Daily Archives: May 1, 2020

The other shoe is about to drop.

A trio of high-profile, but struggling retailers including J. Crew Group, Neiman Marcus Group and J.C. Penney Co. Inc. are all said to be preparing to file for Chapter 11 bankruptcy protection by mid-May.

Together the three companies bring in sales of more than $18 billion annually and represent a wide swath of the industry from value-priced broadline retailing to mall-based specialty stores to refined department store luxury.

All of them have been on the industrys watch list for months, but each had plans to turn around their fortunes that appear to have been overwhelmed by the now six-week shutdown of the consumer economy that was forced by COVID-19.

J. Crew was betting on a spin-off and initial public offering for its successful Madewell division to satiate the companys debt holders. But the plan missed its window as markets tanked and multiple reports Thursday said a filing could come as soon as this week. A spokesman declined to comment.

Neiman Marcus missed an interest payment mid-month and has been on the cusp of filing for bankruptcy. It is reported to be working with multiple lender groups as it looks to secure the debtor-in-possession financing that would see it through Chapter 11.

J.C. Penney also missed an interest payment and has been exploring its options during a 30-day grace period. And while one source close to the situation said no decision has been made and that options other than bankruptcy remain on the table, another source familiar with the process said a filing could come May 14 or 15.

Even strong retailers tend to live hand-to-mouth, using their sales to cover their expenses and the industry has proven ill-equipped to handle a complete shutdown. It has responded by furloughing workers, canceling orders from suppliers and pushing off their landlords. Those actions have rippled up and down the supply chain, hurting companies of all kinds.

The question now for companies that came into the crisis in a heavily indebted or otherwise weakened position is: Even if they could survive through the immediate shutdown, would they be strong enough to survive the dire consumer landscape on the other side?

The U.S. economy was thrown into reverse in the first quarter, with gross domestic product falling 4.8 percent even though that included just a few weeks of real disruption in late March. The second-quarter contraction is expected to be one for the record books, topping 30 percent.

Thirty million people have applied for unemployment since the shutdown started and its not clear just when they will go back to work and start to spend.

Washington has raced to ease the pain and Federal Reserve chair Jerome Powell said this week the central bank would keep taking aggressive actions to support the economy.

The next phases are more uncertain, highly uncertain, but we will go through a phase starting fairly soon where we begin to reopen the economy, and probably the economic activity will pick up, as consumer spending picks up, Powell said. Consumer spending has gone down quite a lot. It will begin to pick up as people start to return to their normal patterns of spending.

Its a toxic brew that could lead to an especially harrowing trip through bankruptcy, which even in the best of times leads to cutbacks and store closings as the court tries to create a company that can stand on its own while often wiping out equity holders.

In todays climate its not clear just how long bankruptcy would last, whether landlords will be forced to essentially float rent payments for some time and stores destined to be closed for good could be liquidated.

J. Crew, J.C. Penney and Neiman Marcus are just the leading edge of what could be a massive wave of business failures. Ascena Retail Group Inc., Lord & Taylor and Academy also came into the crisis on debt watch lists.

And now, every retailer and brand is under the microscope, and their future prospects are being examined down to every last cent.

See the rest here:

COVID-19 Retail Bankruptcies Ready to Boil Over - WWD

COVID-19 will trigger a wave of healthcare bankruptcies in 2020, but the pandemic had the opposite effect in the first quarter.

That's because the economic turmoil in March likely threw a wrench in the exit strategies of companies that had previously planned to file last month. And since most of the damage hit in mid-March when many stay-at-home orders took effect, March 31 was too soon for most other filings.

"If there was no COVID, I think the number of bankruptcies would be a little higher," said Jeremy Johnson, a shareholder with the law firm Polsinelli who handles bankruptcies, said of the first quarter filings. "But then we know it's going to go up."

Polsinelli's first quarter 2020 distress report found the healthcare distress index grew by eight points in the recently ended quarter, which is 133% above the benchmark created in the fourth quarter of 2010. The report's distress index measures bankruptcy filings on a trailing, four-quarter basis, which the firm says smooths volatility and provides a better picture of long-term trends.

