Nearly 2 Million People Applied for Unemployment Last Week

Nearly 2 Million People Applied for Unemployment Last Week

ABI Bankruptcy Brief

June 4, 2020

 
ABI Bankruptcy Brief
 
 
 
 
NEWS AND ANALYSIS

Nearly 2 Million People Applied for Unemployment Last Week

Unemployment claims for the last week of May totaled 1.9 million, a high number, but the lowest since the novel coronavirus started spreading widely back in March, the Washington Post reported. The Department of Labor, which released the data, also noted gig and self-employed workers filed fewer initial claims last week — 620,000 compared with 1.2 million the previous week — under the expanded federal program that grants them benefits. More than 40 million people have applied for unemployment benefits during the pandemic, and roughly 21.5 million are currently receiving them. Unemployment rates by state are highest in Nevada (25 percent), Maine (23 percent), Michigan (23 percent), Hawaii (20.6 percent) and New York (19 percent). Including the new supplemental funds for gig workers, about 30 million people are receiving unemployment benefits.



Faced with staggering unemployment numbers that are likely to remain elevated through the election, Senate Republicans are reversing their positions on ending a federal increase of state unemployment benefits after July, The Hill reported. Senate Majority Leader Mitch McConnell (R-Ky.) vowed in a conference call with House Republicans last month that Senate Republicans would block the $600 weekly boost to state unemployment benefits from the federal government. Also last month, GOP senators involved in planning for a phase four coronavirus relief bill said there was overwhelming support for entirely ending the federal enhancement of state unemployment benefits. Now with the national unemployment rate projected to hit or exceed 20 percent, the highest number since the Great Depression, a growing number of GOP senators say the federal government should continue to augment weekly unemployment benefits in some form — though most want it lower than the $600 figure. Many Republican senators, including members of the leadership, now say that the federal government should continue to enhance state unemployment benefits or provide a back-to-work bonus of $450 per week for laid-off workers who return to their jobs.

Workers Fearful of the Coronavirus Are Getting Fired and Losing Their Benefits

As people across the U.S. are told to return to work, some employees who balk at returning due to the pandemic’s health risks say that they are experiencing painful reprisals: Some are losing their jobs if they try to stay home, and thousands more are being reported to the state to have their unemployment benefits cut off, the New York Times reported. Businesses want to bring back customers and profits. But workers now worry about contracting the coronavirus once they return to cramped restaurant kitchens, dental offices or conference rooms where few colleagues are wearing masks. Some states with a history of weaker labor protections are encouraging employers to report workers who do not return to their jobs, citing state laws that disqualify people from receiving unemployment checks if they refuse a reasonable offer of work. Oklahoma set up a “Return To Work” email address for businesses to report employees who turn down jobs. Ohio offered a similar way for employers to report coronavirus-related work refusals. Labor advocates and unions say the push to recall workers and kick reluctant employees off unemployment benefits carries grave risks in an age of coronavirus, when infections have rampaged through meatpacking plants, call centers, factories and other confined spaces where co-workers spend hours touching the same surfaces and breathing the same air.

Commentary: Pandemic Justifies Deferral of Post-Petition Retail Rent Payments*

In any retail bankruptcy proceeding, the obligations of a debtor to timely perform its post-petition obligations under the store leases is clear. But what happens during a global pandemic? The issue was recently addressed by the U.S. Bankruptcy Court for the Eastern District of Virginia in In re Pier 1 Imports, Case No. 20-30805-KRH (May 10, 2020), where the court was requested to allow the debtors to defer payments of post-petition rent for store locations, according to a commentary by Andrew Kassner and Joseph Argentina of Faegre Drinker Biddle & Reath in The Legal Intelligencer. The court granted this request and permitted the Pier 1 debtors to defer post-petition rent at many locations. Bankruptcy Court Judge Kevin R. Huennekens began by observing, “As the debtors aptly stated in the motion, the world has changed since the filing of these chapter 11 cases … no constituency in these cases predicted that the world would effectively grind to a halt. But, so it did.” The court further observed, “Thus, the debtor in the bankruptcy cases at bar, like other chapter 11 debtors throughout the nation, sought to find a way for their businesses to ‘shelter in place’ for a short duration while they determined whether and how to maximize value for their creditor constituents in light of a global pandemic.” Landlords expect post-petition rent to be paid timely, as provided by the Bankruptcy Code. It is clear that in this case, in the face of a global pandemic that caused “the world to grind to a halt,” the court took actions necessary to preserve value for all stakeholders, including the landlords. The question landlords will be asking in the coming months and years is this: Does this policy only apply in global pandemics, and if not, when will debtors be able to attempt to rely on the Pier 1 ruling to defer payment of post-petition rent, and for how long? Only time will tell, according to the commentary.



