Chester’s stunning economic decline: How it went from a factory boom town to bankruptcy
Only 31 of the nation's 35,000 municipalities have filed for bankruptcy. As has been the case elsewhere, pensions are a major issue.
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In an era when they were making everything from cars to ships to anchors to toilet tissue, armies of workers, armed with thermos bottles and sandwiches wrapped in wax paper, marched to the daily rhythms of factory whistles to their jobs along the Delaware River in Chester.
During World War II, the shipyard alone employed 36,000, greater than the entire population of the city today.
These days, what once was the venue for 28 ship bays is the site of a casino and a large piece of the riverfront is host to a waste-treatment industrial campus.
After seven decades of stunning economic decline, Chester has become a rarity among U.S. cities: It’s in bankruptcy, one of only 31 of the nation’s 38,000 municipalities to enter that state in the 85 years since Congress offered the option as a last-resort lifeline.
The city is broke, and — according to the Pennsylvania receiver appointed to oversee its finances when Gov. Tom Wolf declared a fiscal emergency in Chester in 2020, and who filed the bankruptcy petition on the city’s behalf last month — broken.
Mayor Thaddeus Kirkland takes strong exception to that characterization. “I think it’s overstated,” he said.
Counters Vijay Kapoor, receiver Michael T. Doweary’s chief of staff: “There’s been a lot of hyperbole about what might happen with distressed cities. In Chester it’s actually happening.”
Chester’s immediate issue is a staggering pension underfunding crisis that municipal-finance experts describe as among the worst in the nation.
» READ MORE: The city lost $400,000 in a phishing scam
The receiver’s office will ask a federal bankruptcy judge on Thursday to appoint a mediator to negotiate with the city’s creditors. A separate Commonwealth Court hearing next week will address the larger questions of the receiver’s powers and whether Chester officials can continue running the city.
Chester’s financial challenges are familiar to postindustrial cities — the loss of manufacturing jobs, population decline, crime, and a diminished tax base exacerbated by its high poverty rate and proliferation of low-income rental housing.
“Chester is not unique,” said Swarthmore College economics professor John P. Caskey. “it’s just more extreme.”
However the bankruptcy shakes out, Chesterites will endure fallout if the city fails to restore fiscal order, advises Liz Farmer, a municipal-finance specialist. “Those who are left are going to end up paying more and more for a municipality that is heading in the wrong direction,” she said.
The road to bankruptcy
The receiver’s office said that with pension underfunding, the city’s deficit, $46.5 million, rivals the size of its budget, about $55 million. Hypotheses of how Chester ended up in its fiscal straits far exceed proposed solutions.
The town was a marginal player in the American Revolution but became a force in the Industrial Revolution, evolving into one of the nation’s most important manufacturing centers. In addition to Sun Ship, factories located in or near Chester included Sun Oil Co., Scott Paper Co., the Ford Motor Co., Baldwin Locomotive, and Congoleum-Nairn.
» READ MORE: William Penn once envisioned Chester as Philadelphia
The city’s fortunes began a downward turn after World War II. During the last 70 years:
1950s: After its population peaked at 66,000 in 1950, signs of decline appeared among downtown businesses. The number of apparel and general merchandise stores dropped from 119 to 68 between 1952 to 1960, according to Chester Planning Commission documents. The white exodus to the suburbs is evident as the white population declined 19% by 1960, while the Black population increased 53%.
1960s: In a tumultuous decade marked by racial turmoil and protests against the city’s “de facto segregation,” the labor base remained strong. About half of the 26,500 people who worked in the city had manufacturing jobs. A city-commissioned report predicted, “The city’s population and labor force is expected to remain virtually at present levels in 1970 and 1980.”
1970s: That forecast didn’t fare too well. By 1980 unemployment had risen to 12.2%, double the rate of nearby communities. The population fell 12%, and the number of employed residents plummeted 25%, census figures show. Part of that loss was due to a devastating flood near the business district in 1971.
