In an effort to bail out the City of Chester, the committee representing retired city workers is urging a federal bankruptcy court to approve the privatization of the Chester Water Authority (CWA).
The Official Committee of Retired Employees told a judge the city should sell the water system’s assets to Aqua Pennsylvania or the Pennsylvania American Water (PAW).
“If a sale does not represent maximum fair market value due to policy concerns of the Commonwealth or other regional interests, the loss must be offset by other assets of the Commonwealth—otherwise, retirees and the City unfairly bear the cost of that policy,” said Retiree Committee Co-Chairs Alan Davis and Chuck Bolgunas.
Chester’s finances have been troubled for decades due to financial mismanagement and allegations of fraud. The city was placed under Commonwealth oversight in 1995 through Pennsylvania’s Municipalities Financial Recovery Act (Act 47), but the troubles continued. Then-Gov. Tom Wolf appointed Michael Doweary as Chester’s receiver in 2020.
In 2022, Doweary criticized city officials for approving a one-sided parking lot contract. That same year, it was revealed that then-Councilman William Morgan lost $400,000 in a phishing scheme. Doweary put the city in Chapter 9 bankruptcy protection that November.
The main driver of Chester’s financial distress is retiree benefits. According to federal bankruptcy filings, the city has $369 million in unfunded pension and retiree healthcare obligations.
That massive liability had Doweary and the city council looking at CWA as a potential silver bullet. Proceeds from a hypothetical sale of CWA could put a large dent in the city’s debt.
Five years ago, Chester solicited bids for CWA, shortly before Doweary became receiver. In 2021, the Commonwealth Court ruled the City of Chester could sell the utility despite objections from the CWA board. The case is now before the Pennsylvania Supreme Court after sitting in legal limbo for years.
Doweary, whose tenure as Chester Receiver ends next month, will be replaced by Vijay Kapoor. Both have said they want the water assets sold but have said the system should remain publicly-owned.
In a Request for Proposal document, the Receiver’s Office stated that any buyer must “maintain public ownership of the Systems.”
The retiree committee argues Doweary and Kapoor are limiting the city’s options and violating state law.
In court filings, they claim the city could receive at least $400 million from the private sector – far more than the $60 million offered by CWA. They contend the Receiver has a duty to secure the highest possible value for the City’s benefit.
“The Receiver is failing to pursue a value-maximizing transaction that would immensely benefit the City and the Retirees and is thus breaching this fundamental duty,” the committee wrote.
The group has asked the judge to compel the Receiver’s Office to accept bids from Aqua and PAW, and to award damages.
An attorney for CWA said the utility couldn’t comment due to bankruptcy court proceedings. “CWA will respond further in the near future,” Francis J. Catania told DVJournal.
The water system has long maintained it’s not a city-owned enterprise.
Last fall, CWA attorneys said the utility has “complete autonomy” because it’s not part of the municipal government. They cited state Department of Community and Economic Development guidelines on municipal authorities from 2020. Those rules said authorities were independent agencies and “not the creature, agent, or representative” of a municipality.
CWA has also remained skeptical of Doweary’s claims the utility will remain publicly-owned. Catania previously told DVJournal the promise could still apply to corporations: “They’re all publicly-owned. They’re publicly traded.”
In a statement, the Receiver’s Office said, “[our] position remains that the water assets should continue to be publicly-owned.”
All sides are now awaiting a ruling from the Pennsylvania Supreme Court on whether CWA is a city-owned utility or a separate legal entity. It is unclear when a decision will be made.