The city of Chester, Pa., on Nov. 10 filed a chapter 9 municipal bankruptcy petition. Although it has operated under state supervision since 1995, the Philadelphia suburb has not been able to address its large employee retirement liabilities, according to a Cato.org blog post. In recent years, municipal bankruptcy filings have been rare. Only three cities invoked chapter 9 between 2014 and 2021: Hillview, Ky., in 2015; Perla, Ark., in 2019; and Fairfield, Ala., in 2020. Although the large allocations of federal funds to local governments under the American Rescue Plan Act (ARPA) may have been expected to ward off bankruptcies for a few years, Chester’s situation is especially dire. The city has received $30 million under ARPA, but this amount pales compared to the $430 million in liabilities reported on its most recent audited financial report, dated Dec. 31, 2018. Further, the city has dedicated over $1.5 million of the ARPA funds to premium pay and other forms of employee compensation. The fact that Chester has yet to publish financial statements for years beyond 2018 is also problematic because it deprives decisionmakers, creditors, analysts and other interested parties of a current snapshot of Chester’s financial condition. The city’s tardy disclosure also violates the federal Single Audit Act as interpreted by 2 CFR 200.512, which requires a local government receiving substantial federal funding to produce an audit within nine months of its fiscal year end. Of the city’s $430 million in reported liabilities as of 2018, the lion’s share is unfunded pension and retiree health benefits. The city’s three pension systems reported a total of $130 million in Net Pension Liabilities. According to the Pennsylvania Auditor General, the systems had an overall funded ratio of 47 percent in 2021. The Auditor designated Chester’s pensions as severely underfunded, the only city it placed in this category.
