CHESTER — Chester wide receiver Michael T. Doweary views bankruptcy as a way to steer the city to a solid financial footing in light of a looming $46.5 million deficit expected next year.
Through Bill 47, the receiver has the power to file for bankruptcy and received approval from the Pennsylvania Secretary of Community and Economic Development in February to file for bankruptcy.
As required by Law 47, Doweary consulted with the Municipal Financial Recovery Advisory Committee on Tuesday to take a step forward in that direction. It has not yet filed for bankruptcy but is entering into negotiations with the groups concerned to avoid such a filing.
“What bankruptcy would mean for Chester is that it would give Chester the option of trying to reduce her pension to retiree health care … which she needs to do to be financially solvent,” said Vijay Kapoor , chief of staff of Doweary. “The other thing it would allow Chester to do is the ability to negotiate with other creditors so the city gets a fresh start, which it desperately needs.”
Bankruptcy would eliminate the city’s method of deferring spending year after year, according to Kapoor, who added that retiree health care and pensions could be adjusted through a bankruptcy process.
Chester would continue to provide services to its residents even in the event of bankruptcy, he added, although he said he anticipated some employees may leave due to the uncertainty surrounding such a situation.
“Ultimately what needs to happen is that recurring revenue needs to be able to cover recurring costs,” Kapoor said. “That’s what’s going to make Chester financially solvent…where it’s actually solved for real, as opposed to something that’s just going to kick the box for five or six or seven or 10 years.”
When evaluating Chester’s general fund from 2013 to 2019, only in 2017 was there a surplus of $7.7 million due to a $12 million cash advance and a $2 million state loan. In other years, the city’s general fund recorded a deficit of $2.2 million to $8.6 million.
Much of the pressure on the city budget was due to pension costs, according to Kapoor.
Debt is eating away at the city
In 2013, the city’s minimum municipal bond—the minimum amount required by law for a municipality to contribute to its pension fund—was $3.5 million. In 2021, it was $10.8 million. In seven of the years from 2013 to 2021, Chester was unable to pay his minimum amount, causing the balance to be carried over to future years.
Kapoor said $39.8million is due next year for overdue pension payments, but even if that’s not included, Chester is expected to see a $6.7million shortfall next year . Together, this deficit would be $46.5 million.
In context, the city’s operating budget for 2023 is $61.2 million.
While funds from the American Rescue Plan Act are expected to help the city in 2024, those federal funds eventually run out. Chester has been slated to receive $30.4 million.
To bridge the gap, Doweary looked at four options:
• Eliminate retiree health care for all current and future retirees with savings estimates of $6-8 million per year.
• Cost capping for employee acute health care with annual project savings of $995,000 to $2 million.
• Reduce the city’s annual pension payments through pension reductions and one-time revenues from private or public monetization of the water system with savings ranging from a one-time payment of $39 million in the first year to $4 million in savings each year thereafter;
• Eliminate or significantly reduce the City’s debt, with expected annual savings of approximately $3.6 million.
Doweary said the impact on property taxes and water rate changes by monetizing the system has yet to be determined and asked his staff to report on the specific impact of a bankruptcy. of the city on the residents of the city.
“Taxes are high”
Kapoor has already spoken about the burden on residents.
“Residents pay a pretty high price in the city,” he said. “Their taxes are high. They have the second highest income tax in the Commonwealth, behind Philadelphia.
In addition, residents pay water and stormwater fees.
“The needs in Chester right now are monumental,” Kapoor said, noting Chester’s 2020 median household income was $32,867. “A lot of that fell on the residents.”
The receiver said he continues to engage with groups that would be affected by the options he is considering.
“It’s still fluid, so to speak,” Doweary said. “The order of magnitude is pretty much in place, but there are still details to be worked out here.”
One thing he said he would like to establish is a two-employee IT department for the city.
‘Turn over every rock’
Andrew Sheaf from the Department of Community and Economic Development commented on the presentation.
“I want to say that I have no other options that I can think of as we look at the situation and some numbers,” he said. “I hope there is a way with some of your current negotiations to potentially avoid bankruptcy, but if not, I think you have turned every stone…and put together a full case and clear to that end.”
Kapoor said members of the catcher’s team have worked with many municipalities in financial difficulty across Pennsylvania and the country.
“Without a doubt, the situation Chester is facing is by far the worst we have ever faced, be it the pensions situation or the fiscal situation,” he said. “The options are serious…and we didn’t choose them lightly.”
Chester has been under financial watch since 1995 and Governor Tom Wolf has declared a budget emergency in 2020.