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Senate starts work on urban aid tax bill.

The Senate last week began action on the massive urban aid tax bill by adding more than $3 billion for cities to designate 100 additional cities and towns as enterprise zones and by dropping an NLC-opposed municipal property tax reporting mandate. When the Senate returns, it is also expected to consider an amendment to add as much as $5.5 billion in direct assistance for community investment and public safety.

As pending, the bill would:

* designate 125 cities and towns as enterprise zones over the next five years;

* create a new kind of bank deductible, tax exempt economic development bond for all distressed cities and towns;

* reauthorize and extend key, expired municipal tax priorities for 18 months, including mortage revenue and small issue idb bonds, and the low income and targeted jobs tax credit programs; and

* expand incentives for banks to purchase municipal bonds to medium sized cities and simplify a number of restrictions on the ability and authority of cities to issue municipal bonds.

The bill also includes major provisions for foster care, tax free retirement saving incentives, real estate tax breaks, and repeal of the luxury excise taxes. The new tax breaks and incentives are offset by some $31 billion in new revenue raising provisions, including a permanent extension of the restrictions on the deductibility of state and local taxes.

The action came as the Senate commenced work on nearly 150 amendments to the $31 billion tax bill, HR 11. After two days of consideration, the Senate adjourned last Wednesday night for the Republican convention in Houston and the August recess. The Senate is scheduled to resume action on the bill after it returns on September 9.

For municipal leaders, the major changes came in response to White House veto threats to the bill and to the leadership of city officials across the country.

HUD Secretary Jack Kemp had called the bill a "hoax" because it would have designated only 25 cities and towns as enterprise zones--as opposed to an administration sponsored alternative that would have cost the same amount--$2.5 billion over five years--but, because it offers much shallower assistance, could have reached as many as 150 cities and towns. Kemp said he would urge a veto of the entire bill unless more cities were designated and the bill included cuts in the capital gains tax.

In response to Kemp's charges, Senate Finance Committee Chairman Lloyd Bentsen (D-Tex.) successfully offered an amendment to more than double the funding and quintuple the number of enterprise zone cities. Bentsen paid for the additional $3 billion cost by dropping two tax breaks requested by President Bush: a $1.7 billion tax break for accelerated write-offs for business equipment purchased before the end of the year, and a $1.3 billion tax break for first-time home buyers who purchase before the end of the year.

The Bentsen amendment would provide for 75 urban enterprise zones, 15 in 1993, 15 in 1994, 25 in 1995 and 20 in 1996, with at least 40 of the zones being awarded to cities with populations of less than 500,000. The amendment would provide for 40 rural zones, phased in at 8 in 1993, 8 in 1994, 12 in 1995, and 12 in 1996. It would phase in 10 Indian reservations over the same time period.

The Bentsen amendment also modified the eligibility criteria to reduce the population threshold for medium and smaller sized cities and to add general distress as evidenced by high drug trafficking, high unemployment, or other factors. And the amendment modified the employer wage credit to 30 percent to all employers for the first $15,000 in wages to any current or newly hired eligible employee.

The modified committee bill leaves unchanged the provision creating authority for each distressed city and town to issue a new kind of tax exempt economic development bond. These bonds would only count 50 percent against the state private activity volume cap, and they would be bank deductible--creating an incentive for local banks to invest in economic development projects in their own communities.

After the Senate adopted the Bentsen amendment, Sen. Robert Kasten (R-Wisc.) declined an opportunity to offer his administration-backed amendment, leaving it unclear whether the administration will seek to reduce funding for enterprise zones when the Senate returns to the bill next month.

Last Wednesday, the Senate also agreed to a separate amendment that provided a double bonus for cities, eliminating an unfunded mandate and reducing a disincentive to purchase municipal bonds. The amendment to restore the first-time homebuyers tax credit by Sen. Bob Packwood (R-Ore.) would put a cap on the bill's individual retirement account (IRA) provisions, limiting eligibility to individuals with incomes of up to $80,000 annually and families with incomes of up to $120,000. The savings gained from adding the earnings limitations were sufficient to pay not only for restoring the first-time homebuyers' tax credit but also to eliminate the property tax reporting mandate on local governments. Putting the earnings cap on would also help cities by assuring that the wealthiest taxpayers would not be given a federal incentive to sell their municipal bonds in order to invest in a federally backed IRA alternative that offered higher interest rates.

When the Senate recessed, it was considering an NLC-opposed amendment offered by Senate Minority Leader Robert Dole (R-Kans.) to continue an existing tax credit for unconventional fuels such as gasahol. Dole is proposing to pay for the extension by reducing the reauthorization for the expired municipal tax priorities from 18 down to 15 months. The Senate is expected to vote on the Dole amendment in one of its first actions upon its return.

Finally Senate Banking Committee Chairman Don Riegle (D-Mich.) intends to offer a community investment and public safety amendment to the bill next month. The Riegle amendment, while not fixed yet, would provide nearly 40 percent of its funding in direct--rather than tax--assistance for national public--private partnership programs to all communities through increasing funding for Head Start, community health centers, and the Job Corps.

The other 60 percent would go directly to enterprise designated cities and towns as an Enterprise Zone Block Grant program focused on: crime and community policing; job training; child care and education; health, nutrition, and family assistance; and housing and community development.

According to Riegle's staff, the funding level is intended to parallel the enterprize tax break funding level, so that the amendment could seek to provide as much as $5.5 billion in direct funding assistance to the nation's cities and towns.
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Author:Shafroth, Frank
Publication:Nation's Cities Weekly
Date:Aug 17, 1992
Words:1090
Previous Article:The 1992 National City Challenge to Stop Drunk Driving.
Next Article:Congress leaves town without dealing with key municipal issues.


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