WASHINGTON — The Senate Tuesday voted 50 to 47 to reject an
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.
Dodd rattled off a list of federal programs that would be closed to the state or locality, such as medicaid payments and unemployment benefits.
Democrats claimed that the amendment would have been effective retroactively. Dodd warned that it would have applied to states and localities that have previously defaulted, specifically highlighting Orange County, Calif.’s bankruptcy in 1994. Even though Orange County has since emerged from its financial difficulties, would it, too, be barred for future federal assistance? Dodd asked.
In pushing for the amendment, Gregg had tried to argue it was consistent with provisions in the bill that would provide for an orderly resolution of financial institutions deemed too big to fail.
