City of Chester’s Receiver Admits Mismanagement of the City’s Pensions, Resulting in Years of Financial Troubles

City of Chester’s Receiver Admits Mismanagement of the City’s Pensions by the Receiver and DCED’s Act 47 Team.

“The Receiver hereby directs the City to continue litigating for its ability to repossess and sell the assets of the Chester Water Authority.”¹ This is but one of many statements by the Act 47 Receiver for the City of Chester—who was hand-picked by the DCED when the City was placed into a receivership to avoid bankruptcy—encouraging the seizure and sale of the CWA as a purported remedy for the City’s financial troubles, including its primary financial problem: underfunded pensions. 

Now, we know that the City’s financial problems—the stated reason for selling the CWA—are the direct result of the Receiver and DCED’s own admitted failures to properly oversee and manage the City’s pensions.

On October 25, 2021, the Receiver confessed that, under the watch of the DCED’s Act 47 team, the City has been paying artificially inflated pension benefits for years. The situation was summarized during the meeting of the City of Chester Municipal Financial Recovery Advisory Committee (which met the day after the Receiver’s revelation) in the following bullet points:

• Yesterday, the Receiver issued an order to the City of Chester’s Pension Board to change the way that it has calculated pensions for police retirees hired before February 1, 2017, and to investigate and adjust the pension benefits for police retirees hired after January 1, 1988 and prior to February 1, 2017, who retired on a normal retirement. 

• Based on the Receiver team’s analysis, certain police retirees have been receiving a pension benefit greater than what they were entitled to under their collective bargaining agreements. This appears to have been happening for years. 

• Specifically, certain police retirees’ pensions were incorrectly calculated using the final pay over the retirees’ last 12 months of employment rather than the average of the last 3 years. The incorrect calculation allows police officers to artificially “spike” pensions.² 

DCED’s Kim Bracey acknowledged during the meeting that the DCED/Act 47 team totally missed this artificial spiking of benefits, stating that she was “stunned” by the revelation and that “we’ve often talked about, um, you know, the State’s involvement for years and, um, you know, I can’t say we caught this.”³

This stunning admission of failure on the part of the Receiver and DCED helps to explain the City’s financial troubles despite being subject to the oversight and management of the DCED/Act 47 team over many years. The Receiver has reported that, from 2013 through 2017, the City ran operating deficits, delayed payments to vendors, and failed to fund required pension and other obligations.⁴ The Receiver has further reported that “[t]he City has not made its full minimal municipal obligation (MMO) to the three pension plans since 2013, leading to a severely underfunded pension situation, particularly with the Police and Officers & Employees (non-uniform) plans.”⁵ As a result, in the Receiver’s own words, “[t]he City faced a severe situation in 2017 with $28 million in unpaid obligations, including past due pension minimum municipal obligations (MMOs), health insurance premium payments, vendor payments, and workers compensation premiums.”⁶ 

Earlier this year, the Pennsylvania Auditor General painted an even grimmer picture, releasing audits showing the City of Chester owes its pension plans alone more than $34 million in back payments.⁷ The compliance audits of the City’s pensions covering 2018 through 2019 found that the Police Pension Plan alone was owed $30.4 million in back contributions and interest dating to 2016.⁸ 

When the Auditor General issued its Audit Report this year, which covered the two years ending December 31, 2019, it noted that the Police Pension Plan’s “governing ordinance provides pension benefits to its police officers which are inconsistent with the Third Class City Code,” as previously disclosed in prior audit reports, and that the pension plan’s governing ordinance “contains benefit provisions that conflict with the collective bargaining agreement between the police officers and the city,” as previously disclosed in prior audit reports.⁹ However, the Auditor General failed to uncover what the Receiver revealed on October 25^th: that police retirees have been receiving pension benefits greater than what they were entitled to under their collective bargaining agreement. So, not only is (1) the City’s governing ordinance structured to provide benefits in an illegal fashion, and (2) the collective bargaining agreement structured to provide benefits in an illegal fashion, but we now know—not from the Auditor General, but through the Receiver—that the benefits, in fact, have been provided in a manner not tied to either of these documents. Apparently, they have simply been inflated and doled out without regard to any law or contract.

