Senator David Vitter (R-LA) introduced legislation yesterday to prevent the Federal Reserve from secretly bailing out states with budget problems.  Senators Jim DeMint (R-SC) and Mike Crapo (R-ID) have joined the effort and signed onto S.251, the State Bailout Prevention Act.  This legislation music to the taxpayer’s ears.

The Hill reports that Senator Vitter wants to use this legislation to slam the door on state and local bailouts by the federal government.

With the State Bailout Prevention Act, Vitter is looking to make legally binding an earlier commitment from Fed Chairman Ben Bernanke that the central bank would not make loans to states and municipalities struggling with budget gaps and large debt burdens. Testifying before the Senate Budget Committee on Jan. 7, Bernanke said states “should not expect loans from the Fed.”

Vitter is memorializing the Bernanke promise into law.  Because of Bernanke’s promise, one should expect the Federal Reserve to wholeheartedly support this effort by Senators Vitter, DeMint and Crapo.  This law would make it the iron clad promise of the federal government not to use taxpayer money or taxpayer backed loans to prop up, bail out and otherwise enable state and local governments in deep financial distress because of irresponsible budgetary decisions.

The legislation is a comprehensive effort to shut the door on all of the federal government’s financial tools available today to bailout states and localities.  This legislation follows on the heels of the termination of President Obama’s “Build America Bonds” (BABs) created in the President’s so called “Stimulus” plan.  The BABs were tax free federal bonds that served to provide a rolling blue state bailout for states that have spent more than they take in.  The BABs expired at the end of 2010 and conservatives blocked all efforts to renew these bonds.

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This morning I filed the following Appeal with Obama’s Treasury Department over its continued withholding of documents responsive to our Freedom of Information Act Request seeking internal discussions over administering a possible cap-and-trade scheme that the president, as a candidate, made clear was intended to cause our energy prices to “necessarily skyrocket” and “bankrupt” numerous facilities.

The message of this is not to rehash what the documents reveal, about which those media outlets willing to report have already reported, and those seeking to make go away have already tried their level best. Instead, it is to follow up on Treasury’s vows of cooperation, after which they suddenly went silent, refusing to comply with the law in any meaningful way. It is clearly still hiding what are intended to be public documents.

If the administration had, for example, merely made a nod in the direction of complying with FOIA and provided an index of documents – even a sorry specimen claiming that all that is relevant is being provided except for those parts that are not – then that would only have prejudiced, say, a court against Treasury’s interest in openness and veracity with regard to our document Request. As I told any reporter willing to listen, following the first release of redacted (and within days, unredacted) documents, would have been the case had they attempted to convince a court that these specious redactions of merely embarrassing language were permissible under FOIA. I suggested they dropped those redactions as insurance against possible litigation, as that would have been tossed on our first motion and given the court an idea of their idea of compliance.

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