Chester receiver floats monetizing water authority as ‘only realistic way’ out of potential bankruptcy

Chester City Hall. (Google maps)

Chester City Hall. (Google maps)

Chester officials and the state-appointed receiver responsible for saving the city’s worsening finances discussed the few remaining options for Chester during Tuesday’s bi-monthly Financial Recovery Advisory Committee (MFRAC) meeting as it faces the possibility of bankruptcy.

Receiver Michael Doweary and his chief of staff, Vijay Kapoor, delivered a presentation to several city and state officials outlining Chester’s financial reality to kick off the public meeting. The state of the city is not looking good.

Having been under some form of state financial oversight for the last 27 years, Chester’s piggy bank has already been in bad shape, but Kapoor said that the situation is not getting better.

The troubles of Chester’s police pension fund and general operating expenses have been well documented. However, there are even more concerns popping up.

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Crozer Health, the struggling four-hospital system in Delaware County, is threatening to shut off the city’s paramedic services if the company doesn’t receive the wanted payment as it has with other municipalities.

On top of that, Crozer is also seeking to enforce an amount of $340,000 plus interest against Chester for a property tax refund. Kapoor said that the matter is scheduled for a court hearing on June 16.

Essentially, Chester is being kept afloat with American Rescue Plan Act funds — which won’t last forever.

“The reality is, we’re … [only] going to be able to rely on this money … until it runs out,” Kapoor said

Kapoor emphasized that Chester cannot both pay its retiree benefit costs and fund services to residents.

He said that for years, Chester’s overall expenses exceeded its revenues and the city was only able to operate by not paying its legally required minimum annual payments to its pension plans also known as minimum municipal obligations (MMOs).

The bill is past due.

“The truth of the matter is, this isn’t a situation that can be solved with small incremental measures. We’ve looked at where to talk about some of the steps that we’ve taken here. The only way to really solve Chester’s problems and not just put a bandaid on them — is to take some significant comprehensive action,” Kapoor said.

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As WHYY News first reported on May 18, Doweary requested and recently received authorization from the state Department of Community and Economic Development to file for bankruptcy — should he decide to do so. Nothing is imminent yet as the teams mull the options.

However, Kapoor added that many options have already been exhausted. For example, the number of Chester City Hall employees has been dramatically reduced, departments have been consolidated, and there are plans for salary reductions for elected officials.

Kapoor: Monetizing the water system is the only way out

The receiver’s solution is sure to stir controversy.

“Truly, the only realistic way for Chester to be able to deposit that amount of money that it needs in its pension funds to have an affordable pension payment is to monetize the Chester Water Authority,” Kapoor said.

Based in the city of Chester, it is one of the largest public water systems in the region. The CWA serves more than 200,000 people across 37 municipalities in both Delaware and Chester counties.

Aqua Pennsylvania has been hellbent on buying the water authority from the city that created it in 1939. However, the CWA has maintained its independence from the city leading to ongoing litigation.

The Pennsylvania Supreme Court is currently hearing the case after agreeing to hear an appeal on a lower court decision. Oral arguments are expected in the fall.

In the meantime, the team feels as though selling the system would bring the large influx of cash that it desperately needs to pay for pensions, city capital needs, and other financial needs.

Kapoor discussed three possible paths. The first is to not monetize, which he said would not fix any of the problems.

The second path is privatization. He acknowledged that while it would ensure that pensions and financial needs are funded, water rates would rise. Additionally, if the city were to lose the ongoing court case, Kapoor emphasized that the city could still end up in a “no monetization” scenario.

“The ‘no monetization’ is the worst case scenario, this privatization path is what I’m kind of calling as the high risk, high reward, if you will,” Kapoor said.

Kapoor detailed a third path that he said could potentially solve all of the issues if done correctly. Categorized as keeping it in “public hands,” the concept would essentially call for the CWA to pay for itself.

The concept consists of two parts: a significant lump sum of cash to fund the pension and to address Chester’s other needs as well as smaller annual payments.

