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New York City’s public school shutdown and the prospect of a crippled mass transit agency brings a new sense of vulnerability to a city that had been making a comeback from its dark days as the world’s COVID-19 epicenter, Bloomberg News reported. New York Governor Andrew Cuomo said that the city’s rising test rate could force indoor dining, gyms and other “high-risk” nonessential businesses to close. The moves threaten the city’s economy just as it was showing signs of improvement. Before COVID-19 struck, the city’s unemployment rate was 3.4 percent. New York, the early center of the U.S. outbreak, saw the rate touch a high of 20.3 percent in June. By September, with the reopening of schools and many businesses, it had partly recovered to 14.1 percent. Shares of real estate firms, lenders and other New York City-linked companies accelerated declines after Mayor Bill de Blasio’s schools announcement. It comes as Wall Street’s biggest banks may scale back their workforce in 2021: Goldman Sachs Group Inc. plans to cut its headcount for the second time in just three months. For the parents of hundreds of thousands of students, the crisis was immediate: They must find alternative child-care arrangements or adjust their work schedules by today, after the mayor said the city had reached a 3 percent positivity rate that triggered the halt of at least two weeks to in-class instruction. Workers also face the prospect of longer commutes, after New York’s Metropolitan Transportation Authority said it will have to slash subways and buses by 40 percent and chop commuter rail service by half if aid doesn’t come from the government.

An oversight panel responsible for monitoring $500 billion in federal aid has become stymied by disagreements about a program to prop up struggling state and local governments and has failed to send a legally mandated report to Congress for weeks, the New York Times reported. The standoff over the Municipal Lending Facility, which is operated by the Federal Reserve and supported by the Treasury Department, comes as talks between Congress and the Trump administration over additional stimulus have stalled. Those talks have run aground largely because lawmakers disagree about whether the federal government ought to provide more money to states and municipalities, with Democrats arguing for it and Republicans against it. The $2.2 trillion stimulus law passed in March created a Congressional Oversight Commission, which includes two Republicans and two Democrats, to keep tabs on some of that spending. By law, it must issue a report to Congress each month. While the passage of the stimulus legislation was overwhelmingly bipartisan, the oversight commission’s work has become politically charged. A Democrat on the commission recently accused his Republican colleagues of stonewalling its work. The dispute centers on whether the Fed’s lending program could be doing more to help lower borrowing costs for states, cities and other local governments. “The commission has a legal obligation to issue monthly reports,” said Bharat Ramamurti, the Democratic commissioner and a former aide to Sen. Elizabeth Warren (D-Mass.). The Fed announced in early April that it would set up a program to buy municipal debt using its emergency lending powers, and the Treasury Department agreed to insure the program against defaults. The central bank hired Kent Hiteshew, an expert on municipal debt, to help devise the program, which is run on a day-to-day basis by the Federal Reserve Bank of New York. The program was set up as a last-ditch option for local governments that could not borrow money as they usually do by selling bonds. While it has been expanded several times to make more borrowers eligible, the program offers loans at relatively high interest rates, making it an expensive option for all but the hardest-hit states and localities. So far, only Illinois and the Metropolitan Transportation Authority, which operates New York City’s subway system, have used it, borrowing a total of $1.65 billion.

Two Illinois communities are getting a lesson in the dangers of relying too heavily on one taxpayer as Exelon Corp. prepares to close a pair of nuclear power stations next year, eliminating thousands of well-paying jobs and eviscerating local budgets, Bloomberg News reported. Illinois’s largest electric utility announced in August it will close a money-losing plant near Byron next September and its Dresden generating station a hundred miles away two months later. The company blames federal regulators for changing rules and making nuclear power less competitive in the biggest U.S. regional power market, which stretches across 13 states. Illinois Governor J.B. Pritzker has indicated he’s not going to let one company that’s looking for more subsidies dictate energy policy in his state. The shutdowns underscore the deep financial risk to small communities with economies tethered to single employers or industries, a dependence that’s likely to get increasingly perilous nationwide as the deepest recession since World War II drives a wave of corporate bankruptcies. Carlton, Wis., lost almost 70 percent of its revenue when a nearby nuclear plant was shut in 2013. The Byron Community Unit School District 226, about 96 miles (154 kilometers) west of Chicago, relies on the local Exelon plant for about three fourths of its property taxes. Revenue from the stations also funds libraries, fire districts and forest preserves. “It would be devastating,” said Buster Barton, superintendent of the school district, where roughly a quarter of the almost 1,500 students are low income. Exelon and other nuclear operators have shut at least 11 U.S. reactors since 2013 and pressed legislatures for subsidies to keep others running. New York, New Jersey and Connecticut implemented subsidies to keep stations open. Exelon closed its Three Mile Island facility in Pennsylvania last year after a proposed bailout bill foundered.

