Bankrupt Chester’s rain-tax board got over $800,000 in illegal pay, receiver says

In the bankrupt City of Chester, where more than 25% of households live in poverty, residents have been overly generous to one group, according to the state-appointed receiver.

That would be the members of the Stormwater Authority of Chester board, which administers the so-called rain tax whose rates appear to rank among the highest in the country.

The receiver overseeing the city’s rare bankruptcy — which is about to enter a pivotal phase — alleges that the $800,000 in payments the authority has made to its board members since 2017 were illegal. That includes three city officials who resigned from the board last year but have remained on the payroll.

Horace Strand, who had run the authority from its inception in 2016 until he stepped down in December, took umbrage at the accusation. “I think it’s ridiculous,” he said.

The receiver’s office asked Commonwealth Court on Tuesday to order the authority to cease paying board members immediately. Michael Doweary, who will retire as receiver on June 30, said some board members were “double-dipping,” and he did not rule out eventually seeking repayments.

The motion came on the eve of a state Supreme Court hearing on the city’s plan to sell water assets in its efforts to emerge from bankruptcy and avoid drastic cuts in pension and health benefits.

But Vijay Kapoor, the chief of staff who will become receiver on July 1, said the action Tuesday was unrelated to Wednesday’s proceedings. Rather, he noted it comes a year after the office asked U.S. Bankruptcy Court to order the authority to detail how it was spending its money.

The Commonwealth Court motion did not address the question of whether the recipients had earned their pay, but said the payments were illegal because the city government never authorized them.

It also said that while the authority’s charter called for five members, the board expanded to nine without authorization. Most of the board members were paid about $13,000 a year, with the chair earning about $25,000.

In a presentation at Tuesday’s bankruptcy committee meeting, Kapoor said that the payments to council members were clearly prohibited under the city charter.

Strand, who has had a combative relationship with Doweary and Kapoor, said the authority has done “great work” and has defended his stewardship. He said last year that he had overseen $50 million in flood-control projects without “malfeasance.”

But Kapoor countered that without financial details, it was “all but impossible” for Chester residents “to know what they are getting for their money.”

The compensation issue aside, the authority’s future is unclear, and it may be tethered to what the state Supreme Court ultimately will decide.

The receiver’s office wants to create a regional water entity by bundling the stormwater authority; the Delaware County Regional Water Quality Control Authority, a wastewater-treatment facility that serves 46 towns in Delaware and Chester Counties; and the Chester Water Authority.

The water authority vigorously contests the receiver’s plan on the ground that the city can‘t sell what it doesn‘t own.

The receiver holds that in 2012 the GOP-majority state legislature wrested control of the water authority from Chester in a stealth bill passed without debate. The authority board was expanded to nine members, with only three from Chester.

Chester County Republican State Rep. John Lawrence said the move was aimed at better representing customers. Water authority attorney Frank Catania has argued that 80% of the 200,000 people who rely on the authority for drinking water live outside the city.

The receiver says that the infrastructure providing the water from the Octoraro Reservoir in Chester County indisputably belongs to the City of Chester, while not an ounce of the revenue has gone into the city treasury.

At stake is the future of millions of dollars in pension and other retirement benefits, and the health of future city budgets.

Chester’s population of 34,000 is about half what it was in 1950. Its industrial base is history, and the overall tax base severely eroded.

It has the second-highest wage tax in the state, and relies on a casino and an incinerator for about 20% of its $65 million annual budget.

The city has been in distressed status since 1995, in receivership since 2020, and in bankruptcy since November 2022. Of the nation‘s 35,000 municipalities, Chester is one of only about 30 that have filed for bankruptcy.

Sale of water assets likely would be a short-term windfall and a reliable revenue stream. Aqua Pennsylvania offered over $400 million for the Chester Water Authority three years ago.

Doweary nixed the sale and has insisted that the assets stay in “public hands,” lest rates should spike.

The Supreme Court will hear arguments Wednesday, but it is not known when the court might hand down a decision.