DV Journal

Department of Community and Economic Development Secretary Rick Siger asked a judge last week to extend Michael Doweary’s tenure overseeing the city of Chester’s finances. Court documents show the DCED is convinced Chester will remain in a state of fiscal emergency “for at least the next two years.”

Doweary, who was appointed to the job three years ago by former Gov. Tom Wolf, was supposed to exit his position at the end of December.

Chester city officials like outgoing mayor Thaddeus Kirkland and Councilwoman Elizabeth Williams have made no secret of their hostility toward the state-appointed receiver. According to testimony and court findings, Kirkland called Doweary the “N” word, told him to “watch your back” and “your days are numbered.” Williams called Doweary a “slave master.”

Kirkland later apologized for his comments.

City officials have also gone to court to challenge Commonwealth Court Judge Ellen Ceisler’s January order that Doweary needs more control over city finances. DCED’s legal filing to Pennsylvania’s Commonwealth Court noted the state Supreme Court has yet to make a ruling in that case.

The filing said that a federal bankruptcy judge ruled in March the city was “eligible as a debtor” and for release under Chapter 9 bankruptcy. It included finding that the city met the definition of insolvent under the Bankruptcy Code because it didn’t pay debts when they were due or was “unable to pay its debts as they become due.”

Doweary previously told the DVJournal that Chester faces “a significant fiscal cliff” in 2025 because its “financial situation is critical, and it is running out of time to find a solution.”

The DCED defended Doweary’s time as Chester receiver, praising him for working with Chester elected officials and taking “many positive steps on the road to financial recovery.” That included hiring a chief of staff to run the government and suggesting that a chief financial officer (CFO) be hired in the future.

The state also blasted Chester officials, accusing them of financial mismanagement and lack of audited financial statements. Court documents show Doweary discovered the last audit was done in 2017 and only completed audits for 2018 and 2019 because of “the persistence of the professionals on my team.” Those audits painted the picture of a city in dire financial straits, with Siger claiming that Chester had a general fund revenue loss of around $6.8 million and a balance of negative $27.7 million.

A 2020 audit is ongoing.

Under those conditions, the state saw it as crucial to keep Doweary in power. “[T]he Receiver’s function and duties are still not complete, and the continuation of Receivership and the Receiver’s presence is critical to fully implement the 2023 Modified Plan and to bring the bankruptcy proceedings to a successful conclusion,” wrote DCED attorneys. “Such an extension is necessary if the city is to have any chance of recovering.”

Chester’s pension obligations were also mentioned as a reason for keeping Doweary on the job. An affidavit by Doweary claimed the city owes almost $40 million total to its Fire, Officers and Employees, and Police pension plans.

Most of the money is meant for the Police Pension Plan which, according to Doweary, was severely underfunded just a few years ago. “[The pension plan had] only $1.75 million in assets…when I was appointed in June 2020,” Doweary said in the sworn statement. “The $1.75 million in assets was sufficient to pay a mere three months’ benefits to current retirees. There is now $8.4 million in real assets as of June 2023.

City officials had hesitated to reduce pension outlays despite its massive weight on the budget. Doweary claims he’s been in mediation with the city’s unions, Retiree Committee, other creditors on some kind of solution to the Chapter 9 bankruptcy issues.

But Chester residents may not need to worry about higher taxes. Doweary has said he wants to avoid raising the earned income tax rate above the current 3.75 percent rate. That’s second in Pennsylvania, only to Philadelphia.

Chester’s government has had a major upheaval since its financial woes became public. Councilman Stefan Roots defeated Mayor Thaddeus Kirkland and real estate broker Pat Worrell in May’s Democratic primary for mayor. Roots does not have a Republican opponent in November’s general election.

Kirkland did not return a call for comment on Pennsylvania’s request to keep Doweary as Receiver.

It is not known when the Commonwealth Court will rule on the DCED’s request.

The official charged with overseeing the City of Chester’s dismal finances is predicting the city might reach the point where it will be disincorporated or dissolved.

Michael Doweary, the receiver appointed three years ago by former Gov. Tom Wolf to help pull the cash-strapped municipality out of insolvency, blamed elected city officials who filed appeals to block a bankruptcy and who also appealed court-approved modifications to the receiver’s plans.

Chester needs a plan by the end of 2023, or it will cease to exist as a municipality, Doweary said.

Vijay Kapoor, Doweary’s chief of staff, called the situation “sobering.”

“Chester is really running out of time,” Kapoor said. “There needs to be a focus right now on solving Chester’s problems. If a comprehensive solution is not found by the end of the year, there may be no alternative for Chester but disincorporation.”

If that were to happen, all municipal employees would be fired while the city’s elected officials would be dismissed. A state administrator would then oversee the municipality as a disenfranchised territory.

Kapoor claimed that if a bankruptcy lawyer had not brokered a bargain with bondholders, the city would be out of money by this September.

The city’s newly completed 2019 audit showed a $6.8 million loss and a negative $27.7 million fund balance. Also, the city has not made $40 million in payments to its pension fund.

