States and cities could lose federal bailout after default

In Washington, a House bill from Florida Republican Rep. Greg Steube would bar federal money from being used to cover the debts of a state, city or school district after a default. It also would keep the Federal Reserve banks, the Treasury Department and other federal agencies from financially assisting a public borrower that has already missed its payments.

The practical effect is blunt: if a local government or school district falls behind, the federal government would not be allowed to patch the hole with public money.

No rescue after the miss

The bill reaches state and local governments and school districts, so the restriction would apply whether the problem starts in a state capital, a city hall or a school finance office. The measure says Congress has the power to enact it under Article I, Section 8.

For residents, that means the usual expectation of a Washington cushion would disappear. The pressure would stay with the local borrower, its budget and the services built on top of it.