Taxpayer Bailout Prohibition for States, Localities Fails

The Bond Buyer reports:

The Senate Tuesday voted 50 to 47 to reject an amendment to financial regulatory reform legislation that would have imposed a blanket prohibition on federal assistance to states and localities in financial trouble for reasons other than a natural disaster.

Proposed by Republican Sen. Judd Gregg of New Hampshire, the amendment was designed to insulate taxpayers from having to pay for potential bailouts to states like California that have been “profligate” and have spent beyond their means, Gregg said. He included a clause that would have provided an exception for states and localities that were harmed by a natural disaster.

But Senate Banking Committee chairman Christopher Dodd, D-Conn., said the proposal was “draconian” and “just goes way beyond anything I’ve quite seen here.”

Dodd said the legislation was so broadly written that it would curtail all federal grants or funding to a state or locality that was in financial trouble but had not yet defaulted on any of its obligations. Such a prohibition would only exacerbate its financial troubles, he said.

A majority of the Senate wants federal taxpayers to pay for California prison guards who make over $100,000 a year.