How a Bankrupt City’s Pension System Hit a Breaking Point




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.

Author(s): Liz Farmer

Publication Date: 24 Jan 2023

Publication Site: Route Fifty