Retirees Pitted Against Water Unit in City’s Two-Year Bankruptcy

As Chester, Pa., passes the two-year anniversary of its bankruptcy filing, its financial turnaround remains scrambled by a web of competing interests and a legal battle over assets it hopes to sell.

State-appointed receiver Michael Doweary is tasked with determining how to resolve the city’s largest debt—$300 million in benefits owed to its retired workers—while fulfilling his mandate to the city’s residents. While Chester doesn’t carry the billions of dollars in debt that defined higher-profile municipal bankruptcies, such as Detroit and Jefferson County, Ala., the legal and economic questions it faces are no less consequential for its residents, advisers, and leadership.

At the center of the case, retirees’ interests are directly at odds with the local water authority, which Doweary intends to monetize to pay down pension debt.

And while the bankruptcy is already moving painfully slow compared to most corporate cases—the city’s former mayor fought hard against Doweary’s early efforts—it faces another hurdle. A bankruptcy judge determined Nov. 13 that the Chester Water Authority can proceed with a legal challenge to the city’s ownership of the water assets.

If the Pennsylvania Supreme Court rules in favor of the CWA, it would upend Doweary’s entire strategy to rehabilitate Chester. At the same time, the city’s retirees are pushing Doweary to sell the water assets to the highest bidder, even if that means privatizing the system.

Chester has been in economic decline for half a century and under various levels of state supervision for nearly 30 years. The big question is whether Chapter 9—the section of bankruptcy law that governs municipal cases—can accomplish what decades of policy interventions have failed to. Some of those efforts are visible along the city’s Delaware River waterfront, a mixed bag of development projects that includes a casino, a toilet paper factory, a state prison, a trash incinerator, a sewage treatment plant, and a major league soccer stadium.

The casino and trash incinerator make direct payments to the city, while backers of the soccer stadium—home to the Philadelphia Union and built in 2010—had hoped it would bring economic growth. But decades of industrial decline and mismanagement have instead landed the city in bankruptcy court, in search of a sustainable solution.

“The money is part of this, but we’re not going to solve this through a pure equation, right?” Vijay Kapoor, the receiver’s office chief of staff, said. “This has impact on people’s lives.”

‘Five Square Miles’

Chester’s bankruptcy lays bare the dynamics that make Chapter 9 cases different from corporate Chapter 11s. Doweary, just the second receiver in Pennsylvania history, downplays the years of neglect that landed the city in its current situation.

“Whoever chooses to live here next year should expect to have the trash picked up,” he said. “So we got to—just for these five square miles—figure out what service looks like in this area, regardless of the history and who’s at fault.”

Though Chester’s retirees hold the majority of its debt, Doweary’s ultimate obligation, as a state appointee, is to Chester’s roughly 30,000 residents.

Kapoor joked that the idea that residents are the main creditors in a Chapter 9 should be called the “Doweary Doctrine.”

“Maybe we’ll argue something into a new law based on this, right?” Kapoor said. “The largest creditor constituency is actually the residents.”

An Arm and a Leg

Doweary has suggested that even if the city can monetize the water assets, it will still need to reduce its retiree obligations to attain financial stability.

“The retiree benefits at large are unsustainable,” Kapoor said. “We, the city, cannot afford to pay for essentially two workforces.”

The specter of pension and health-care cuts echoes Detroit’s 2014 bankruptcy plan, where reductions left some retirees feeling burned years later.

Chester’s retirees say they shouldn’t have to bear the burden of years of financial mismanagement.

“It seems like they want to put this on retirees’ backs,” retired firefighter Chuck Bolgunas said.

Public employees bought homes, invested, and made other life choices based on an understanding of their income that’s now uncertain. Bolgunas took a job as a commercial truck driver to bring in more money, he said.

Alan Davis, who served more than two decades in the Chester Police Department, doesn’t have that option. He’s on a disability pension, so every dollar of additional income he makes is deducted from his pension. Davis retired in 2016 after he was shot multiple times and lost the use of his hand while responding to a report of a stolen vehicle.

“When people ask me whats going on with the pension issue I always say it already cost me an arm, now they’re coming back for the leg,” Davis said.

Chester Water

Despite retirees’ calls to consider private buyers, Doweary has said he won’t sell to a private entity, citing concerns of rate hikes.

At the Pennsylvania Capitol in Harrisburg last month, water authority leaders and local officials urged the commonwealth to get more involved. They said a sale of the CWA would penalize a wider group of people. About 80% of CWA’s customers don’t live in Chester and say they shouldn’t be responsible for pulling it out of bankruptcy.

In court, the CWA has argued that Chester doesn’t have the authority to sell its assets. Publicly, the authority remains concerned about a private sale, despite Doweary’s assurances that he won’t privatize it. Doweary last month began the process of finding bidders but hasn’t publicly discussed specifics of the type of bids he wants.

“The financial burden of rescuing a bankrupt municipality like Chester should not fall on a limited number of CWA ratepayers, but rather statewide,” Mike Greek, a CWA union employee, said at the Capitol.

“You are trading one group’s pension for another, one group’s health care for another and one group’s livelihood for another,” Greek added. “The city of Chester cannot be forgotten about in this crisis, and it’s the state’s duty to not leave them behind.”