Polsinelli measured healthcare's distress index at 233.3 in the first quarter, significantly higher than the overall Chapter 11 distress index of 54.5, and the real estate distress index of 30.8.

The report includes all patient-facing healthcare, including hospitals, ambulatory surgery centers, physician clinics and behavioral health clinics. Lately, Johnson said it's been a lot of senior living facilities and hospitals. In the first quarter, that included Thomas Health in West Virginia and Randolph Health in North Carolina.

Although the bankruptcies that will inevitably be prompted by COVID-19 didn't hit in the first quarter, Johnson said they'll start to trickle in in the second, third and fourth quarters.

One example is for-profit Quorum Health Corp., whose hospitals are located in rural and mid-sized markets. The Brentwood, Tenn.-based company filed for Chapter 11 bankruptcy in early April, the second quarter. Quorum has lost money since its 2016 spinoff from Community Health Systems, and cited COVID-19 as one factor that prompted its filing.

Hospitals have been forced to halt profitable elective procedures during the pandemic, prompting steep revenue declines. That coupled with the expense of treating complex COVID-19 patients for extended periods of time has placed many in dire financial positions.

Most health systems have been scrambling to boost liquidity by drawing on credit lines, issuing bonds and taking out bank loans. But that won't be enough for some, especially smaller hospitals or health systems.

There's a legal question as to whether or not companies can file for bankruptcy while simultaneously collecting federal stimulus funding under the Coronavirus Aid, Relief, and Economic Security Act.

Cynthia Romano, a global director in CohnReznick's restructuring and dispute resolution practice, said companies are not allowed to collect stimulus relief while they're in bankruptcy, which will postpone healthcare filings to the third and fourth quarters "when stimulus funds are no longer in play."

Struggling healthcare providers could argue that's discrimination against companies that need stimulus funding the most, Johnson said. He predicts a forthcoming wave of litigation on that question. That may be a losing battle for providers, though, as the stimulus funding is likely to run out before their court victories, he said.

Lots of bankruptcies will correspond with lenders or private equity firms taking stock of their portfolios and determining where demand has rebounded and where it hasn't, Romano said.

"They will be making choices about who lives and who dies from a corporate perspective," she said.

In the first quarter, 71% of healthcare's Chapter 11 filings were among the smallest companies measured: those with $1 million to $10 million in assets, Polsinelli found. The report excludes companies with fewer than $1 million in assets. Johnson said it's typical for most bankruptcy filings to be smaller providers, especially rural hospitals.

The highest concentration of filings were in the Southeast, South and Pacific Northwest.

Healthcare bankruptcies had already been on the rise before the pandemic hit, Romano said. Healthcare comprised 2.9% of all corporate bankruptcies at the end of 2015 and 9.9% by the end of 2018, she said.

Now, in the age of COVID-19, even previously strong providers are on thin ice.

"I don't care how healthy you were," Romano said. "You think about the teetering ones, that puts them over the edge. If you think about the really healthy ones, that puts them in significant distress."

Excerpt from:

COVID-19 pandemic likely put some bankruptcies on hold - ModernHealthcare.com

NEW YORK The billions of dollars in coronavirus relief targeted at small businesses may not prevent many of them from ending up in bankruptcy court.

Business filings under Chapter 11 of the federal bankruptcy law rose sharply in March, and attorneys who work with struggling companies are seeing signs that more owners are contemplating the possibility of bankruptcy.

Companies forced to close or curtail business due to government attempts to stop the virus's spread have mounting debts and uncertain prospects for returning to normal operations. Even those owners receiving emergency loans and grants aren't sure that help will be enough.

The most vulnerable companies include the thousands of restaurants and retailers that shut down, many of them more than a month ago. Some restaurants have managed to bring in a bit of revenue by serving meals for takeout and delivery, but even they are struggling financially. Small and independent retailers, including those with online stores. are similarly at risk; clothing retailers have the added problem of winter inventory that they are unlikely to sell with spring here and summer approaching.

