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Chester, Pa., Receiver Michael T. Doweary is considering bankruptcy as a way to steer the city toward solid financial footing in light of a looming $46.5 million deficit anticipated next year, the Philadelphia Inquirer reported. Through Pennsylvania Act 47, the receiver has the power to file for bankruptcy and received authorization from the Pennsylvania Secretary of Community and Economic Development in February to proceed with bankruptcy filings. As required by Act 47, Doweary consulted with the Municipal Financial Recovery Advisory Committee on Tuesday regarding taking a step forward in that direction. He has not yet filed for bankruptcy but is engaging in negotiations with relevant groups to avoid such a filing. “What bankruptcy would mean for Chester is that it would provide Chester with the ability to try to reduce its pension to retiree health care … which it has to do to be fiscally solvent,” Vijay Kapoor, Doweary’s chief of staff, said. “The other thing that it would allow Chester to do is the opportunity to negotiate with other creditors so the city would have a fresh start, which it desperately needs.” Chester would continue to provide services to its residents even through bankruptcy, he added, although he said he anticipated that some employees may leave because of the uncertainty around such a situation. In evaluating Chester's general fund from 2013 to 2019, only in 2017 was there a surplus of $7.7 million due to a $12 million cash advance and a $2 million state loan. In the other years, the city's general fund ran a deficit from $2.2 million to $8.6 million.

A federal judge has closed out the bankruptcy case filed by a Southern California city that grappled with a dire cash shortage a decade ago, officials said yesterday, the Associated Press reported. The city of San Bernardino said in a statement that U.S. Bankruptcy Judge Scott Clarkson closed the case last week because the city had resolved claims and has shown it can pay its outstanding long-term obligations. When the city filed for bankruptcy on Aug. 1, 2012, vendors hadn’t been paid and cash was running out to make payroll. “The grueling and deep cuts we all experienced are in the rearview mirror of San Bernardino’s history,” Mayor John Valdivia said. Officials said the city of 220,000 people some 60 miles (97 kilometers) east of Los Angeles is now in a much better financial position and has been tackling street paving and tree trimming projects and hiring much-needed staff. For the current fiscal year, the city has forecast a $2.5 million budget surplus — a far cry from the $45 million budget shortfall that was projected when the city entered bankruptcy, the statement said. A decade ago, San Bernardino was in tough financial straits thanks to weak property and sales tax revenues, rising pension costs and a decline in state redevelopment funding. It went into bankruptcy amid an unprecedented wave of cities doing so, including Vallejo, California, and Detroit.

McKinsey & Co. has been a top government consultant since 2016 in Puerto Rico, helping the U.S. territory’s financial overseers manage its spending. In that time, corporate clients of the consulting firm have won tens of billions of dollars of government business, new disclosures show, the Wall Street Journal reported. Since McKinsey began its work for Puerto Rico’s financial-oversight board, the firm has helped the board review and evaluate contracts with companies that are also McKinsey’s consulting clients, according to disclosures it filed in federal court last month and other public documents. McKinsey clients include some of the largest fuel suppliers to Puerto Rico, an infrastructure company with a major role in operating the territory’s electrical grid and contractors that support its public-health system. A McKinsey spokesman said that the firm served these clients on unrelated matters and that its work for them hasn’t conflicted with its work for the oversight board. Hundreds of other companies with financial interests in Puerto Rico also have ongoing ties to McKinsey, according to the firm’s disclosures and other court records and public documents. Most of these client relationships weren’t formally disclosed until last month, when a new federal law required McKinsey and other professional advisers to detail any ties to clients with creditor claims or other interests in Puerto Rico. The disclosures were required under the Puerto Rico Recovery Accuracy in Disclosures Act, a transparency law written in 2018 after some lawmakers raised concerns that the firm had undisclosed conflicts of interest in its work for the oversight board, which McKinsey has denied.

A combination of flush state budget coffers and rapid inflation has lawmakers across the country looking for ways to ease the pain of rising prices, with nearly three dozen states enacting or considering some form of tax relief, according to the Tax Foundation, a right-leaning think tank, the New York Times reported. The efforts are blurring typical party lines when it comes to tax policy. In many cases, Democrats are joining Republicans in supporting permanently lower taxes or temporary cuts, including for high earners. But while the policies are aimed at helping Americans weather the fastest pace of inflation in 40 years, economists warn that, paradoxically, cutting taxes could exacerbate the very problem lawmakers are trying to address. By putting more money in people’s pockets, policymakers risk further stimulating already rampant consumer demand, pushing prices higher nationally. Jason Furman, an economist at Harvard University who was an economic adviser under the Obama administration, said that the United States economy was producing at full capacity right now and that any additional spending power would only drive up demand and prices. But when it comes to cutting taxes, he acknowledged, the incentives for states do not always appear to be aligned with what is best for the national economy. States are awash in cash after a faster-than-expected economic rebound in 2021 and a $350 billion infusion of stimulus funds that Congress allocated to states and cities last year. While the Biden administration has restricted states from using relief money to directly subsidize tax cuts, many governments have been able to find budgetary workarounds to do just that without violating the rules.

Rising interest rates are threatening the municipal-bond boom on Wall Street, leaving governments less willing to borrow and households less willing to invest in the $4 trillion market, the Wall Street Journal reported. Bond issuance by state and local governments dropped 8% in the first quarter from a year earlier, with public officials calling off refinancings and spending down stimulus cash. At the same time, spooked investors yanked their money from municipal-bond funds, which suffered their biggest quarterly outflows since 2013. States and cities have been forced to cut prices to sell their bonds to banks and insurance companies because muni bond funds are no longer offering top dollar, dealers said. Bonds from corporates to Treasurys suffered their worst start to the year in decades, ahead of Federal Reserve moves to rein in inflation. After increasing interest rates by a quarter-percentage-point last month, the central bank could raise rates by a half-percentage point in May and begin reducing its $9 trillion asset portfolio, the Fed’s latest policy-meeting minutes suggest. Benchmark yields on triple-A, 10-year, tax-exempt general-obligation muni bonds were 2.34% on Friday, compared with 1.03% a year earlier, according to Refinitiv Municipal Market Data. Municipalities borrowed a combined total of about $97 billion in the first quarter, slipping below $100 billion for the first time since early 2020. Refinancing activity fell by nearly half, to $21 billion. For the past two years, state and local governments have executed about $40 billion in refinancing deals in the first quarter, as public officials took advantage of low rates and put off debt payments to manage a COVID-19 budget squeeze.

The Illinois Senate on Thursday passed legislation to allocate $2.7 billion in relief aid to pay down more than half the debt the state owes to the federal government after depleting its unemployment insurance trust fund, Bloomberg News reported. The measure uses American Rescue Plan Act funds to help pay down Illinois’s roughly $4.5 billion loan it took from the federal government to pay benefits when joblessness soared during the pandemic. The bill passed the Senate for a concurrence vote after the Illinois House passed an amended version on Wednesday. It passed the Senate 39 to 16, and now heads to Governor J.B. Pritzker’s desk.