This vote was on an amendment by Judd Gregg, R-N.H., that would have prohibited any grants, loans or other aid to state or local governments that have defaulted or at risk of defaulting without federal aid, unless the aid being considered is related to a natural disaster.  The amendment was made to a bill that aims to close gaps in financial regulations, strengthen oversight of consumer lending and more closely oversee complex financial instruments. 

“But if the default that the State or local community is about to experience is the function of their failure to discipline their fiscal house, then we are not going to ask the taxpayers across this country to support that error in judgment and that misguided fiscal policy of that State or that local government,” Gregg said.  “If we do not have this type of rule in play, basically we will be setting up a situation where the American people will become the guarantor of inappropriate actions across this country by legislators and city governments. You will have this untoward situation where you will basically create an atmosphere that there is an incentive for State governments and local communities to not be fiscally responsible.”

Chris Dodd, D-Conn., said the amendment “goes way beyond anything I have ever quite seen,” and is too ambiguous; for instance, Dodd questioned who would determine whether a state or local government was “likely to default.”

“I will acknowledge in certain circumstances local governments or State governments have made irresponsible choices. But you do not blame the entire population of that State or locality because some leadership has made a bad choice and then cut off Medicaid, nutrition assistance, and so forth. Do you blame a child living in a State because some Governor, a mayor, a county executive has made dumb decisions, and all of sudden, we say: “I am sorry, you happen to live in that State. You are going to have to move. Go someplace else in order to get help?” Dodd said.

By a vote of 47-50, the amendment was rejected.  Every Republican present voted for the amendment.  All but six Democrats present (including the most progressive members) voted against the amendment.  The end result is that the measure went forward without language that would have prohibited federal aid from going to a state or local government that had defaulted or was at risk of default, except for natural disaster aid.