Independent oil companies whose revenue was slammed by the collapse in energy prices also are strapped, as are other companies that were already burdened with high debt levels before the virus struck.

Jennifer Bennett, who closed one of her San Francisco restaurants on Wednesday, was still waiting for the financial aid she sought from the federal, state and city governments. Even with the money, she doesnt know if the revenue will cover the bills when shes finally able to reopen Zazie especially if shes required to space tables six feet apart for social distancing.

Our occupancy is going to be cut 60% to 65%, Bennett says. I fear bankruptcy is a possibility.

Other small companies have similar anxieties, says Paul Singerman, a bankruptcy attorney with Berger Singerman in Miami.

There is no reliable visibility into when business operations will be able to resume the pre-COVID normal, Singerman says.

Even larger companies are in trouble, including already struggling retailers who had to shut their stores.

The jeans company True Religion filed for Chapter 11 earlier this month, saying extended closures of its stores in the pandemic have hurt its business. Recent reports say department store chains Neiman Marcus and J.C. Penney, which has struggled for years with slumping sales, could soon file for bankruptcy protection.

The number of Chapter 11 filings rose 18 percent in March from a year earlier, a dramatic swing from the 20 percent decrease in February, according to the American Bankruptcy Institute, a trade organization for attorneys and other professionals involved in bankruptcy proceedings. The numbers dont break out filings by company size, but given that the vast majority of companies are small to mid-size, it does give an indication that smaller companies are struggling.

The federal government has already approved or given out more than 2 million loans and grants to small businesses totaling nearly $360 billion; another $310 billion is on the way to one of the programs. Still, the money may be at best a stopgap for companies with little to no revenue coming in. And the new funds are expected to go so quickly that thousands of owners wont get loans.

Theres no way to predict how many companies will file for bankruptcy. There were over 160,000 bankruptcy filings from 2008 to 2010, during the Great Recession and its aftermath, according to statistics compiled by the federal court system. The numbers dont break out filings by company size. The majority were for liquidations. although some companies restructured their debt and continued operating under Chapter 11.

Many companies, however, just shut their doors, and thats likely to be the case again, Singerman says. According to some estimates, 170,000 companies failed during the recession.

But the Small Business Reorganization Act, which took effect in February, may encourage more companies to seek Chapter 11. The law is aimed at allowing owners to retain their ownership rather than lose their companies to their creditors; that is generally what happens in Chapter 11. The law also streamlines the reorganization process so a company is not wiped out by attorneys fees, says Edward Janger, a professor at Brooklyn Law School in New York whose expertise includes bankruptcy law.

Another change under the law is that a bankruptcy judge can approve the reorganization over creditors objections, Janger says.

Business owners will try to avoid bankruptcy by seeking leniency from landlords, lenders and vendors, bankruptcy attorney David Wander says. But with their companies financial troubles beyond their control because of the virus outbreak, many will file for Chapter 11 because the stigma that bankruptcy has long held will be gone, says Wander, a partner at Davidoff Hutcher & Citron in New York.

The tsunami is going to happen in the coming months and its going to be ongoing, Wander says.

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A Flood of Business Bankruptcies Likely in Coming Months - The New York Times

Feature Image: Trevor Bexon

Business owners in the Reno area arent rushing to file for bankruptcy protection, but theyre beginning to ask their lawyers about the possibilities.

Thats a good thing, the lawyers say. Too often in the past, business owners have waited until theyve watched all their assets personal, sometimes, along with the business dwindle away before they seek the shelter of bankruptcy.

Plus, it reduces the worry.

The unknown is what is so scary for a lot of people, says Tricia Darby, who practices bankruptcy law in Reno with her husband, Kevin. Were visiting today with smart people who want to understand what their options might be.

Timothy Lukas, who specializes in bankruptcy as a partner at the law firm of Holland & Hart in Reno, says unknowns abound for business owners as a result of the freeze-in-place orders by state and local officials six weeks ago.

