Section 1 Short title
This Act may be cited as the “Government Bailout Prevention Act”.
Government Bailout Prevention Act
A BILL
To prohibit the provision of Federal funds to State and local governments and school districts for payment of obligations, to prohibit the Federal Reserve banks, the Department of the Treasury, and other Federal agencies from financially assisting State and local governments and school districts that have defaulted on their obligations, and for other purposes.
Sec. 2 Definition
Sec. 3 Prohibition on the use of Federal funds to pay or guarantee State and local obligations
In general— Notwithstanding any other provision of law, no Federal funds may be used to purchase or guarantee obligations of, issue lines of credit to, or provide direct or indirect grants-and-aid to, any State government, municipal government, local government, county government, or school district which, on or after January 1, 2026, has filed for bankruptcy, has defaulted on its obligations, is at risk of defaulting, or is likely to default, absent such assistance from the United States Government.
Limit on Use of Borrowed Funds— The Secretary of the Treasury shall not, directly or indirectly, use general fund revenues or funds borrowed pursuant to title 31, United States Code, to purchase or guarantee any asset or obligation of any State government, municipal government, local government, county government, or school district or otherwise to assist such government entity, if, on or after January 1, 2026, that State government, municipal government, local government, county government, or school district has defaulted on its obligations, has filed for bankruptcy, is at risk of defaulting, or is likely to default, absent such assistance from the United States Government.
Prohibition on Federal Reserve assistance— Notwithstanding any other provision of law, no Federal Reserve bank may provide or extend to, or authorize with respect to, any State government, municipal government, local government, county government, school district, or other entity that has taxing authority or bonding authority, any funds, loan guarantees, credits, or any other financial instrument, including the purchasing of the bonds of such State, municipality, locality, county, school district, or other bonding authority, or to otherwise assist such government entity under any authority of any Federal Reserve Bank.
Limitation— Subsections (a) through (c) shall not apply to Federal assistance provided in response to a declared disaster.
Sec. 4 Applicability
The prohibition under section 3—
includes debt restructuring or any other related activity; and
does not include—
any discretionary appropriations or direct spending, as those terms are defined in section 250(c) of the Balanced Budget and Emergency Deficit Control Act of 1985 (2 U.S.C. 900(c)); and
any grant awarded by the United States to the State government, municipal government, local government, county government, or school district.