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How a Bankrupt Chester, PA's Pension System Hit a Breaking Point
Caption: A view of downtown Chester, Pennsylvania. PHOTO BY LIZ FARMER FOR ROUTE FIFTY
(link) https://www.route-fifty.com/finance/2023/01/chester-pennsylvania-municipal-chapter-9-bankruptcy/382142/
Welcome back to Route Fifty’s Public Finance Update! I’m Liz Farmer and this is the second installment of my series on Chester, Pennsylvania’s bankruptcy.
As with most—if not all—municipal bankruptcies, there’s a lot of blame being thrown around. But in Chester’s case, sentiments on all sides appear particularly caustic. So much so that for nearly two years, the receiver’s team has been working out of a sparsely furnished office a half-block away from City Hall. In courtroom testimony earlier this month, Receiver Michael Doweary described being called the “N-word” during a verbal altercation with Mayor Thaddeus Kirkland. Doweary, meanwhile, has accused city officials of nepotism and fiscal malfeasance, if not outright corruption.
...
A key driver of the conflict is around fiscal management and disclosure. Amid its budget troubles, the city has racked up $750,000 in Internal Revenue Service penalties related to unpaid payroll taxes, fell victim to a $400,000 phishing scam that wasn’t publicly disclosed for months, cycled through two chief financial officers in as many years and has failed to produce an audited financial report since 2018. But perhaps the most striking example of the problems surrounding the city’s bankruptcy is the discord—and conflicting information—around Chester’s underfunded police pension.
Like other distressed cities, Chester has an outsized pension liability and annual pension bills that would take up a substantial portion of its budget if paid in full. But also like other cities, Chester hadn’t been paying its entire bill—called the Minimum Municipal Obligation (MMO) in Pennsylvania. In 2021, the city paid its full MMO for the first time since 2013 and it was a significant lift. The total it spent on pension and retiree health care costs that year—$14.6 million—took up 28% of its entire general fund.
But there’s a bigger problem: Due to accounting practices that inflated the plan’s assets and a dispute over what the city’s police pension formula actually is, no one really knows what Chester’s true unfunded liabilities are.
As with most—if not all—municipal bankruptcies, there’s a lot of blame being thrown around. But in Chester’s case, sentiments on all sides appear particularly caustic. So much so that for nearly two years, the receiver’s team has been working out of a sparsely furnished office a half-block away from City Hall. In courtroom testimony earlier this month, Receiver Michael Doweary described being called the “N-word” during a verbal altercation with Mayor Thaddeus Kirkland. Doweary, meanwhile, has accused city officials of nepotism and fiscal malfeasance, if not outright corruption.
...
A key driver of the conflict is around fiscal management and disclosure. Amid its budget troubles, the city has racked up $750,000 in Internal Revenue Service penalties related to unpaid payroll taxes, fell victim to a $400,000 phishing scam that wasn’t publicly disclosed for months, cycled through two chief financial officers in as many years and has failed to produce an audited financial report since 2018. But perhaps the most striking example of the problems surrounding the city’s bankruptcy is the discord—and conflicting information—around Chester’s underfunded police pension.
Like other distressed cities, Chester has an outsized pension liability and annual pension bills that would take up a substantial portion of its budget if paid in full. But also like other cities, Chester hadn’t been paying its entire bill—called the Minimum Municipal Obligation (MMO) in Pennsylvania. In 2021, the city paid its full MMO for the first time since 2013 and it was a significant lift. The total it spent on pension and retiree health care costs that year—$14.6 million—took up 28% of its entire general fund.
But there’s a bigger problem: Due to accounting practices that inflated the plan’s assets and a dispute over what the city’s police pension formula actually is, no one really knows what Chester’s true unfunded liabilities are.
- more at link -
Link to Part 1 of the series here: https://www.route-fifty.com/finance/2023/01/chester-pennsylvania-bankruptcy-pensions-city-budget-finance/381645/
How many Pennsylvania cities and towns are in the same boat as Chester? It's not so uncommon.
