The National Taxpayers Union has thrown its support behind legislation that would bar the federal government from rescuing state and local governments facing bankruptcy or insolvency, citing $6.1 trillion in combined liabilities among fiscally troubled jurisdictions nationwide. In a letter dated June 18, 2026, the advocacy organization endorsed H.R. 9324, the Government Bailout Prevention Act, introduced by Representatives Greg Steube, Keith Self, and Scott Perry. The group argues the bill would protect taxpayers from subsidizing what it calls poor financial management at the state and local level.
The National Taxpayers Union points to analysis from the Reason Foundation estimating that many fiscally troubled states and localities are moving toward insolvency with combined liabilities reaching $6.1 trillion. The organization singles out Illinois as facing "one of the nation's most severe fiscal crises" due to chronic fiscal mismanagement and unsustainable pension obligations. According to the letter, Illinois continues to see residents and taxpayers leaving for states with stronger fiscal governance and more sustainable economic policies.
The letter characterizes the legislation as fundamentally about "fairness and accountability," arguing that taxpayers in fiscally responsible states shouldn't be compelled to bail out jurisdictions that have repeatedly failed to control spending or reform unsustainable obligations. Thomas Aiello, Vice President of Federal Affairs at the National Taxpayers Union, writes that "Hoosiers, Arkansans, Floridians, Texans, and millions of other Americans living in well-run states should not be forced to subsidize the consequences of irresponsible governance elsewhere." The organization describes the bill as "a pro-taxpayer bill that prevents the federal government from being forced to underwrite irresponsible financial decisions made by state and local governments."
The advocacy group's backing centers on what it calls a dangerous moral hazard created by the implicit expectation that federal taxpayers will serve as a backstop for state and local fiscal collapse. According to the letter, if policymakers believe Washington will rescue them from the consequences of poor financial stewardship, the incentive to pursue responsible budgeting and structural reforms is significantly weakened. The organization argues that many state and local governments have accumulated unsustainable pension liabilities and made long-term spending commitments they're increasingly unable to finance, compounding the problem.
The Government Bailout Prevention Act would specifically prohibit the use of federal funds by the Treasury Department or the Federal Reserve to purchase, guarantee, or otherwise support the obligations of governments that have defaulted, filed for bankruptcy, or face imminent insolvency. The National Taxpayers Union calls this "a prudent and necessary limitation that protects taxpayers from open-ended liabilities while encouraging states to reform their spending practices." The organization says it looks forward to working with the bill's sponsors to help it become law.