Kapoor said Chester would need a $5 million loan in January to make its payroll.

And in 2025, Chester faces “a significant fiscal cliff,” said Doweary.

“If you’re out of money, you can’t keep the lights on. Chester’s financial situation is critical, and it is running out of time to find a solution,” he said.

When Kapoor said city officials had not devised their own plan, Mayor Thaddeus Kirkland objected.

“We provided the Receiver with two credible plans,” said Kirkland. Both involved deals with the Chester Water Authority (CWA), including selling it to Aqua PA.

“Offers to monetize (that asset) are not a comprehensive plan,” Doweary countered. “Those were just offers for the system, not a plan.

“Bankruptcy is the only thing to bring all of the creditors to the table.”

Elected officials have been unwilling to cut back on pensions, one of the biggest items of bloat in the city budget. Kirkland said one former employee, whose husband died, told him: “How am I going to make it if you cut my pension?”

CWA lawyer Frank Catania said CWA is the only entity that has offered to help Chester, proposing in 2019 to give the city $60 million in exchange for dropping any efforts to take over or sell the authority.

“It’s not a solution to sell (CWA) to Aqua,” he said of the city’s current fiscal crisis. Doing that “shifts the burden from Chester to the ratepayers.”

“The city (Chester) is in a bad spot (financially),” Catania said. He asked why the state has not given Chester a deal like those it gave to Philadelphia, Harrisburg, and Pittsburgh, which have also run into financial difficulties over the years.

Last year, the legislature and Wolf approved an extension of the Pennsylvania Intergovernmental Cooperation Authority’s oversight of Philadelphia until 2047.

“The state has overseen Chester for more than 25 years,” said Catania. “I think they have an obligation to help it, and rather than offer to help, they let the problem get much, much worse.

“It’s hard to conclude anything other than it was done on purpose.”

Catania also cited recent remarks by Philadelphia mayoral candidate Jeff Brown, saying many people in state government share his attitude.

A spokesperson for Gov. Josh Shapiro did not respond when asked about state help for Chester.

The state Supreme Court has agreed to hear appeals on the Chester cases. In the meantime, said Kapoor, elected officials have resumed their control of various city departments after a Commonwealth Court judge had ousted them.

In that ruling, Judge Ellen Ceisler blasted city officials for nepotism and self-dealing.

Also, federal grant programs that came online due to COVID are ending, so Chester may have to lay off some 20 people in January.

“We need to have a plan in place by the end of the year,” said Doweary.

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The Chester Water Authority (CWA) and Chester County chalked up a win in its ongoing legal battle with the Receiver for the City of Chester.

The bankruptcy court judge handling the bankruptcy case filed by Receiver Michael Doweary on behalf of the City of Chester ruled on Nov. 23 the CWA is not part of another case brought by the receiver pending in Commonwealth Court.

In the ruling by Judge Ashely M. Chan, the receiver agreed the word “authority” in the Commonwealth Court amended recovery plan does not include the CWA.

Chan stayed the CWA’s case that was to be heard by the state Supreme Court on Nov. 30. But motions to permit the high court to hear the case were filed and will be heard mid-December.

“We believe the state Supreme Court should be the one to decide it,” said CWA lawyer Frank Catania. CWA is fighting for survival against the state-appointed Receiver’s attempts to sell it to Aqua PA. And even if he succeeded, Catania said, “it is an undecided — and vigorously disputed — as to what money, if any, the city would get from a sale of CWA.”

The city of Chester has a long history of financial turmoil stretching back 27 years. During that time, it has been under the financial authority of four receivership regimes authorized by the Pennsylvania Municipalities Financial Recovery Act of 1987.

“Since 2017, the City of Chester has attempted to monetize the assets of the CWA, an authority that services more than 200,000 ratepayers, the vast majority of whom reside outside the boundaries of the City, including more than 34,000 ratepayers residing in Chester County where critical infrastructure is also located,” Delaware County argued in a legal filing. CWA supporters believe the Receiver had his eye on the authority and his requests to the courts reveal his intentions.

The receiver had “asked the court for permission to take over and run any authority that the City of Chester created. That’s all it said. It didn’t say, ‘not us [CWA],'” said Catania “So clearly we were concerned. If the judge gave a broad interpretation of the language, that would include us, and the Receiver has no business trying to run a water company, right?”

Opposition to Chester’s attempts to sell the CWA to Aqua PA is bipartisan in the Delaware Valley. In addition to Democratic opponents on the county council, two GOP state reps previously filed an amicus brief last month to oppose the sale.

“Act 73 of 2012 abolished Chester city’s control over the CWA board. It is outrageous to suggest that years later, the city can override the clear intent of the Legislature, take control of CWA, and sell it to the highest bidder. I am grateful that the Supreme Court has agreed to review this matter, and I will continue to fight to prevent any takeover of Chester Water Authority,” said Rep. John Lawrence (R-West Grove).

Lawrence, whose constituents in Chester and Delaware counties are served by CWA filed the brief with House Speaker Bryan Cutler (R-Lancaster).