“So, this concept, this third option, if you will, would keep the water system in public hands, minimize cuts to retirees from pension and health care benefits and eliminate the city’s reliance on host fee payments from the incinerator. While water rates would increase, as would be the case, if the system were privatized, they may not rise as high if the water system were privatized,” Doweary said.

The receiver’s team views this plan as a win-win for the city and even the CWA.

“The system would stay in CWA’s hands here … and it would basically be up to the CWA to decide how to fund these payments,” Kapoor said.

Ultimately, this would require the CWA coming to an agreement with the city over a fair price. The CWA has previously offered $60 million to the city, which may not be the number that the financially-crumbling city is looking for.

“If I’m sitting in CWA’s shoes, what I would respond with is … ‘you haven’t given me a number yet. So, I don’t know if this is feasible or not.’ And that’s fair, right. That’s on us to develop and come up with,” Kapoor said.

Mayor Thaddeus Kirkland stepped in to acknowledge previous conversations with the CWA.

“The concept that you’re just now describing, we were in conversations prior to receivership. The city was in conversations with Chester Water Authority talking about that very concept. There was a number put forth by the water authority, but it came with the number of years,” Kirkland said.

Regarding negotiation, Doweary said that all changes will be explored if the third option is exhausted.

“Worst case scenario, I think it sounds like if we cannot reach an agreement with the Chester Water Authority’s board, then we will be stuck with no other option but to seek privatization. We can’t go with an all or nothing scenario going into court and risk it all,” Doweary said.

Update to Chester’s controversial parking contract

Since 2018, Chester has been in a parking contract that is rather lucrative for the company, but the city does not make any revenue from the parking meter revenue.

Doweary publicized his concerns regarding the city’s parking contract with Delaware-based PFS VII LLC back in January. At the time, he called the contract “very one-sided in favor of the parking manager.”

A WHYY News investigation reported on May 4 that ​​while the city of Chester is not benefitting from the contract, public campaign finance records showed that the mayor’s campaign was likely benefiting. Kirkland has received $15,000 in total from people and entities connected to the contract for his congressional and mayoral campaigns since the city entered into the agreement.

Kapoor’s presentation on Tuesday brought about even more concerns “regarding how this contract appeared to come to be.”

Back in June 2017, Chester City Council unanimously approved a resolution authorizing a  request for proposals for advertisement of a “Parking Meter Management Services” for Chester.

According to PFS’s bid cover letter, it sent its offer to the city on July 24, 2017. However, Kapoor said that a little more than a month later, council minutes show Chester City Council approving another resolution saying that the original RFP was not adequately advertised and that the bids were to be returned unopened.

While the resolution calls for the reauthorization of another advertisement of an RFP, the receiver’s team cannot find evidence of that. And on September 20, 2017, Kirkland sent a letter to the parking vendor acknowledging that the company had been awarded the parking contract.

“I want to be clear, we didn’t just kind of rely on the documents. We also tried to get additional information and so we reached out,” Kapoor said.

However, emails to the city solicitor earlier this month did not yield much other than a response saying that nothing could be found on file.

Kapoor said that the city had initially described the bidding process as “competitive,” however, evidence suggests there was no actual competition.

The receiver’s team has indicated that terminating the contract could be on the table, but that comes at a cost of $12.1 million. Because of the way the contract appears to have been procured, Kapoor believes that the receiver has the power to opt out of the contract without getting penalized.

Councilmember Will Morgan countered Kapoor’s presentation by emphasizing that “there is a parking issue here in the business district area.”

“I know that some of the business community came to the mayor and council asking for a solution, a solution to try to find out how they can get more business, to get more patrons to their businesses. And this [contract] was one of the thoughts that was put forth,” Morgan said.

Kirkland also proposed a counter to the idea of opting out of the contract.

“I think that modification of a contract should be considered rather than voiding the contract altogether. A lot of work is wanting to try to better our community and make sure that our residents are able to park in our own communities … No contract is ever perfect,” Kirkland said.

Doweary will look to make a decision on the contract in the near future.

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