The U.S. Virgin Islands has called off efforts to sell its rum-tax collections to bondholders, extending the struggling territory’s long banishment from credit markets, WSJ Pro Bankruptcy reported. Gov. Albert Bryan said that the territory had suspended a proposal to sell nearly $1 billion in securitization bonds, dashing for now his ambitions to generate some short-term fiscal relief for the cash-strapped government. The Virgin Islands had offered a suite of safeguards to entice investors to lend, promising them a stronger claim on rum-tax revenues and legal protections from a potential government bankruptcy. Market conditions for municipal borrowers could hardly be frothier, offering the territory a golden opportunity to refinance a big chunk of public debt at lower interest rates. Gov. Bryan blamed a lawsuit filed by public retirees and certain legislative amendments for impeding the offering ahead of a Tuesday deadline. Pulling the deal — a relative rarity in the municipal market — marks another financial setback for the Virgin Islands, which faces challenges more severe in some respects than its larger Caribbean neighbor Puerto Rico. “Buyers likely just wanted more yield than the transaction could tolerate and still be effective,” said Matt Fabian, partner at Municipal Market Analytics. The offering was structured to push back $255 million in scheduled interest payments over the next three years into the 2030s, freeing up funds for elected leaders to spend on other pressing needs. Gov. Bryan had suggested using the savings to shore up the territory’s public pension system, one of the worst-funded in the U.S. Without a cash infusion, the territory’s Government Employees’ Retirement System has projected it will have to slash benefits for roughly 8,700 retirees by more than half as early as 2023. Like Puerto Rico, the Virgin islands is also contending with outdated infrastructure, a deeply indebted power monopoly and lingering aftereffects of the devastating 2017 hurricane season. Puerto Rico has been under bankruptcy protection since 2017 and isn’t paying much of its debt. Bankruptcy isn’t an option under U.S. law for the Virgin Islands, which has rejected suggestions of defaulting on its debt or seeking concessions from creditors.

The U.S. Virgin Islands has been locked out of America’s bond market for years as it wrestles with the same economic forces that drove its bigger neighbor, Puerto Rico, into financial ruin, Bloomberg News reported. Now, with a credit rating cut deeply into junk and under pressure to raise cash as a tourism drought stings its economy, the U.S. territory is seeking to sell nearly $1 billion in debt this month by extending an unusual promise to investors: the bonds will be repaid even if it goes bankrupt. The step, pitched to the island by investment bank Ramirez & Co. and a New York advisory firm, is similar to a tactic used by Puerto Rico and Chicago to pledge a big chunk of tax collections directly to public corporations that pay off debt backed by the revenue. That was intended to assure investors that the funds wouldn’t be diverted even if the financial strains worsened, reducing the risk to bondholders and driving down their borrowing costs. In the case of the Virgin Islands, it’s pledging the nearly $250 million a year it receives each year from the U.S. government, the territory’s cut of the excise taxes on rum it ships to the mainland. The bond offering, set to be priced as soon as Thursday, will provide a major test of the $3.9 trillion municipal bond market, where investors have continued to snap up riskier securities as benchmark yields hold near the lowest in decades. That’s allowed some borrowers hard hit by the nation’s economic collapse to easily raise cash. The Virgin Islands’ bonds are using a so-called bankruptcy remote structure. That involves steering the money to a newly created corporation and providing a legal pledge that the cash won’t be siphoned off even if the government is forced to restructure its debts in federal bankruptcy court. Bondholders have reason for skepticism. Lisa Washburn, a managing director for Municipal Market Analytics, said such a structure is not necessarily “bankruptcy proof,” though it would likely give investors a better negotiating position. Even though Puerto Rico’s bonds securitized by its sales taxes weren’t walled off from bankruptcy, owners recouped as much as 93 cents on the dollar, more than other creditors stand to receive.

Chicago is looking to the $3.9 trillion municipal-bond market for options to close its ballooning budget deficits, according to Chief Financial Officer Jennie Huang Bennett, Bloomberg News reported. Options on the table include selling pension obligation bonds, as well as refinancing general obligation and sales tax-backed bonds, Bennett said in a telephone interview on Wednesday. The refinancing of a yet-to-be-determined amount of debt is targeted for the fourth quarter, she said, adding it could save as much as $100 million in the 2020 budget. Mayor Lori Lightfoot on Monday projected that the 2020 deficit in the corporate fund, which accounts for most services the city offers, would expand to almost $800 million from a June projection of $700 million. The gap would reach $1.2 billion in 2021 with revenue losses connected to the COVID-19 pandemic making up 65 percent of the hole. A complete budget proposal will be released in October.

Chicago faces a 2021 budget deficit of $1.2 billion as the coronavirus pandemic decimates the city’s revenue with businesses shut down due to social distancing while recent unrest hurt reopening efforts, Bloomberg News reported. Next year’s projected gap comes on top of a 2020 deficit of nearly $800 million for its corporate fund, which accounts for many of the services the city provides, Chicago Mayor Lori Lightfoot said yesterday. That’s up from a June forecast of $700 million because rising virus cases have hampered the city’s recovery. Lightfoot called for additional federal stimulus for states and cities and stressed in prepared remarks that Chicago is struggling with “a catastrophic collapse of our local and national economy.” Revenue losses spurred by the pandemic are the biggest factor hobbling city finances in 2020 and 2021, she said. To make up for the gaps this year and next, Lightfoot’s administration will likely need to cut headcount, control spending, refinance debt, borrow and ask for more federal aid. The city has not ruled out raising property taxes and is also looking at a personal property levy on computer leases, which may help raise money as telework expands.

New York City faces a $9 billion deficit over the next two years, high levels of unemployment and the prospect of laying off 22,000 government workers if new revenue or savings aren’t found in the coming weeks, the Wall Street Journal reported. The growing economic crisis, brought on by the coronavirus pandemic, has alarmed New York Gov. Andrew Cuomo (D) so much that he recently asserted greater control over a panel overseeing the finances of the nation’s largest city. Earlier this summer, Cuomo appointed three close allies to the New York State Financial Control Board. The board played a prominent role during the city’s last fiscal crisis in the 1970s, when it wielded broad legal power over the city’s budget and made difficult spending decisions. Cuomo has grown concerned about the direction of the city budget, state Budget Director Robert Mujica said in an interview. The city had to cut billions to balance its latest budget, but it still has major funding challenges. Local officials have called on Congress to approve a relief package for the city, but talks about a bill are ongoing. As a backstop, New York City Mayor Bill de Blasio asked state lawmakers for authorization to borrow up to $5 billion to fund operating costs. Democrats who control the state Senate objected, and the request hasn’t been granted.