POLITICS: PennAve

Senate Republicans want to ban federal bailout of Detroit, other cities

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Some Senate Republicans want to guarantee President Obama and Congress won’t attempt to bailout Detroit or any other city on the cusp of bankruptcy.

Sen. Lindsey Graham, R-S.C., drafted an amendment Wednesday to the Fiscal Year 2014 Financial Services and General Government Appropriations Act that keeps the federal government from bailing out municipalities. Graham said the federal government is too broke to bail out cities like Detroit.

“There is no doubt Detroit has huge problems, but they are facing problems of their own making,” Graham said. “Detroit and other municipalities facing these issues need to get their own financial houses in order.”

Graham’s amendment blocks the federal government from purchasing or guaranteeing assets or debt for localities, from towns and villages to cities and counties, that are at risk of defaulting. The amendment also prohibits Congress from extending a line of credit or financial relief or aid to prevent a bankruptcy.

Detroit declared bankruptcy last week, listing $18 billion in debt in a historic attempt to protect the Michigan city from creditors. A U.S. bankruptcy judge could rule as early as Wednesday on whether to proceed with the Chapter 9 municipal bankruptcy, or if a slew of constitutional challenges must be decided first.

The White House has said a bailout of Detroit is not on the horizon, though some have called for President Obama and Congress to intervene.

In a bill similar to Graham’s amendment, Sen. David Vitter, R-La., would extend the ban on bailouts to states that also face fiscal peril.

“The federal government stepped in to rescue the banks and the auto industry but people have had enough,” said Vitter, who sits on the  Senate Committee on Banking, Housing and Urban Affairs. “We can’t afford any more bailouts.”

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