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Coyne tries to ease mandates on muni bonds.

Rep. William Coyne (D-Pa.) last week introduced comprehensive NLC-supported legislation to ease current federal mandates on municipal issuance of tax-exempt bonds and to create a new kind of tax-exempt, municipal bond to help distressed cities and towns.

Introducing the municipal investment and mandate relief bill, Coyne said he was aiming to simplify the confusing, needlessly complex, and expensive provisions of the current law and regulations. He also indicated he wanted to provide new economic development tools for "communities that have been hard hit by population loss, job loss, slow growth, or military base, closings."

While many of the mandate relief provisions have been offered and passed before, only to be vetoed by former President Bush,the distressed economic development bond is similar to the new kind of bond proposed by President Clinton as Part of his enterprise zone legislation earlier this year. The bond provision, however was stripped out by Rep. J.J Pickle (D-Tex.).

NLC's Board of Directors first urged the President and Congress to enact legislation to create authority for distressed cities and towns to issue municipal tax-exempt economic development bonds, last year. The Board wanted new tools for cities to help themselves -- especially tools which would create incentives for increased bank capital investment in distressed urban and rural areas.

Under the proposal, fifty percent of the bond would be exempt from the state private activity volume cap or limitation, and the bonds would be bank deductible for smaller cities and towns.

To be eligible to issue the new kind of bonds, a city or town would have to meet one of four of the following criteria: an average, five-year unemployment rate over eight percent; slow job growth; population loss equal to or greater than five percent; or a military base closing resulting in the loss of at least 500 jobs.

* The key elements of the Coyne bill would:

* reduce existing mandates on arbitrage and rebate;

* ease existing limits on bank deductibility; and

* index the state-by-state volume cap on private activity bonds.

Analysis

The bill would reduce arbitrage and rebate restrictions on municipalities in two ways. First, it would permit exemption for traditional governmental as well as private activity used to finance a government-owned facility if proceeds of the bonds were spent on a three-year schedule, as opposed to the two-year schedule imposed under current federal regulations. Secondly, the bill would increase the small municipality exception from $5 million to $10 million annually.

The Internal Revenue Service (IRS) reported that states and local governments made rebate payments to the federal government of over $300 million in arbitrage this year.

Coyne's bill would also increase the bank deductibility provision. Under current law and regulations, banks are permitted to deduct 80 percent of their costs of purchasing and carrying municipal tax-exempt bonds if they are purchased from a city or town which issues no more than $10 million annually in traditional governmental (general obligation and revenue) bonds. The bill would increase the limit to $25 million annually.
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Title Annotation:Representative William Coyne
Author:Shafroth, Frank
Publication:Nation's Cities Weekly
Date:Dec 20, 1993
Words:497
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