There are still a lot of unknowns about when and how our local economy will emerge from the current financial crisis, says Lukas. The abrupt, system-wide disruption to the economy means business owners and lenders need to work out the problems theyre facing.

The federal stimulus packages designed to help business weather the COVID-19 storm present even more issues to sort through.

The current stimulus bills prohibit or limit relief if a business chooses to file for bankruptcy.Right now, all of the obligations and commitments for business owners remain in place, Lukas says.

On the other hand, Darby says Congress opened the doors for more small businesses that are floundering as a result of the pandemic to reorganize under the protection of Chapter 11 bankruptcy protection. Some filing deadlines were extended.

But Lukas cautions that those measures are valid only for a year.

If one waits too long to file for bankruptcy, it can be a disaster, he says, recommending that business owners and their attorneys understand today what a bankruptcy filing could accomplish or not if theres even a chance that a company will go under.

Chapter 11 bankruptcy filings cases in which businesses try to regroup while they get their feet back underneath themselves were declining in the region before the pandemic-related shutdowns. Last year saw 14 filings of Chapter 11 cases in U.S. Bankruptcy Court in Reno. That compared with 26 a year earlier.

Chapter 7 cases the ones in which a judge oversees the liquidation of a business totaled 566 last year. A year earlier, 1,133 of those cases were filed in the bankruptcy court in Reno.

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Suddenly, bankruptcy is on the mind of business owners - ThisisReno

As states struggle under the weight of the coronavirus pandemic, Congress and the president have enacted a series of massive bills to try to bolster the health care response and help rescue the economy.

But Senate Majority Leader Mitch McConnell, R-Ky., recently made a comment that suggests hes tired of big spending for cash-strapped states.

The National Governors Association has asked Congress for $500 billion more in direct federal aid, on top of the $150 billion provided in the $2.2 trillion coronavirus relief bill that passed in recent weeks. Depending on how long the crisis lasts, that number could go higher.

McConnell said in a radio interview that states might be better off declaring bankruptcy than by expecting additional funding from the federal government.

"I would certainly be in favor of allowing states to use the bankruptcy route. It saves some cities. And theres no good reason for it not to be available," McConnell said. "My guess is their first choice would be for the federal government to borrow money from future generations to send it down to them now so they dont have to do that. Thats not something Im going to be in favor of."

Bankruptcy gives a "fresh start" to debtors who are unable to satisfy their debts. Declaring bankruptcy may involve a restructured payment schedule for obligations, such as pension debt or interest payments on bonds, as well as relief from bills from vendors. The parties may negotiate over the terms, overseen by specialized bankruptcy courts.

For states, bankruptcy would be a novel approach, since it doesnt currently exist under law. And given the unusual confluence of urgent congressional business, along with the difficulties of carrying out ordinary legislative activities in an era of social distancing, experts do not expect state bankruptcy to become a reality in the immediate future.

McConnells comments prompted widespread criticism, including from some Republicans.

Maryland Republican Gov. Larry Hogan, said, "Mitch McConnell, I think, probably regrets saying that. If he doesn't regret it yet, I think he will regret it. The last thing we need in the middle of an economic crisis is to have states filing bankruptcy all across America and not able to provide services to people who desperately need them."

Rep. Pete King, R-N.Y., called McConnells comment "shameful and indefensible," while New Yorks Democratic governor, Andrew Cuomo, called it "one of the really dumb ideas of all time."

So whats the hubbub all about? Lets take a closer look.

Currently, can states declare bankruptcy?

Its important to note that, under current law, states cannot declare bankruptcy. So Congress would need to pass a law allowing it.

The primary reason for the lack of state bankruptcy provisions is the U.S. Constitution. "Under the Constitution, states are sovereign entities, and the federal government has limited power to act on them directly," said Vincent Buccola, an assistant professor of legal studies and business ethics at the University of Pennsylvanias Wharton School.