1980s: By the end of the decade, Chester had 18% fewer residents, and the numbers of jobs decreased 20%, a financial hit in a town that relies heavily on an earned-income tax. The city’s per-capita income in 1990, about $9,000, was half of the Delaware County-wide average.
1990s: Over bitter community opposition, the city allows Westinghouse to locate one of the country’s largest incinerators in the city in 1992. Three years later, after six consecutive years of budget deficits, Chester becomes a “distressed city” under a Pennsylvania law aimed at uprighting towns struggling with debt.
21st century: In 2007, at the site of the erstwhile shipyard, Harrah’s casino opens. The casino diverted at least $10 million of its revenues annually to the city, but Chester continued to roll up deficits. With COVID-19 issues exacerbating the city’s fiscal stress, it is placed in receivership, and on July 1, 2020, Doweary is appointed receiver. Doweary learned in October that the city lost $400,000 in a phishing scam — four months earlier. On Nov. 10, he files for bankruptcy on the city’s behalf.
» READ MORE: Some Chester residents have wage a long battle against the incinerator
Whose fault?
The receiver blames the Kirkland administration for its questionable accounting practices, obstinance, and intransigence.
Kirkland objects. He says he has “tried to correct” problems he inherited.
Farmer, a consultant with the municipal finance firm Funkhouser & Associates, suggested Kirkland has a point. Passing along debts and associated problems to the future administrations is a well-established tradition among fiscally troubled cities.
Turning the tables, Kirkland blamed the state, which had overseen the city’s finances for 21 years before he assumed office in January 2016. He asked: “Nobody could see a leak in the boat?”
Kapoor said he couldn’t speak to what happened before the city went into receivership in 2020. “The receiver’s job is to fix Chester’s problems, not to assign blame,” he said. He said getting accurate financial information was a struggle. “If the prior state teams, who had less power than the receiver, have experienced anything like we have, I can see why they weren’t able to turn Chester around.”
Solutions
Doweary holds that the city will have to renegotiate pension and health-benefit agreements. And to replenish pension shortfalls, the city must find some way to draw revenue from the Chester Water Authority, a source of bitter and tangled conflict.
The City Council has voted to sell the Chester Water Authority to Aqua — now a division of Essential Utilities Co. — which has been fighting to acquire it for years, for $410 million.
» READ MORE: The city's attempts to sell the Chester Water Authority have set off a flood of litigation
Authority solicitor Frank Catania argued that the city doesn’t own the authority and questions who would be entitled to the proceeds from any sale. Kirkland pointed to a court ruling affirming Chester’s ownership; Catania has challenged it.
Catania contended that Chester is trying to regionalize its fiscal woes, since most of the authority’s customers are outside the city. The authority has mounted an aggressive campaign against the sale.
Doweary said the city must find a way to “monetize” the authority, none of whose revenues currently wind up in Chester’s treasury. Aqua bills the sale as the solution to Chester’s pension crisis.
Doweary also said cuts in retiree benefits and scaled-back health plans are all but inevitable.
“This is insane,” said Les Neri, former head of the Pennsylvania FOP, who represents the union’s interests in the bankruptcy proceedings. He said that retired municipal workers have planned for their negotiated retirement benefits.
“They can’t go back,” he said.
”The anxiety through the roof,” said Jonathan Ross, who has been a Chester police officer for 16 years and is head of the local FOP. “How are we going to retain cops here?”
Doweary says his bankruptcy filing was the city’s only hope for righting its fiscal ship. Chester Councilperson Stefan Roots is an exception in city government, and agrees. He said it would force creditors to the table to negotiate payments.
“I see the hope,” said Zulene Mayfield, founder of Chester Residents Concerned for Quality Living, adding that some welcome the receiver’s actions. “The community and the residents are resilient. ...
“Bankruptcy does not mean the end of life. It’s just a pause. It’s a reset button.”