“The CWA board has steadfastly and responsibly served the hundreds of thousands of customers who rely on this municipally provided service,” Cutler said. “The Commonwealth Court’s ruling undermines the board’s rightful position to continue to recognize the best interest of its customers and sets a dangerous precedent for all water consumers in the Commonwealth. We strongly urge the Pennsylvania Supreme Court to take a closer look at this case.”

And the state Supreme Court is where CWA supporters want this case heard, while the Receiver has tried to get the Commonwealth Courts to make the decision.

“Doweary would rather have the issue heard before a single judge in a different case where the Chester Water Authority is not a party. That’s what he was trying to do. Then the next step in his plot—a hostile takeover– was on the day before Veteran’s Day. That’s when the city filed for bankruptcy, with no prior warning.”

“The Receiver has a nasty habit of trying to pull holiday surprises,” Catania added. “So we’re always on a heightened state of readiness around the holidays.”

“He failed, but he’ll try again,” said Catania.

The receiver did not respond to a request for comment on Tuesday.

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When Receiver Michael T. Doweary filed for Chapter 9 bankruptcy last Thursday for the City of Chester, he said it was the only way to resolve the city’s ongoing fiscal crisis.

“Chester’s financial and operational problems are far worse than my team of professionals has ever encountered. The status quo has not worked, is not working, and will not work. The residents of Chester deserve better,” Doweary said in a press release. He pointed to a projected $46.5 million deficit in 2023, including $39.8 million in past-due pension payments.

But representatives for the Chester Water Authority (CWA), locked in a struggle against the city’s bid to sell the CWA to Aqua PA, it was just the latest misstep by the city’s state-appointed overseer. And it leaves far too many unanswered questions.

“The Receiver has had two and half years to turn Chester around,” said CWA attorney Frank Catania, pointing to several high-profile fiascos like the city losing $400,000 through an internet phishing scam on the Receiver’s watch.

And, Catania added, Doweary did not tell the Commonwealth Court that Chester stands to gain $70 million through the sale of DELCORA (Delaware County Regional Water Quality Control Authority) to Aqua or, alternatively, get its sewer systems back so it could sell them itself.

“It’s a robbery in progress,” said Catania of Doweary’s revised Receivership document. Doweary is “trying to shift the burden (of paying for water and sewer) from government to citizens,” both in Chester and in parts of Delaware and Chester counties. Some 80 percent of CWA customers are suburban and if Doweary has his way, those customers will subsidize the city.”

“The Receiver uses bank robber’s logic: I need money. You have money. I’m taking it.”

Doweary declined to respond to repeated requests for comment. In a press release, he said he avoided bankruptcy as long as possible, and he pointed fingers at city officials.

“Since my appointment over two-and-a-half years ago, I have worked to avoid this day,” Doweary said. “However, Chester has a severe structural deficit that cannot be addressed by one-time fixes, has unaffordable retiree benefit liabilities, and cannot reliably provide vital and necessary services to its residents.”

According to Doweary, Chester’s elected officials and employees are not cooperating with his stewardship. For example, Councilman William Morgan lost the money to the phishing scam — involving a fake request for payment — in June, but he was not notified until three months later. He also pointed to a $750,000 IRS penalty against Chester for incorrect payroll taxes and to a salary being paid to an incarcerated former employee.

Doweary acknowledges he is seeking more control over city operations and also wants the court to award him control over the CWA. He also asked the court to tell employees and elected officials that they must not interfere with the directives of the chief operating officer or the Receiver.

What the Receiver won’t discuss, however, is the city’s outstanding debt for the high-powered law firm, Greenberg Traurig, for a $1 million contingency fee. How could Chester, struggling to pay its bills, afford to pay $1 million?

DVJournal has requested the underlying documents related to retaining Greenburg Traurig, but the Receiver has declined to provide them or explain what work the firm was supposed to provide to the taxpayers of Chester.

CWA is in litigation with the Receiver. Oral arguments in that case are scheduled before the state Supreme Court on Nov. 30.  However, a bankruptcy filing stays other court cases. Lawyers are meeting with a bankruptcy court on Tuesday.  Also, at 1 p.m. on Tuesday, the Municipal Financial Recover Advisory Committee will meet. That meeting will be streamed. 

“[Doweary] is court shopping,” said Catania. “He wants to avoid the Supreme Court and go to Commonwealth Court.”

“He’s going to try to convince (the Commonwealth Court) judge that he should be in charge of CWA,” added Catania.  “He couldn’t even make sure the city that Chester had proper insurance coverage and he wants to sell the water authority and serve 200,000 customers fresh drinking water? It’s outrageous. He’s got to be stopped. He did not tell the court the whole story that Chester stands to get $70 million from the sale of DELCORA.”

Instead of a Receiver, the state should step up for Chester, like it previously did Philadelphia, Pittsburgh, and Harrisburg, said Catania.

“This is an orchestrated crisis,” said Catania. “And whenever it’s convenient, Doweary brings the city retirees out for public relations purposes.

“He treated Chester retirees as hostages,” he said.

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