban issues, the bankruptcy’s outcome ultimately may have impacts around the country, say municipal finance specialists.

“Other cities are watching what happens in Chester,” said Vijay Kapoor, chief of staff for the state receiver who took the city into bankruptcy two years ago.

The city administration and the receiver are looking at water resources that serve hundreds of thousands of customers in Chester and elsewhere, hoping to sell them for potentially hundreds of millions of dollars to a buyer that would keep them in “public hands.”

Whether the city has the power to sell those assets, now operated by the Chester Water Authority and two other entities, remains knee-deep in litigation. But attorneys involved in the case agree that the Supreme Court may hand down a key decision in 2025.

The importance of those assets, said Kapoor, isn’t just the elephant in the room: It’s the elephant and the room.

An industrial powerhouse during the two world wars, Chester began to see chips and cracks in its economy in the 1950s, and the deterioration accelerated frighteningly in the next two decades.

Its tax base eroded, it hemorrhaged jobs and population, which declined from 66,000 in 1950 to about 40,000 in 1990, in part the result of the exodus of white families lured by newer and growing communities, such as Brookhaven and Wallingford.

Chester’s fiscal difficulties accelerated. In 1995, when it entered Act 47 “distressed” status for communities in trouble, state officials found that “Mandated pensions and daily bills were not paid. … The press, the public and the courts viewed Chester as an object of ridicule.”

Bankruptcy was on the table. Mayor Stefan Roots, who is just completing his first year in office, wishes the state had acted then.

“It was obvious that the city wasn’t going to make certain moves on recommendation only,” he said in an interview this month. “It’s kind of a shame to see that it went so far before the real cavalry has come in.”

The city eventually went into state receivership in 2020, and receiver Michael Doweary took it into bankruptcy in November 2022. Chester had accumulated a $48 million pension deficit and missed several years of payments, and a key financial officer lost $400,000 in a phishing scam.

Potentially hundreds of millions of dollars up front, a healthy revenue stream, and rescued pension funds.

There is gold in the water, which is an enormous component of the U.S. economy: The Environmental Protection Agency estimates that, conservatively, U.S. residents spend $100 billion a year on water.

Aqua Pennsylvania offered over $400 million for the Chester Water Authority three years ago; the city’s entire annual budget is about $65 million. Doweary opposed the sale and has insisted that the assets stay in “public hands.”

He envisions creating a regional entity by bundling the water authority; the Delaware County Regional Water Quality Control Authority, a wastewater-treatment facility that serves 46 towns in Delaware and Chester Counties; and the Stormwater Authority of Chester.

He said he wants the regional authority to remain public, lest rate hikes should spike as investors seek returns. The water authority vigorously opposes a sale.

In 2016, Scranton waded its way out of distressed status after 30 years by selling its water utilities, but as municipal finance specialist Liz Farmer pointed out in her Long Story Short newsletter, in July the city raised its rates for drinking water by 10.7% and wastewater by 6.4%.

Representatives of Chester retirees, understandably anxious about the state of pension funds, want the city to reap as much as it can in any sale agreement.

At the very least, it would make cuts less severe, Kapoor said.

David Skeel, the University of Pennsylvania law professor appointed by President Barack Obama to chair the oversight board in the mammoth Puerto Rico bankruptcy, said that the trend in recent bankruptcies, including Puerto Rico’s, has been avoidance of significant pension cuts.

That may have an unintended consequence, he suggested, in that bankruptcies may be less politically damaging, and thus more palatable, for elected officials. “I do think there’s a very significant possibility that we’ll see an uptick in municipal bankruptcies,” he said.

For now, they remain rare. Only about 30 of the more than 35,000 towns in the country have gone the bankruptcy route, and it is not at all clear whether that pension-salvaging trend will continue with Chester.

The question of whether the city has the power to sell the water assets remains a critical element of the legal quagmire.

The receiver holds that in 2012 the GOP-majority state legislature wrested control of the water authority from Chester in a stealth bill passed without debate.

Frank Catania, attorney for the water authority, argues that 80% of the 200,000 people who rely on the authority for drinking water live outside the city. The receiver counters that the infrastructure providing the water from the Octoraro Reservoir belongs to Chester, while not a drop of the revenue has gone into the city treasury.

Without the sale — or monetization — “there’s going to be a lot of pressure to make some very severe cuts” to pensions, Kapoor said.

Regardless of the outcome, “what we’re trying to look at is to gradually increase the investments, the tax base, over time,” he said, rather than counting on one-off economy-boosting projects.

The state has spent about $11.5 million on Chester during the four years of receivership, according to the Department of Community Development.

Kapoor argued that the investment has been more than worth it, as Chester has made progress getting its financial house in order and hiring qualified professionals in key financial positions. The city now is operating with a balanced budget while avoiding service cuts and layoffs.

Penn’s Skeel said the city faces tremendous challenges.

“It needs to live within its means, but it also really needs development and investment,” he said.

The unemployment rate is near 30%. Chester has vast numbers of properties off-limits to taxation, and by far the highest percent of people living in public housing in the county. It has the second-highest wage tax in the state, behind Philadelphia. Its acres and acres of vacant land are valued at less than $1 million in total by the state tax board.

Said Zulene Mayfield, founder of Chester Residents Concerned for Quality Living: “It’s a lot of issues if you look at it in totality. You can’t get overwhelmed.”

About 20% of Chester’s revenues are generated by slot machines and a trash-burning incinerator.

Roots says that of all the things he has on his plate for 2025, his top priorities would include redefining Chester’s image and making the city more welcoming.

He said he already has taken small steps, such as improving the lighting outside City Hall and in the lobby.

“We know people have a very bad opinion of our city,” he said. “We’re poor, we’re sick, we’re crime-ridden, we’re bad government.”

He said Chester needs to become aggressive about marketing its assets — its waterfront; historical attractions; transportation access; and proximity to Philadelphia, which will be at the nexus of the 2026 Semiquincentennial.

He said he wants to blitz social media with positive images of the city, so that when people google Chester, “they’re going to see the good stuff.”

Adelaide Evans, who campaigned for Roots, said she hopes that whatever strategy the mayor and the receiver embrace is going to work.

“This is either going to make us or break us,” she said.

Said Mayfield: “As long as people are living and breathing in Chester, there’s hope.”