S. 4629: Government Bailout Prevention Act

This bill, titled the Government Bailout Prevention Act, aims to restrict federal financial assistance to state and local governments and school districts that are experiencing financial distress. Here is a breakdown of the key components of the bill:

Prohibition on Federal Funds

The bill states that no federal funds may be used to:

• Purchase or guarantee obligations of any state or local government, including school districts, that have filed for bankruptcy or have defaulted on their obligations since January 1, 2026.
• Issue lines of credit or provide grants and aid to such government entities if they are deemed at risk of defaulting or likely to default.

Limits on Treasury Borrowing

The Secretary of the Treasury is also prohibited from using federal funds or borrowed funds to:

• Purchase or guarantee any assets or obligations of governments that meet similar financial distress criteria as outlined above.
• Assist these governments if they have defaulted or are at risk of defaulting since the specified date.

Restrictions on Federal Reserve Assistance

The bill specifies that Federal Reserve banks are not allowed to:

• Provide financial support, including loans or guarantees, to any state or local government entity that has defaulted, is in bankruptcy, or is at risk of defaulting.
• Purchase bonds or assist governments that hold taxing or bonding authority under these conditions.

Exceptions

There are exceptions to these prohibitions:

• Federal assistance is still allowed in the case of a declared disaster.

Applicability

The prohibitions mentioned in the bill extend to:

• Debt restructuring or related activities concerning the specified governments.

However, it does not affect:

• Discretionary appropriations or direct spending as defined in the Balanced Budget and Emergency Deficit Control Act of 1985.
• Any grants awarded to the governments specified in the bill.

Definition of State

For the purposes of the bill, the term State includes:

• Any of the individual states in the United States.
• The District of Columbia.
• Any U.S. territory or possession.

Objectives of the Bill

The main goal of this legislation is to prevent federal financial bailouts for state and local governments and school districts that face financial difficulties, thereby promoting fiscal responsibility among these entities.

Relevant Companies

None found