The City of Chester is in danger of dissolution due to its dire financial situation.
It has been in Pennsylvania’s Act 47 Financial Recovery Program since 1995. That law allows the commonwealth’s Department of Community and Economic Development (DCED) to monitor Chester’s books, come up with a recovery plan, and offer financial aid that will be repaid.
So imagine Mayor Thaddeus Kirkland’s surprise when the city was told the state expected it to pay more than half a million dollars in fees to attorneys looking over its retirement system. He expressed his outrage at the August 9 city council meeting.
“Now, all of a sudden, we done hit the lottery y’all,” he told the council. “We couldn’t get any of these services, and you know why? Because they didn’t want us to provide you with the help that you needed. And they convinced people in this city to attack us and then turn around and give their behinds to kiss.”
The Receiver for the City of Chester, Michael Doweary, said the city has the ability and the duty to make those payments. Doweary’s critics point out he put Chester into Chapter 9 bankruptcy last November, repeatedly insisting the city’s finances were a disaster.
A judge accepted the bankruptcy filing in March, but Doweary went even further, suggesting the city could be dissolved. Doweary’s chief of staff previously told DVJournal that Chester needs $5 million to make payrolls in January 2024.
Now he wants Chester to pay up.
Chester’s biggest financial anvil? Retiree benefits. Federal bankruptcy court documents list the city’s unfunded pension plan balance at $127 million. It also owes the retirees $232 million in healthcare benefits.
A Retiree Committee was formed in February that quickly hired Flaster/Greenberg and Jenner & Block, two high-profile law firms, as representatives. Those lawyers racked up approximately $520 thousand in bills. The Committee sent it to Doweary. He turned to outgoing Chester Mayor Thaddeus Kirkland, telling him the cash would have to come from the city.
“The City is legally required to pay these legal fees subject to a reasonableness test,” said Doweary in an email to Kirkland. The mayor relayed the message to the city council last week. “I am, therefore, at this time, approving the payment of $100,000 per month going forward to the retiree professional group as a whole for the payment of fees.”
Kirkland feels otherwise, vowing the city never promised any money. He said it was Doweary who made the offer.
So, where did Doweary come up with the cash in his offer to the Retiree Committee in May? That is what Kirkland wants to know, given all the predictions of Chester’s fiscal doom.
Chester’s Official Retiree Committee hopes a federal bankruptcy judge will step in. Its attorneys asked the judge this week to tell the city and Doweary to show them the money.
“The Receiver represented to the Retiree Committee that the City could pay the fees and expenses of the Retiree Committee’s professionals and, implicitly, made the same representation to the Court by filing the Compensation Procedures Motion.,” said court documents filed Monday in bankruptcy court. “The Receiver was undoubtedly aware of what the City’s 2023 budget provided for when the Receiver filed the Compensation Procedures Motion. Whatever constraints there may be in that budget, these are not new developments. Therefore, the City’s bait-and-switch should be prohibited under the doctrine of judicial estoppel, as well as equitable estoppel and similar doctrines.”
The Committee’s attorneys accuse Doweary and his staff of not answering certain questions regarding the payments.
“On July 12, 2023, the Retiree Committee’s Professionals met via video conference with Ballard Spahr and Vijay Kapoor of Kapoor & Co. (the Receiver’s chief of staff) to discuss the issues raised in the letters… On July 27, 2023, the lead financial advisor to the Retiree Committee further discussed the issues with Mr. Kapoor and proposed a potential solution. To date, the Receiver has not responded to the proposal.”
The committee’s lawyers suggest Pennsylvania’s government may need to pony up funds. “If the City cannot fund the Chapter 9 process, it must look to the Commonwealth to meet its obligations in this case. The Commonwealth cannot properly avail itself and the City of the benefits of Chapter 9 bankruptcy while simultaneously failing to provide for the payment of the professionals who have been administering this case for the benefit of the City’s stakeholders.”
Their suggestion involved asking the Pennsylvania government to provide “debtor-in-possession financing” to Chester, specifically tied to “a liquidity or monetization occurs” involving the city’s water and sewer assets. Court documents claim Doweary and DCED balked at the suggestion.
“Initially, the Receiver refused to even broach the subject with the Commonwealth, opting instead to file the Compensation Procedures Motion,” said Committee attorneys in their filing. They contend that Doweary and DCED discussed their proposal last month but decided to play legal games. “It is unclear how enthusiastically the Receiver advocated for this concept (neither the Retiree Committee nor its Professionals were invited to participate in that discussion), but the DCED flatly rejected the proposal without offering any other solutions.”
Kirkland is pretty sure that Doweary is the one doing bait and switch. “I said it then, and I’ll say it now,” he told the City Council last week. “They said that we were going to be disincorporated…and all of a sudden, we got money to pay these bills. Legal fees for the retirees…over a half million dollars. But, some people fell off the okey-doke when they said that disincorporation stuff.”
He noted that disincorporation hadn’t been mentioned since he lost the Democratic primary in May.
The Receiver’s Office declined to respond to multiple requests for comment.
A spokesperson for Pennsylvania Governor Josh Shapiro referred questions on how much money Chester needs to clear out its debt to the Receiver’s Office. The spokesperson gave the same answer when asked where Doweary found the money.
Doweary remains in good favor with the state. “The Shapiro Administration supports the extension of Michael Doweary as the Receiver,” said a DCED spokesperson in a statement. “The Department of Community and Economic Development’s Secretary filed the application with Commonwealth Court on July 25, 2023, to extend Chester’s receivership and Michael Doweary’s term as receiver for an additional two years.”
“How much money have they brought to this city to help this city financially?” asked Kirkland during last week’s city council meeting as he unloaded a rhetorical machine gun at Doweary. The Receiver did not appear before the council. “But we listen to this crap…to these folks that come in here and shove garbage down your throat, and we eat it. And they say it’s the truth when they’re lying to your faces.”