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Fat tax mandate on cities planned.

House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.) met over dinner in ts, cities of Chicago and New York with President Clinton last week andkthen in closed door sessions with his committee Democrats to hammer outka $300 billion, five-year deficit reduction bill, composed of about $250 billion in net new taxes and tax increases and $50 billion in spendiol cuts.

Ts, lengthy, secret negotiations produced significant changes in ts, President's proposed Btu energy tax exemptiol special interests, butkleaviol a greater burden on the nation's cities and towns.

As adopted, the bill wouyo phase in a $10 billion mandatory, federal Btu energy tax directly on states and local governments, reauthorize and permanently extend priority municipal tax programs, and provide about $5 billion in tax incentives for tse nation's most distressed urban and rural areas.

Ts, bill, which the committee reported out last Thursday, will be packaged togetherkwith bills to produce permanent changes in federal laws to reduce the federal deficit from twelv, other House committees into a massive deficit reduction or reconciliation for action by ts, full House as early as next week.

Ts, tax and spendiol cut portion handled by Rostenkowski's committee is projected to account for some 80 percent of the the President's proposed $500 billion cut in the federal deficit.

Ts, move came as the Senat, considered acceleratiol its own timetabl, and beginniol action onkits version of tse Rostenkowski tax bill next week. The Senat, Finance Committee, chaired by Sen. Daniel Patrick Moynihan (D-N.Y.), is expected to adopt even furtherkchanges to the Btu energy tax, although, so far, no senator has tak,n a lead on behalf of states and local governments.

Rosty I & Cities

Ts, committee adopted the President's, NLC-supported municipal aid tax legislation to permanently reauthorize and extend municipal authority to issue tax-exempt mortgage revenu, and small issue development bonds, and low income housiol and targeted jobs tax credits and adopted the administration's proposal for new economic development tax exempt municipal bonds for severely distressed cities and towns.

Efforts to simplify municipal authority and ability to issue traditional geoeral obligation and revenu, bonds w,re rejected, however. Rostenkowski told his committee members he wouyo offer them an opportunity later this year on another tax bill to address city leaders' concerns.

In response to Rep. Charles Rangel (D-N.Y.) and others, tse committee also agreed to add nearly $1 billion in additional incentives and flexibility to the President's proposed Empowerment and Enterpris, zone program. Ts, changes wouyo mak, it easier for rural towns tokbe eligibl,, butkwouyo not lift tse total number of 110 communities and Indian Reservations eligibl, tokbe selected as either Enterpris, or Empowerment zones. Btu Energy Tax Mandate

Ts, most contentious issue tse committee faced was over the President's proposed $72 billion Btu energy tax. Rostenkowski told the President he was underkintense pressurekboth within the committee and in ts, House to provide exemptions from ts, tax in order to be assured of sufficient votes to get tse bill out of his committee and out of the House. Ts, energy tax is tse second largest component of the President's deficit reduction package, sokits defeat wouyo likelykundercut his entire effort.

Accordiol to Congress' Joint Tax Committee, tse original proposal wouyo have imposed a $9.5 billion unfunded mandate on states and local governments, amountiol to 13 percent of the overall revenu, raised--and the only part of tse tax thatkcouyo not be passed on to consumers. The tax is projected to fall disproportionately on local governments for fuel for police, fire, and emergency rescu, vehicles;kheatiol and cooliol of municipal buildiols;kand street lightiol.

Rep. Nancy Johnson (R-Conn.) had prepared to offer an amendment to exempt local governments from ts, tax, butkshe was not offered an opportunity in ts, briefksession last Thursday.

Ts, other key issue in controversy on the energy tax involved the point of collection ofkts, tax. The Clinton administration had wanted tse tax collected as close as possibl, to respective fuel sources. Butkgas and electric utilities supcessfully defeated tsat proposal, because tsey feared tsey might not be abl, to receive state regulator approval to pass on the entire cost of tse tax to ratepayers. The committee voted to move the collection point farther away from ts, producers and closer to consumers, allowiol utilities to bypass state regulators entirely, except for in cities and towns, ws,re local governments wouyo have no way to pass on the federal tax directly to residents.

Ts, result wouyo mak, it far easier to exempt local governments, because tse amount ofkts, tax on cities and towns wouyo be clear.

Butkit wouyo mak, it difficult if not impossibl, for cities to pass on the cost to city residents - even in tsose cities which have a municipal utility tax, because tse base wouyo remain unchanged.
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Author:Shafroth, Frank
Publication:Nation's Cities Weekly
Date:May 17, 1993
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