In an analysis, Kenneth Katkin, a law professor by Northern Kentucky University, wrote that "the contracts clause of the Constitution prohibits state governments from impairing the obligation of contracts. As originally understood and enforced, this clause prohibited state legislatures from passing any laws to relieve either private debt or the state government's own debt."

While the Supreme Courts interpretation of bankruptcy law has varied during the 20th century, state bankruptcy was never seen as a permissible option. Even if a law did pass, David Schleicher, a professor at Yale Law School, told us there would be constitutional challenges.

Is there historical precedent for state bankruptcy being on the table?

While there is no historical precedent for states having access to bankruptcy, "there are many historical instances of states defaulting on their debts," Schleicher told PolitiFact.

In the 1840s, eight states and one territory defaulted on their debt; for some, payments resumed quickly, while others renounced their debt and never paid. In the 1870s, he said, most southern states renounced their Reconstruction-era debt, and in 1933, Arkansas defaulted on its debt.

Most recently, there was discussion of allowing state bankruptcies in the wake of the Great Recession. The U.S. House even held a hearing on the idea.

However, the concept drew fire from Wall Street, public-employee unions, and governors from both parties, who worried about the risk of rising interest rates, Bloomberg reported. Nothing was enacted.

Matt Fabian, a partner with Municipal Market Analytics, told Bloomberg that todays discussion of state bankruptcy is "just a red herring. State bankruptcy is probably not possible under the U.S. Constitution, and theres even less chance that Congress would attempt to allow it."

Are cities treated differently when it comes to the bankruptcy option?

Unlike states, cities are able to declare bankruptcy under Chapter 9 of the bankruptcy code. That chapter allows for the reorganization of municipalities, which include cities, towns, villages, counties, taxing districts, municipal utilities, and school districts.

"Municipalities, which are created by states, can use Chapter 9 as part of the bankruptcy law designed specifically for governmental organizations," even though states cannot use it, Buccola said. To avail itself of bankruptcy, the municipality must be authorized by its state.

The Great Depression in the 1930s saw a spike in municipal defaults, but they became less common in subsequent decades. Many of those that did occur stemmed from small local governments facing a giant debt due to embezzlement or a sizable legal judgment, Schleicher said.

New York City managed to avoid bankruptcy in the 1970s thanks to negotiations between the state, investors, and labor unions. There has been another uptick of municipal bankruptcies since the Great Recession, including Jefferson County, Ala., Stockton, Calif., and Detroit.

What would "bankruptcy" look like for a state?

Buccola said that a state bankruptcy provision would likely look more like chapter 9 for municipalities than either chapter 11, which is used by businesses, or chapter 7, which is used by individuals.

Under such a system, "the state alone could propose adjustments to its debts, and it would be up to a federal judge to determine whether the package of adjustments a debtor state proposes meet the requirements of the law," Buccola said.

Samir Parikh, a law professor and co-director of the Center for Business Law and Innovation at Lewis & Clark Law School, said the states current fiscal challenges stem not just from the unusual circumstances of the coronavirus pandemic, but also from past decisions on matters such as pensions for retired state workers.

States "need to find a way to address their pension underfunding," Parikh said. "Concessions from labor unions represent the best bet. Many state constitutions prohibit states and municipalities from unilaterally altering pension and health care benefits. Municipal bondholders are the other group that would need to take a haircut."

He said that in Detroits now-ended bankruptcy, for instance, judges were asked to serve as arbitrators to negotiate with unions and bondholders with an eye toward a consensus settlement. "The parties were incentivized because they were worried about the debtor having the power to unilaterally alter payments and benefits."

Why are states wary of allowing bankruptcy?

For a state, declaring bankruptcy could have negative consequences on the future perceptions of their creditworthiness.

"States and municipalities are hesitant because they could get locked out of credit markets, and those funds are necessary to fill large gaps in budgets," Parikh said.

In addition, potential vendors might decline opportunities to work with the state, for fear that they wouldnt get paid the agreed-upon amounts. And state officials might have to contemplate selling off state assets, such as park lands, to raise money.

