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‘Chevron’ Deference Applied to Decisions by the Puerto Rico Oversight Board

District court invalidates expenditures adopted by the Puerto Rico legislature that were not approved by the PROMESA Oversight Board.

CBO: Student Debt Forgiveness in U.S. to Total $207 Billion in Next Decade

ABI Bankruptcy Brief

February 13, 2020

 
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NEWS AND ANALYSIS

CBO: Student Debt Forgiveness in U.S. to Total $207 Billion in Next Decade

The Congressional Budget Office issued a report yesterday that said that the U.S. government will forgive $207.4 billion in student debt for Americans who take out loans over the next decade, the Wall Street Journal reported. The biggest benefits will go to borrowers who attend graduate or professional school. The CBO projects that the government will originate $1.05 trillion in new loans from 2020 to 2029. Much of that will end up in income-driven repayment plans, which set monthly payments as a share of a borrower’s income and then forgive balances that remain after 20 to 25 years, or 10 years for workers in public-sector jobs. The biggest benefits will go to Americans who borrow for graduate school, the CBO said in a report. The government will likely forgive $167.1 billion for such borrowers, or 56 percent of the amount extended. The forgiven amount includes the original loan amounts, or principal, as well as unpaid interest. The government will forgive about $40.3 billion on new loans made for undergraduates over that period, or 21 percent of the original amounts, according to the CBO study, which was ordered in 2018 by Senate Budget Committee Chairman Sen. Mike Enzi (R-Wyo.). The U.S. government is the nation’s primary lender for college and graduate students. About 43 million Americans owe $1.51 trillion in federal student loans. Current law requires that any balances forgiven for private-sector workers will be taxed as ordinary income.

Study: High Child-Care Costs Are a Significant Hurdle for First-Time Home Buyers

The damping effect of student loan debt on home ownership has been much discussed, but another expense may be delaying some from entering the housing market: child-care costs, the Washington Post reported. A recent study by Freddie Mac found that, adjusted for inflation, child care expenses jumped by 49 percent over the past 25 years. During that same period — 1993 to 2018 — housing costs rose by 14 percent when adjusted for inflation. Freddie Mac’s research found that families with child-care expenses had less money to spend on their housing costs. According to Freddie Mac’s research, families spend an average of $715 per month on child care. For families with younger children, the cost averages $948. The percentage of income spent on child care varies but hits lower-income families harder. Researchers found families who earn less than $1,500 per month spend an average of 40 percent of their income on child care. Families with a monthly income of $4,500 and more spend about 7 percent of their income on those costs.



Commentary: Puerto Rico’s Debt Deal Has a $16 Billion Unknown*

General-obligation bondholders reached an agreement in Puerto Rico's bankruptcy, but the case may hinge on the treatment of other debt, according to a Bloomberg commentary. The potential deal would cut Puerto Rico general obligations and debt guaranteed by the commonwealth to $10.7 billion from $17.8 billion, about a 40 percent reduction. The overall plan slashes debt and non-bond claims to $11 billion from $35 billion, a $24 billion reduction. However, one large part of Puerto Rico’s debt stack isn’t getting much attention, even though it’s facing the steepest losses and is a crucial component for making the entire restructuring plan work, according to the commentary. The oversight board’s revised agreement shows $16 billion of debt marked as “ERS, Clawbacks, and Other” that would receive a recovery rate of just 3 percent. The category includes bonds issued by the Puerto Rico Convention Center District Authority, the Infrastructure Financing Authority and the Highways and Transportation Authority, among others. The new proposal is structured such that a huge chunk of debt reduction is coming at the expense of these junior creditors, who notably haven’t agreed to the terms, said Brad Setser, a former U.S. Treasury economist and now a senior fellow at the Council on Foreign Relations. With where things stand on the island, it’s hard to see how junior bondholders could make a case for a better recovery, according to the commentary. The plan has some caveats around that 3 percent rate, noting that it “excludes any potential recoveries from assets currently at ERS (approximately $1.2 billion). Amounts are subject to further diligence and material revision. Assets remain subject to ongoing litigation.”


*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.

Don't miss the ABI Talk, "PROMESA'S Long Road of Good Intentions," by Cate Long of the Puerto Rico Clearinghouse (New York) at this year's Annual Spring Meeting! For more information about the conference and to register, please click here.

U.S. Labor Strikes Increased to 18-Year High in 2019, Led by Teachers

U.S. labor strikes last year increased to their highest level since 2001, with lost work days led by General Motors Co. and Chicago Public Schools, Bloomberg News reported. Total work stoppages involving 1,000 or more workers climbed to 25 in 2019, most of them comprised of education and health workers across the country, according to a Bureau of Labor Statistics report released on Tuesday. The number of strike participants fell from the prior year, but days lost topped 3.2 million — the most since 2004. More than one-third of that total came from autoworkers at GM, whose six-week strike last year was the longest automotive walkout in half a century. Unions have been losing members for decades, with the latest BLS data showing that their ranks fell slightly to 10.3 percent in 2019 from 10.5 percent the prior year. In 1983, one-fifth of workers were represented by organized labor. Overall, the labor market remains tight and employers are desperate for skilled workers, giving workers more bargaining power. Strike activity, though, is far below the levels of the mid-late 20th century. In 1981, for example, there were 145 major strikes, which cost employers about 17 million working days. Levels haven’t topped 100 strikes a year since then. One strike from last year, United Steelworkers working for ASARCO in Arizona and Texas, is ongoing, according to BLS.

Upcoming abiLIVE Webinar Explores the HAVEN Act and How to Approach Military or VA Benefits in Bankruptcy
The HAVEN Act was signed into law last year to correct the Code to exclude VA benefits from the current monthly income used in the means test. Members of ABI’s Task Force on Veterans and Servicemembers Affairs worked diligently to have the bill introduced and signed into law to help financially struggling veterans and servicemembers. Find out about the key points of the HAVEN Act, and get pointers on how to approach cases involving military or VA benefits, during a special abiLIVE webinar on February 26. Members of the Task Force, along with top practitioners, will be providing their perspectives. Click here to register for FREE.

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New on ABI’s Bankruptcy Blog Exchange: Unanswered Questions: Small Business Reorganization Act of 2019

A recent blog post recently compiled a few questions about the Small Business Reorganization Act that don’t seem to have a ready or clear answer as the law goes into effect on Feb. 19, and that will need to await action by the various bankruptcy courts and their appellate overseers.

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

 
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Puerto Rico Bondholders Lose Another Appeal in the First Circuit

The First Circuit shows no inclination to allow creditors to bust out of the PROMESA restructuring of Puerto Rico’s debt.
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