Alan Davis, a former Chester, Pa., police captain injured in a shooting that left him with permanent damage to his right arm in 2016, was forced to retire on disability.

A decade later, he’s watching a constitutional fight that could determine whether the city can monetize water assets and exit bankruptcy—and, by extension, when retirees will receive overdue pension payments.

After the Pennsylvania Supreme Court ruled this year that Chester couldn’t unilaterally seize and sell its water authority, the city was left without a clear path out of the Chapter 9 case it began nearly four years ago. It’s …