Bankrupt Chester’s plans to sell water assets could be a struggle

The insolvency administrator’s plan to provide a financial lifeline to the bankrupt city of Chester and its struggling pension funds by selling water assets is apparently facing strong opposition.

The Chester Water Authority, which serves 34 towns in Chester and Delaware County and would be one of the three entities involved, will oppose the proposal, said its attorney, Francis J. Catania.

In a filing with U.S. Bankruptcy Court on Monday, the bankruptcy trustee’s office said the plan would “terminate the legal existence of the agency and its nine-member board of directors.”

Catania argued that the liquidator cannot sell the assets because they do not belong to him. “They claim they have all kinds of powers and that is all false,” he said. “That is just nonsense.”

Vijay Kapoor, the receiver’s chief of staff, pointed to a 2021 Commonwealth Court majority decision that said the city had “unfettered power to transfer the authority and all of its assets.” The decision is being appealed in the state Supreme Court.

In a statement, Kapoor said the sale was “the only way to raise the revenue needed to prevent drastic and unacceptable cuts to pension benefits and city services.”

He said Wednesday that the receiver’s office had been negotiating with the water authority and the Delaware County Regional Water Quality Control Authority (DELCORA).

As for the third party that might be involved, Stormwater Authority of Chester Executive Director Horace Strand said the receiver’s office has refused to meet with him or his representatives. He said the receiver is using the bankruptcy court as a “pulpit.”

Speaking at a meeting of the bankruptcy committee on Tuesday, Kapoor said that “the bankruptcy trustee believes that the best outcome is an amicable solution” but that “the bankruptcy trustee has to take this step to keep the process going.”

What the Chester bankruptcy trustee is planning

Catania pointed out that the city has been under state supervision for decades and said the receiver essentially wants water customers to make up for the state’s failures. Republican Rep. John Lauwence of Chester called on Gov. Josh Shapiro to block the planned sale to a yet-to-be-determined buyer.

The city was placed in state “emergency status” in 1995. During the COVID pandemic in 2020, Governor Tom Wolf placed the city under receivership. Receiver Michael Doweary led the city into bankruptcy in 2022 after it failed to make pension payments for several years and amassed a nearly $50 million deficit.

Of the country’s more than 35,000 municipalities, only about 30 have filed for bankruptcy in the 90 years that Congress has given them this option.

Negotiations with creditors, especially with pensioners, continued.

To speed up the process of emerging from bankruptcy, the bankruptcy trustee’s office said it would “solicit bids” for the purchase, management and operation of the water and sewer authorities and the city’s interest in DELCORA – which serves 46 cities in Delaware and Chester counties – “under the assumption that it is publicly owned.”

Mayor Stefan Roots strongly supports the plan.

The monetization plan involves “a lot of money”

While Kapoor declined to say exactly how much it will be, he said, “It could be a lot of money” if the plan goes ahead.

Over the past five years, Aqua Pennsylvania has offered the water authority $410 million and DELCORA $276 million.

Chester would likely receive significant upfront fees and “the city’s goal is to achieve guaranteed annual payments,” the bankruptcy trustee’s office said.

Doweary said the plan will “minimize impacts on ratepayers and provide a regional solution for stormwater management.”

Homeowners in Chester pay separate bills to the three water companies averaging about $1,000 per year.

The insolvency administrator’s argument for monetizing water resources

During his speech Tuesday, Kapoor said the city’s pensions are underfunded by about $40 million, with the majority of that coming from police pensions, which are only funded at about 7 percent.

Pension and health care costs in Chester are “unsustainable” and the city does not have the tax revenue to pay them and provide basic city services, he said.

The population of Chester is now about 34,000, and tax revenues have shrunk dramatically over the past 70 years. In the 2024 budget, property taxes and payroll taxes would make up only about a third of the budget. Nearly 20% of revenues would come from Harrah’s Philadelphia Casino and Racetrack and a waste-to-energy plant.

Planned expenditures of $70.6 million exceeded revenues by $2 million.

“We may be facing a fiscal cliff in 2026,” Kapoor said.

What happens next?

Catania, the water authority’s lawyer, said he had not yet decided what action he would take.

Strand of the sewerage authority said his lawyer is reviewing the bankruptcy trustee’s bankruptcy petition with the court.

This may take a while.