At the City’s October 26^th Committee meeting, the Receiver revealed the consequence of these failures in oversight and management: “As of the end of September 2021, the police pension plan has approximately $2.7 million or the equivalent of about five months of payments.”¹⁰

It is now clear that the Receiver and DCED have been seeking to use their own gross mismanagement of the City to justify Aqua’s quest to own the CWA. This error in the pension calculation went on for years.¹¹ Was it undetected? Or was it purposefully ignored by everyone at DCED and the Act 47 team? Regardless, in light of their complete failure to handle the task assigned to them, can anyone honestly believe they are competent to opine on an issue as consequential as selling the CWA? 

Make no mistake: once the public gives up their right to control their water, they will never get it back. With the stakes so high—and the incompetence of the DCED and its Receiver so apparent—why should anyone listen to the Receiver and DCED when they advocate the sale of the CWA to a for-profit corporation like Aqua?

Footnotes:

[1] See https://static1.squarespace.com/static/5f721f5325ced83982f1d194/t/5f7b580145b2d750b4c1debc/1601918983266/Chester-Receiver-Recovery-Plan_FINAL_20200820.pdf (section 6.3 at pg. 56).

[2] See “Presentation Overview” for Oct. 26, 2021 meeting, displayed beginning at 12:21, at: https://www.facebook.com/watch/live/?ref=watch_permalink&v=359815395895562 

[3] See Oct. 26, 2021 meeting at 1:04:31 and 1:06:53, at: https://www.facebook.com/watch/live/?ref=watch_permalink&v=359815395895562 

[4] Receiver’s Recovery Plan for City of Chester, at pg. 11: https://static1.squarespace.com/static/5f721f5325ced83982f1d194/t/5f7b580145b2d750b4c1debc/1601918983266/Chester-Receiver-Recovery-Plan_FINAL_20200820.pdf

[5] Receiver’s Recovery Plan for City of Chester, at pg. 11: https://dced.pa.gov/download/chestercity-receiver- recovery-plan-2020-08-20/?wpdmdl=103816&ind=1597957980469 (emphasis added).

[6] Receiver’s Recovery Plan for City of Chester, at pg. 17: https://dced.pa.gov/download/chestercity-receiver- recovery-plan-2020-08-20/?wpdmdl=103816&ind=1597957980469 (emphasis added). 

[7] Auditor General DeFoor: Audits Show City of Chester Owes More than $34 Million to its Pension Plans; Municipalities Warned Against Using Federal ARP Aid for Past Pension Debts, https://www.paauditor.gov/press-releases/auditor-general-defoor-audits-show-city-of-chester-owes-more-than-34-million-to-its-pension-plans-municipalities-warned-against-using-federal-arp-aid-for-past-pension-debts

[8] Auditor General DeFoor: Audits Show City of Chester Owes More than $34 Million to its Pension Plans; Municipalities Warned Against Using Federal ARP Aid for Past Pension Debts, https://www.paauditor.gov/press-releases/auditor-general-defoor-audits-show-city-of-chester-owes-more-than-34-million-to-its-pension-plans-municipalities-warned-against-using-federal-arp-aid-for-past-pension-debts (emphasis added).

[9] Audit Report for Two Years Ending December 31, 2019 at pgs. 3-8: https://www.paauditor.gov/Media/Default/Reports/ChesterCityOfPPP.pdf

[10] See “City’s True Pension Situation” for Oct. 26, 2021 meeting, displayed beginning at 17:44, at: https://www.facebook.com/watch/live/?ref=watch_permalink&v=359815395895562 

[11] While it is presently unclear how long the artificial spiking of pension benefits has gone on for, it was noted during the Committee meeting that the two-year Act 205 Actuarial Valuation Reports filed with the Auditor General from 2007-2013 listed the average of the last three years of employment as the basis for the benefit calculation, but “for some reason,” the 2015 Actuarial Valuation Report listed the final twelve months of employment as the calculation basis. See Oct. 26, 2021 meeting at 1:12:32, at: https://www.facebook.com/watch/live/?ref=watch_permalink&v=359815395895562