The small city of Fairfield, Ala., filed for chapter 9 protection yesterday, a rare step by a municipality that comes as local budgets across the nation are upended by the coronavirus pandemic, Bloomberg News reported. The city’s filing in the U.S. Bankruptcy Court for the Northern District of Alabama listed assets and liabilities between $1 and $10 million. A resolution signed by Mayor Eddie J. Penny included with the bankruptcy filing noted that Fairfield had “exhausted its options” after years of working to shore up its finances. “The city has faced a substantial decline in revenues in recent years due to economic forces beyond its control,” the resolution says. It was unclear whether the shutdowns intended to mitigate the spread of the coronavirus in the U.S. worsened the city’s financial problems. Located about eight miles from Birmingham, Fairfield is a mostly African-American community with about 11,000 residents. About one-fifth live in poverty, according to the U.S. Census Bureau. The city is located in Jefferson County, which went bankrupt in 2011.
As the Democratic-run House of Representatives approved its $3 trillion coronavirus relief bill on Friday night, analysts are saying it’s likely that President Donald Trump will end up signing a new aid package into law next month or later following extensive negotiations, MarketWatch.com reported. The House’s 1,815-page bill, dubbed the HEROES Act, calls for almost $1 trillion in additional aid for state and local governments, a second round of direct payments to American households and $200 billion for “hazard pay” for essential workers. The measure also incorporates a cannabis-banking bill, and it would roll back a cap on state and local tax (SALT) deductions and make changes to the federal government’s new Paycheck Protection Program for small businesses, such as eliminating a rule that requires that 75 percent of a PPP loan’s proceeds go toward payroll expenses. “We expect that negotiations over a finalized version of the Phase 4 bill will take at least until the end of May,” said Height Capital Markets analysts in a note. “We expect a final package to come together successfully but note that passage will likely be delayed into June.” Henrietta Treyz, director of economic policy at Veda Partners, said in a note that the next package is likely to have a final price tag of between $1 trillion and $1.5 trillion, and “it will now come in June at the earliest.” Senate Majority Leader Mitch McConnell has repeatedly stressed moving slowly on the next package and often criticized the House Democrats’ approach. But the White House probably would support another round of direct payments, according to a CNBC report on Thursday citing two Trump administration officials. The next package would follow last month’s $484 billion measure that has been described as a “Phase 3.5” response to the coronavirus crisis. It also comes after the $2.2 trillion CARES Act that passed in late March, a mid-March package costing an estimated $192 billion, and an $8 billion measure that was finalized in early March.
The owners of restaurants, bars and other establishments in Illinois that open too soon can now be charged with a Class A misdemeanor under a measure enacted by the governor, the New York Times reported. Gov. J.B. Pritzker (D) filed an emergency rule on Friday that his office said was intended to prevent the spread of the coronavirus as a growing number of businesses defy stay-at-home orders across the country. In Illinois, where a stay-at-home order remains in effect through May, a Class A misdemeanor carries a punishment of up to a year in jail and up to a $2,500 fine. The rule also applies to businesses such as barbershops and gyms, according to Pritzker’s office. As of Sunday, 4,177 people had died from Covid-19 in Illinois, according to state health officials, and there have been 94,191 confirmed cases of the virus.
The White House has threatened to veto a $3 trillion coronavirus relief bill that House Democrats hope to bring up for a vote on Friday, UPI.com reported. Known as the HEROES Act, the legislation Democrats unveiled on Tuesday aims to funnel money to state and local governments to address issues that were not included in previous measures and increase funding for the U.S. Postal Service. Since it was announced, Republicans have balked at the package, deriding it as a partisan move filled with expenses unrelated to the coronavirus pandemic, a notion the White House repeated Thursday in its letter to the House of Representatives. "This proposed legislation, however, is more concerned with delivering on longstanding partisan and ideological wishlists than with enhancing the ability of our nation to deal with the public health and economic challenges we face," the Trump administration said. "If H.R. 6800 were presented to the president, his advisors would recommend that he veto the bill." In late March, President Donald Trump signed a more than $2 trillion COVID-19 bailout package, and Senate majority leader Mitch McConnell, R-Ky., said instead of working on a new bill focus should now be on maximizing the effects of the first package. "We now have a debt the size of our economy," McConnell said. "So I've said, and the president has said as well, that we have to take a pause here and take a look at what we've done."
Speaker Nancy Pelosi (D-Calif.) and House Democrats are planning to move ahead with a Friday vote on a $3 trillion package to respond to the coronavirus crisis, Politico reported. President Donald Trump and Senate Republicans also object to the Democratic proposal, saying that there hasn’t been enough time since the $2 trillion CARES Act passed to determine whether new legislation is needed or necessary. Democrats released their sprawling package, known as the Heroes Act, on Tuesday afternoon. The legislation includes $875 billion for cash for state and local governments, which Democratic leaders say is the centerpiece of this coronavirus relief package. It also includes $20 billion each for tribal nations and for U.S. territories. The measure also includes provisions to support multi-employer pensions. The legislation also includes a slew of liberal priorities left out of previous bills, including $75 billion for mortgage relief and $100 billion in assistance for renters, $25 billion for the U.S. Postal Service and $3.6 billion to shore up elections. The bill goes further than previous bills in other ways, too: It would include another round of $1,200 checks for adults making up to $75,000. Under this bill, kids would receive the same amount, instead of $500. It would make $10 billion available to small businesses that haven’t received funds from the Paycheck Protection Program. Republicans dismissed the bill even before the text was public, calling it a Democratic wishlist that would not move in the GOP-controlled Senate. Read more.