*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.

Fed Expands Municipal-Lending Facility to More Localities

The Federal Reserve said it would again broaden the number of local governments eligible for a new lending program as Illinois announced it would be the first borrower to access the facility, the Wall Street Journal reported. The central bank said yesterday that it would allow all 50 states to designate two cities or counties to sell debts directly to the central bank’s program, creating an option for states with less populous municipalities to participate. Many state and local governments are facing cash crises, as the coronavirus pandemic has crushed both their tax intake and driven an increase in their spending. The central bank also said state governors will be able to designate an additional two issuers whose revenues are derived from operating activities, such as airports, toll facilities, utilities or public transit, to be eligible to use the facility on their own. The changes could allow more than 380 issuers, up from around 260 before the latest changes, to access the emergency-lending program, which was first announced in April. So far, however, few have shown interest in borrowing through the Fed, which has positioned itself as a high-interest lender of last resort. Illinois is the first to tap the program. It is the country’s most indebted state. Illinois said that it would issue $1.2 billion in one-year notes on Friday to tide it over until income taxes arrive late in July. The state, which is rated just above junk status, is planning to borrow through the Fed at an interest rate of 3.82 percent. The rate is more than 10 times what one-year A-rated bonds were going for yesterday, according to Refinitiv.



In related news, coronavirus lockdowns have emptied arenas and stadiums indefinitely, shuttering professional sports and concert tours alike, and have significantly reduced tax revenue, the Wall Street Journal reported. When cities issue bonds and use the proceeds to build stadiums, they pledge to make yearly bond payments on the debt, often counting on revenue from sales, hotel or rental-car taxes to cover the payments. Public officials have borrowed billions of dollars to build stadiums for major teams. Since 2000, more than 40% of almost $17 billion in tax-exempt municipal bonds sold to finance major-league stadiums were backed by levies on hotels and rental cars — making tourism taxes the predominant means of public stadium finance, according to the Brookings Institution. The National League of Cities, an advocacy group, projects that American cities, towns and villages will experience a combined shortfall of roughly $360 billion through 2022, raising questions about decisions to allocate public money to sports franchises. (Subscription required.)

For Some Minority-Owned Businesses, Their Lenders Are Now Their Defenders

Community Development Financial Institutions (CDFIs) have come to the rescue of some minority-owned businesses through a combination of government funds and private donations to seed businesses that banks won’t deal with because they view their owners as too poor and too disconnected from the financial system to qualify for standard loans, the New York Times reported. Many CDFIs, which first came into existence in the early 1970s, evolved out of groups that were formed to help minorities recover from attacks — like the 1921 massacre of black Americans in Tulsa, Okla. — that have occurred regularly throughout America’s history. More recently, during the coronavirus pandemic, such groups have been the go-to lenders for minority business owners who could not find a bank to help them tap a federal government aid program. CDFIs, which are often nonprofits, offer their borrowers far more than just cash. They also walk them through the myriad kinds of paperwork required to get their businesses up and running, offer them management training and sometimes even provide spaces from which to launch. But the looting and damage that have marred protests in the past week have added a new set of tasks for many of these organizations, akin to those of a security guard or emergency workers. In places like Ferguson, Minneapolis and Wilmington, Del., where violent groups have destroyed property by smashing windows and setting fires, representatives from these lenders have been the first to make contact with devastated business owners and help organize their defense.

