May 21, 2026
Mr. Young (for himself and Mr. Cotton) introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs
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.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
Section 1. Short title
This Act may be cited as the Government Bailout Prevention Act
.
Sec. 2. Definition
In this Act, the term State means—
(1)
any of the several States;
(2)
the District of Columbia; and
(3)
any territory or possession of the United States.
Sec. 3. Prohibition on the use of Federal funds to pay or guarantee State and local obligations
(a) 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.
(b) 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.
(c) 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.
(d) 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—
(1)
includes debt restructuring or any other related activity; and
(2)
does not include—
(A)
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
(B)
any grant awarded by the United States to the State government, municipal government, local government, county government, or school district.