What are the alternatives to bankruptcy?

The main alternative to state bankruptcy is the one McConnell was reacting against increased federal financial support for states, which ultimately must come either from taxpayers or from issuing additional debt.

Another possibility would be a hybrid model that includes higher federal aid along with a bankruptcy system for the most difficult cases, such as states that have had longstanding pension imbalances.

Original post:

Can states file for bankruptcy? Should they? What you need to know - PolitiFact

The nations governors have asked for at least $500 billion in federal bailouts to make up for falling state revenues and to backfill their systemically underfunded pension plans. Some members of Congress have seconded the request, but, Senate Majority Leader Mitch McConnellAddison (Mitch) Mitchell McConnellCapitol physician doesn't have enough coronavirus tests for all lawmakers as Senate plans return Overnight Health Care: Pelosi floats almost T for states | US intel investigating COVID-19's origins | Trump outlines efforts to protect nursing homes The Hill's Campaign Report: Pressure grows on Biden to address Tara Reade allegations MORE (R-Ky.) recently suggested that states have another option: Bankruptcy.

The fact is, no state or local government will need to declare bankruptcy just because of COVID-19. Rather, if states or municipalities do face insolvency, it will be the result of decades of fiscal mismanagement.

The important takeaway behind Sen. McConnells statement is that the federal government is not responsible for states budgets.

Yes, the federal government has an obligation to help cover the costs of addressing the pandemic. To that end, Congress has already sent states unprecedented aid.

And, yes, state and local governments are experiencing a decline in income-, sales-, and some other tax revenues. But unforeseen circumstances is one of the reasons states have rainy day funds. In aggregate, those funds were at an all-time-high prior to COVID-19, but not every state was well-prepared. While Wyoming had an entire years worth of revenue saved away, Illinois and Kansas had mere minutes of revenue saved.

COVID-19 could be the straw that broke the camels back for states already headed toward insolvency. But it alone isnt sufficient to create a need for either bailouts or bankruptcy.

When Puerto Rico entered bankruptcy, its debt equaled about three times its annual revenues. And when Detroit entered bankruptcy in 2013, the citys debt was 13 times its annual revenues. A few months or even a few years of lower revenues wont create bankruptcy situations for states. Government insolvency results from prolonged, systemic mismanagement.

Already, the federal government has provided state and local governments with direct grants worth $150 billion to help cover COVID-19 expenses. And it appears that states dont need more money for that. Otherwise, why have governors asked for flexibility to use these funds for non-pandemic costs? Why have some used the money for temporarypay raisesandbonusesfor public-sector workers, while26 million Americans have lost their paychecks?

Then theres the Federal Reserves $500 billion in unprecedented short-term lending to state and local governments. That amounts to half of every state and local governments annual income- and sales-tax revenues. Its unlikely those revenues will fall by 50 percent, if only because Congress has provided roughly $1.3 trillion in the form of small-business grants and loans, checks to households and massively-expanded unemployment insurance benefits all of which will help prop up state and local tax receipts.

Its becoming increasingly clear that what states really want is just an all-purpose bailout for their pre-existing problems.

Prior to the pandemic and despite the exceptionally strong economy, New York Gov. Andrew CuomoAndrew CuomoNewsom signs order allowing couples to obtain marriage licenses via videoconference Connecticut governor unveils four-stage plan to reopen state's economy Overnight Defense: Sexual assaults increase across military | Army defends bringing cadets back for Trump graduation speech MORE was facing a $6.1 billion annual budget deficit. Illinois had projected a $3.2 billion deficit.

The $40 billion in federal taxpayer funds requested by Illinois Senate Democratic Caucus would go mostly to financing the states consciously-enacted deficit and propping up its bloated pension systems, which entered the year with an unfunded liability of $137 billion.

