S. 2120 – Government Bailout Prevention Act

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Updated April 14, 2026 at 7:06 AM UTC

The Government Bailout Prevention Act would stop the federal government from giving money or financial help to state, municipal, county or other local governments that have filed for bankruptcy, have defaulted on their debts, or are likely to default. The ban applies to Treasury, the Federal Reserve and other federal agencies, but it does not block disaster‑relief assistance. The bill mainly affects state and local governments that are in financial trouble and the federal entities that might otherwise aid them.

Key Provisions

Defines “State” to include all U.S. states, the District of Columbia, and U.S. territories.
Prohibits any federal funds from being used to buy, guarantee, or lend against the obligations of any state, municipal, county or local government that has filed for bankruptcy, defaulted, or is at risk of default after Jan. 1, 2019.
Bars the Treasury Department from using general‑fund revenues or borrowed money to purchase, guarantee, or otherwise assist defaulting state or local entities.
Prevents Federal Reserve Banks from providing loans, guarantees, credits, or buying bonds of any defaulting state, municipal, county or local government.
Excludes assistance that is provided in response to a declared disaster.
Specifies that the prohibition does not apply to discretionary appropriations, direct spending, or any grant awarded to the affected governments, and it includes debt restructuring activities.

Legislative Activity

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1 earlier action

SenateIntro Referral Latest Action

Read twice and referred to the Committee on Banking, Housing, and Urban Affairs.

Banking, Housing, and Urban Affairs Committee

July 15, 2019

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SenateIntro Referral

Introduced in Senate

July 15, 2019

SenateIntro Referral

Read twice and referred to the Committee on Banking, Housing, and Urban Affairs.

Banking, Housing, and Urban Affairs Committee

July 15, 2019

Bill Text

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Introduced in SenateIssued July 15, 2019

II

116th CONGRESS

1st Session

S. 2120

IN THE SENATE OF THE UNITED STATES

July 15, 2019

Mr. Young (for himself, Mr. Toomey, and Mr. Cotton) introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs

A BILL

To prohibit the provision of Federal funds to State and local governments 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 that have defaulted on their obligations, and for other purposes.

1.

Short title

This Act may be cited as the Government Bailout Prevention Act.

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.

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, or county government which, on or after January 1, 2019, 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, or county government, or otherwise to assist such government entity, if, on or after January 1, 2019, that State government, municipal government, or county government 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, 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, 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.

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, or county government.