Chester Water Authority should hand over financial information and restructure board, receiver says

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Vijay Kapoor, Chester’s state-appointed receiver, filed a recovery plan modification Tuesday with the Commonwealth Court of Pennsylvania seeking to reel in the Chester Water Authority.

Kapoor asked Judge Matthew Wolf to order the authority to restructure its board and to hand over financial information amid the agency’s Oct. 3 proposal to hike rates by 14%.

The legal filing is the latest court skirmish between one of the region’s largest public water systems and the office tasked with rescuing Delaware County’s only city from fiscal ruin.

“I, as the receiver, have an obligation to assert the city’s rights — just like any other entity that would be in bankruptcy — and that’s what I need to do in order to help the city get out of bankruptcy,” Kapoor said.

The CWA serves approximately 200,000 people in 37 municipalities across both Chester and Delaware counties. The receiver’s office wishes to monetize the CWA, along with other water assets, to offset the city’s financial shortfalls.

Francis Catania, CWA solicitor, criticized the recovery plan modification as “disruptive” to operations. He said all of the financial information the receiver is seeking is public or has already been turned over to the receiver as part of other litigation.

“Just because the receiver has brought a lot of cases does not mean they’re meritorious,” Catania said. “Each case stands on its own merits. We think the only relevant case is the one before the [Pennsylvania] Supreme Court because there’s a very narrow issue before the court, and that issue is: Does the city of Chester alone have the power to terminate the Chester Water Authority? Delaware County Court of Common Pleas said it did not. The Commonwealth Court said it did. The Supreme Court has not yet ruled. But in the meantime, there’s been a bevy of activity by the receiver to try to annihilate the Chester Water Authority.”

What does the plan modification aim to do?

When the authority first announced the possibility of a rate increase, the CWA attributed its “serious challenges” to ongoing inflation, a downgraded bond rating that it blamed on the city’s attempted takeover of operations, and $1.7 million in unpaid water bills from Crozer Health.

Kapoor said he is concerned about the CWA losing value as an asset and the impact that rate increases could have on customers.

“What we are asking the court to do as part of this plan modification is to provide us with information that is commonly utilized when looking at increasing rates in order to determine CWA’s financial condition,” Kapoor said.

Michael Doweary, Kapoor’s predecessor, previously accused Pennsylvania lawmakers of stripping the city of its exclusive power to appoint Chester Water Authority board members. Until 2012, Chester city officials had the sole ability to select members.

Senate Bill 375, which the receiver’s office has alleged was laced with targeted and unconstitutional language, ended that practice and gave Chester County and Delaware County appointment powers, as well.

“What we are seeking to do is to enforce the city’s rights to appoint all the board members of the Chester Water Authority, just like any other municipality that incorporated an authority,” Kapoor said.

Catania rejected Kapoor’s push to reconstitute the board as “old wine in a new bottle.”

“The argument that he raised about the constitutionality should have been raised a long time ago,” Catania said. “He had many, many opportunities to raise and he didn’t raise it. So, we’re going to ask the court that he not be allowed to raise it now. Time has already passed for that and we believe it’s fully constitutional anyway.”

Litigation between Chester and CWA continues to pile up

The Pennsylvania Supreme Court has yet to issue a ruling as to whether Chester, which created it in 1939, has the sole legal authority to either dissolve or sell the CWA.

“We’ve simply asked that the receiver not do that until the court decides the issue,” Catania said. “And he’s unwilling to wait for that court. All of these actions are occurring while he’s waiting for that decision.”

Meanwhile, the United States Bankruptcy Court for the Eastern District of Pennsylvania is currently overseeing the bidding process for Chester’s water assets.

The Official Committee of Retired Employees sued the receiver on June 11, arguing the receiver should seek “maximum fair market value” for CWA.

Kapoor reached a deal Oct. 8 with the committee representing retired city firefighters, police officers and office workers to allow for-profit companies to participate in the request for proposals.

“The decision as to how to monetize the asset is mine, subject to the bankruptcy court,” Kapoor said. “I have not changed my position, which was also the previous receiver’s position, that these assets must remain publicly owned. We believe that that is in the best interest of Chester residents, and that is my guiding principle, and I will continue to feel that way.”

He said the agreement allows private entities that wish to bid on the CWA not to be rejected as noncompliant.

“It does not mean I need to select them,” Kapoor said. “It just means that those bids would not be rejected outright.”

Bankruptcy Judge Ashely Chan imposed sanctions Thursday on CWA attorneys for obstructing the discovery process “in bad faith.”

The fight to control the CWA has been brewing since 2017.