In related news, Congress is looking to help struggling local newspapers, TV and radio stations qualify for federal coronavirus aid, the Wall Street Journal reported. The coming coronavirus legislation expected to be introduced in the House as soon as this week will include a provision to expand newspapers’ and broadcasters’ eligibility for forgivable small business loans, the people said. Meanwhile, Sens. Maria Cantwell (D-Wash.) and Amy Klobuchar (D-Minn.) are working to find ways to move the proposal forward in the Republican-controlled Senate. “The Covid-19 crisis has shown us how essential local news and information is to us,” Cantwell said. “Now is not the time to cut newsroom jobs critical to giving the public regional data and news on Covid-19 outbreaks.” Many local news outlets haven’t been able to apply for the Small Business Administration’s forgivable Paycheck Protection Program loans because of “affiliation rules” that force them to be measured by the size of their parent companies. The new provision to be considered by Congress would waive such rules when it comes to local news outlets. Read more. (Subscription required.)
Sen. Bob Menendez (D-N.J.) said that two or three Republican senators are “just about committed” to supporting a $500 billion stimulus bill that would send money to states and counties hammered by the economic impact of the coronavirus pandemic, Bloomberg News reported. Menendez, who is cosponsoring the bill with Sen. Bill Cassidy (R-La.), said that the additional GOP senators would be ready to commit to the proposal by the end of this week. And there’s “a lot of momentum” in the House of Representatives, Menendez said. New York Governor Andrew Cuomo (D-N.Y.), speaking at his own briefing, said he was optimistic that the House would vote this week.
With tax revenue crashing and expenditures soaring, states face severe financial problems. Illinois has already requested a federal bailout of its pension system, and last month Senate Majority Leader Mitch McConnell suggested that Congress should enact legislation allowing states to go bankrupt, according to a Wall Street Journal commentary. Allowing states to declare bankruptcy would fundamentally contradict the federal structure of our constitution, according to the commentary. Federal bankruptcy protection would greatly constrain a state’s sovereignty, or power to govern itself, which the Constitution guarantees. Fortunately, there is a better path for cash-strapped states: more borrowing. States can put investors at ease by waiving their claim to sovereign immunity in the contract under which the bonds are issued, according to the commentary. States routinely give such waivers, and courts enforce them. They can agree that the contract under which the bonds are issued will be subject to the law of another jurisdiction and that they themselves may be sued in courts of that jurisdiction. This helps attract investors, because just as creditors generally don’t trust a court in a country with poor credit to enforce the terms of a bond contract against that country, according to the commentary. States could also reduce the interest rates they would otherwise pay by providing bondholders with credit enhancements. Read more. (Subscription required.)
*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.
Illinois delayed the planned auction of $1.2 billion of short-term debt as it faces record-high penalties to borrow on Wall Street because of the deep financial hit the state is being dealt by the coronavirus shutdown, Bloomberg News reported. The state had planned to sell about $1.2 billion of short-term tax-exempt general-obligation debt today, its first borrowing during the pandemic, to ease the revenue shortfall in the last two months of the fiscal year. The deal has been moved to “day-to-day status,” meaning it will be sold if market conditions warrant. With the economic slowdown raising the risk of Illinois having its bonds cut to junk, investors have driven the yields on its two-year debt to nearly 4 percentage points above benchmark, far exceeding every other U.S. state.
California has become the first state to borrow money from the federal government so it can continue paying out rising claims for unemployment benefits during the coronavirus pandemic, the Wall Street Journal reported. The Golden State borrowed $348 million in federal funds after receiving approval to tap up to $10 billion for this purpose through the end of July, a Treasury Department spokesman said yesterday. The U.S. government also has approved loans of up to $12.6 billion for Illinois and up to $1.1 billion for Connecticut through the end of July to replenish state unemployment-insurance funds, though the two states hadn’t yet started borrowing by the end of April. California was the only state to have accessed the program so far in the current downturn, the Treasury spokesman said. States can use the money to pay regular unemployment benefits, while the extra $600 weekly payments recently added for workers laid off during the pandemic are funded separately through federal emergency legislation signed into law in late March. More than 30 million people have filed unemployment claims, including about 3.7 million in California, since mid-March, when the virus led to widespread business shutdowns. California had about $1.9 billion in its unemployment trust fund in mid-April, down from $3.1 billion at the end of February, the month before the coronavirus upended the U.S. economy.