Commentary: The Next COVID-19 Relief Bill Should Include Student Debt Cancellation*

The CARES Act provided important temporary relief for student loan borrowers, permitting many with federally held debt to skip payments for 6 months, with borrowers generally given credit toward forgiveness for those payments. The legislation halted collections, though a significant number of borrowers were excluded. However, given the severity of the Covid-19 economic impacts, and the dire circumstances for many student loan borrowers, more comprehensive and long-term student debt relief is required to enable these families to recover, according to a Brookings Institute commentary. The impact of student debt cancellation would be surprisingly large, and the positive effects would reverberate throughout the economy. Beyond the individual impact of the student debt crisis, the adverse macroeconomic effects are widespread and well documented. Federal Reserve Chairman Jay Powell has, for several years, noted the adverse impacts on economic growth and called for student debt reform, including bankruptcy relief. In a recent analysis of the economic and fiscal impact of complete student loan cancellation (federal and private), and using conservative assumptions, researchers at the Levy Economics Institute simulated significant positive economic benefits in the form of increased GDP from increased household consumption and investment in the range of $86 billion to $108 billion per year over a 10-year period. Additionally, there would be significant social benefits from student loan cancellation, which studies have shown include increased family formation and stability, ability to pursue additional training, improved physical and mental health, increased entrepreneurial activity, and more.



*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.

Supply Chains, Safety Protocols Hobble U.S. Factories

Manufacturers emerging from weeks in hibernation during the coronavirus pandemic are accelerating production with jumbled supply chains and less efficient plants, making it harder to rebuild the weakened U.S. industrial sector, the Wall Street Journal reported. Some U.S. factories are looking for alternative suppliers to compensate for plants that remain closed or are overwhelmed by orders for items in high demand. Other companies say new protective equipment and procedures to add space between workers will weigh on their profits and productivity. Meanwhile, many manufacturers are encountering bleak conditions in industrial markets that have shrunken with the contracting U.S. economy. Durable-goods orders in the U.S. are at the lowest level in a decade, and surveys of purchasing managers at manufacturers in the U.S., Europe and Asia suggest any recovery in the months ahead could be tentative. (Subscription required.)

CFPB and State Regulators Provide Additional Guidance to Assist Borrowers Impacted by the COVID-19 Pandemic

The Consumer Financial Protection Bureau and the Conference of State Bank Supervisors issued joint guidance to mortgage servicers to assist in complying with the Coronavirus Aid, Relief and Economic Security (CARES) Act provisions granting a right to forbearance to consumers impacted by the COVID-19 pandemic, according to a CFPB press release. Servicers of federally backed mortgages, such as Fannie Mae or Freddie Mac, the Department of Housing and Urban Development, the Department of Veterans Affairs or the Department of Agriculture loans, must grant forbearance to borrowers with pandemic-related hardships that may last as long as two consecutive 180-day periods. Furthermore, additional interest, fees or penalties beyond the amounts scheduled or calculated should be waived with no negative impact to the borrower’s mortgage contract during the forbearance. Mortgage-servicers could violate the CARES Act or other applicable law and potentially cause consumer harm if they were to require documentation from borrowers to prove financial hardship, if they did not grant the forbearance once properly requested, or if they steered borrowers away from forbearance or misled them.

Central States Virtual Bankruptcy Workshop to Feature Great Sessions, Networking at an Affordable Price!

While ABI had to cancel its in-person Central States Bankruptcy Workshop for 2020 due to the COVID-19 pandemic, some of the sessions designed for this year's program are being converted into a two-day virtual experience, to be held June 25-26. With two online educational sessions each day of the conference, ample networking opportunities both days and a price that is right ($100 for the entire program), it is easy to include the Central States Virtual Bankruptcy Workshop in your schedule this year! Click here to register. 

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BLOG EXCHANGE

New on ABI’s Bankruptcy Blog Exchange: May Chapter 11 Bankruptcies Bolstered by Subsidiary Filings

Every petition filed by every subsidiary in a corporate group gets counted as a case, and the number of subsidiaries in a corporate group is arbitrary, thus one economic unit can generate what looks like many bankruptcy filings, according to a recent blog post.

Click here to read ABI’s May stats release.

To read more on this blog and all others on the ABI Blog Exchange, please click here.

 
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