When States Take Over Financially Troubled Local Governments

Link: https://www.route-fifty.com/finance/2023/02/state-takeover-city-government-chester-pennsylvania-bankruptcy/382677/


A number of states have programs in which they actively monitor municipal finances and roughly 20 have emergency manager laws allowing for direct intervention. People have long debated how effective these oversight programs are at generating a real recovery and what the right level of intervention even is. Duly elected city officials don’t like being told what to do by state overseers. States on the other hand, typically want troubled cities to just buckle down and take their advice—even if it’s tough medicine.

So while the whole point of these programs is to avoid or mitigate extreme distress, they can also create or exacerbate tension between cities and states along the way. 

By all accounts, Chester’s approach to being placed in Pennsylvania’s municipal distress program in 1995 was to just ignore the state’s advice. Fred Reddig, a retired state official who has coordinated recovery plans for a number of distressed municipalities, worked on Chester’s case from 1995 to the early 2000s. He recalls that during that time, it was difficult to compel local officials to follow any of the state’s recommendations and that relations were tense. 


Rob DiAdamo, a lecturer at Boston University’s law school who teaches a class on state and local governance, noted many communities that end up under some form of state oversight had structural economic problems long before the state intervened.

“It may be more effective for the state to be looking at how to bring opportunities back to these communities than wait for the crisis and have people argue about the best way to address it,” he said. “It’s like waiting for the patient to have a heart attack and discussing treatment options when the crisis could have potentially been avoided by first encouraging healthier eating habits and exercise.”

Author(s): Liz Farmer

Publication Date: 7 Feb 2023

Publication Site: Route Fifty

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

Link: https://www.route-fifty.com/finance/2023/01/chester-pennsylvania-municipal-chapter-9-bankruptcy/382142/



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

As Pension Goes Broke, Bankruptcy Haunts City Near Philadelphia

Link: https://news.bloomberglaw.com/bankruptcy-law/as-pension-goes-broke-bankruptcy-haunts-city-near-philadelphia


Decade after decade, Chester, Pennsylvania, has fallen deeper and deeper into a downward financial spiral.

As the city’s population dwindled to half its mid-century peak, shuttered factories near the banks of the Delaware River were replaced by a prison and one of the nation’s largest trash incinerators. A Major League Soccer stadium and casino did little to turn around the predominantly Black city just outside Philadelphia, where 30% of its 33,000 residents live below the poverty line. Debt piled up. The government struggled to balance the books.

Now, with its police pension set to run out of cash in months, a state-appointed receiver is considering a last resort that cities rarely take: filing for bankruptcy.


In the years after the housing-market crash, three California cities, Detroit and Puerto Rico all went bankrupt, in large part because of retirement-fund debts. Such pensions are now being tested again, with the S&P 500 Index tumbling over 20% this year and bonds pummeled by the worst losses in decades.


Michael Doweary, who was appointed receiver of the city in 2020, is exploring options such as eliminating retiree health care, cutting the city’s costs for active employees’ medical benefits and reducing the city’s pension and debt-service costs. 

But that’s virtually certain to draw resistance from employees, who would need to approve such changes. In February, Pennsylvania’s Department of Community and Economic Development gave Doweary the power to seek bankruptcy protection for Chester if such steps fall through. 

“The answer is not to go to people and say we promised you if you work here for 25 years we’re going to give you post-retirement medical benefits, and then take it back,” said Les Neri, a former president of the Pennsylvania Fraternal Order of Police who is currently working with Chester’s officers. “At least current officers can make a decision to accept it and stay, or reject it and leave.”

Author(s): Hadriana Lowenkron

Publication Date: 17 Oct 2022

Publication Site: Bloomberg Law

This Local Pennsylvania Police Pension Fund Is About to Run Out of Benefits. How Did That Happen?



But of all the struggling pension funds in Pennsylvania, the pension system in the city of Chester was shown to be the most underfunded municipal public pension plan in the entire state in 2019. And now, that situation has gone from bad to worse.

Reports say the pension will run out of money in less than four months, according to Philadelphia’s PBS station, WHYY. One of the primary reasons for this situation appears to date back to 2009, when the pension board adjusted the pension calculation procedure. These adjustments seem to have made it easier for some police officers to spike their pensions.

Under the 2009 change, police officer pensions in Chester were calculated using the salary of the final year of service, which may have encouraged some officers to work overtime as much as possible in their final year in order to inflate their pensions, according to the state’s appointed receiver. In October 2021, this rule was changed so that calculations will now be based upon the last three years of service. 

This one-year policy, combined with the practice of spiking among approximately 80 police officers, appears to be the cause of the pension system’s lack of funding. Officials are hoping to recoup some of the overpayments to retirees, and they are expecting future payments to be reduced significantly.  

Author(s): Anna Gordon

Publication Date: 10 Jan 2022

Publication Site: ai-CIO