If Congress were to provide a nation-wide state bailout proportionate to what Illinois requested, it would cost federal taxpayers an additional $1 trillion. Thats not far off from what House Speaker Nancy PelosiNancy PelosiMcCarthy doubtful Republicans will participate in coronavirus select committee Overnight Health Care: Pelosi floats almost T for states | US intel investigating COVID-19's origins | Trump outlines efforts to protect nursing homes On The Money: 3.8M more Americans file for unemployment benefits | Stocks cap off best month since 1987 even as coronavirus leaves millions jobless | Pelosi floats almost T for states in next relief package MORE (D-Calif.) is seeking.

Theres a fundamental unfairness to state bailouts. They force taxpayers in well-run states to subsidize those who have systematically squandered a strong economy and shortchanged pension plans of trillions of dollars worth of required contributions.

Some have suggested requiring more prudent budgeting from states that accept bailouts. Its a rather ironic suggestion, considering that the federal governments fiscal recklessness has created over $70,000 in debt per capita, while state debt averages less than $10,000 per capita.

Moreover, bailing out states denies the problems of socializing costs. If youve ever gone out to dinner with a large group, you might remember how the expensive steak, an extra drink and dessert are more appealing if those costs are split by everyone at the table. If thats what everyone is thinking, then everyone pays more in the end.

Socializing government debts by redistributing state and local costs to federal taxpayers in times of crisis is like splitting the check: Everyone still pays they just wind up paying a lot more.

Rachel Greszler is a research fellow in The Heritage Foundations Center for the Federal Budget. Adam N. Michel is a senior policy analyst in the center.

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State bankruptcy is irrelevant to COVID-19 and bailouts aren't the answer | TheHill - The Hill

According to the National Conference of State Legislatures, 15 states have identified new holes in their budgets which by state constitutional provisions must be balanced.

Moodys Analytics predicts that our shrinking economy could result in state revenue drops of 18 to 23 percent.

North Dakota payrolls have been cut; Main Street has been closed; tax collections have nose-dived and manufacturing curtailed. While the North Dakota Legacy Fund, now bulging with over $6 billion, may look like a solution, raiding the fund would require an impossible two-thirds vote in both houses of the legislature.

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Even in the face of tremendous needs in states rising out of the coronavirus, McConnell alleges that states should solve the problem themselves without getting bailout money from the federal government.

Fund Restrictions

States have been bastions of frugality, saddled with scores of restrictions on taxing and spending accumulated through the years. Most states have constitutional or statutory restrictions that reduce their ability to respond to a sudden crisis.

Almost half of the states have provisions for proposing and amending statutes by citizen petition. Under these provisions, citizens can impose restrictions, thereby reducing options at the state level. North Dakota citizens have the initiative and referendum as well as the power to amend the state constitution.

Poverty Budgets

Because of all of these fiscal controls, governors and legislatures have kept their budgets on the edge of poverty. Even North Dakota policymakers will look at the $6 billion Legacy Fund while claiming poverty.

In addition to the virus pandemic, North Dakota is experiencing a collapse of the oil industry, which is no small matter in a state that ranks second to only Texas in oil production.

Associated Press Writer James McPherson reports that the legislature estimated oil at $48 per barrel for the present biennium. The market has been as low as $10 and $25.

Big oil Losses

According to McPhersons report, Tax Commissioner Ryan Rauschenberger estimates that price and production cuts could cost the state $288,000 in daily tax revenue.

There is little doubt that the legislature will be making draconian cuts in the state budget when it meets in Bismarck this winter. Basic government services will be funded, but social service, health programs and education will be on the chopping block.

For years North Dakota has had some citizens who favor reducing the number of universities and colleges in the state higher education system. In the anticipated budget crunch, the smaller colleges will not escape changes.

Some will propose closing Mayville, Bottineau, Williston and Devils Lake for starters. If not closing, a strict realignment of programming will alter the missions of various institutions.

With every state program in jeopardy, it would be wise to invest your government stimulus check in Bismarck hotels for the session. They should be very profitable.

North Dakota wont go bankrupt but it will go frugal. More than usual, that is.

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Omdahl: Is state bankruptcy on the horizon? - INFORUM