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Action surrounds key city programs in Washington.

Congress and the administration took a series of steps last week which could affect community budgets and financing, including tax-exempt financing, airport funding, block grant funds to cities for housing, privatization of municipal failities, and regulatory delays.

Congress also opened hearings and moved toward passage of a Constitutional amendment on a balanced budget with a commitment by Senate Majority Leader George Mitchell (D-Maine) to schedule a vote before the end of the month.

Municipal Tax-exempt Financing

In a key move, Rep. Beryl Anthony (D- Ark.) successfully offered an NLC-supported amendment to reduce the cost of municipal financing in the House Ways and Means Committee last Thursday. The committee adopted an Anthony amendment to the tax portion of the House version of the energy bill, HR 776, which would double the so-called bank deductibility limit adopted in the 1986 Tax Reform Act.

The amendment, which now goes to the full House, would increase the incentive for banks to by more bonds and notes issued by cities and towns. That, in turn, would increase the market, reducting the interest rates local governments would be required to offer. It would double the current threshold for banks to deduct some of the costs of purchasing or carrying municipal tax exempt bonds from municipalities from $10 million to $20 million annually, beginning on January 1, 1993.

Under current law, banks may deduct up to 80 percent of such costs, but only from cities and towns that expect to sell less than $10 million in traditionsl governmental--or general obligation and revenue municipal bonds--annually.

Anthony offered the amendment in an effort to offset another amendment expected to adversely affect municipal financing. That amendment, offered by Rep. Richard Schulze (R-Penn.), would remove the current restrictions as to the investment of nuclear decommissioning trust funds and lower the tax rate on such funds. Currently those funds are taxed at a 34 percent rate and may only be invested in U.S. Treasury securities or municipal bonds.

Airport Funding

In a separate action, the House Ways and Means Committee last week also approved the release of $7.4 billion in airport and airway funding in 1993 and $8 billion in 1994 out of the Airport and Airway Trust Fund, but adopted a "technical" amendment prohibiting the airport and airway user fee increases or taxes adopted as part of the 1990 budget agreement from going into the trust fund. Under the amendment, those funds would be used to cover up the size of the federal deficit. The user fees include the 10 percent air passenger ticket tax, the cargo tax, the $6 per person international departure tax, the gas tax, and jet fuel tax.

House Unit Votes to Cut Priority

Municipal Programs

The House Appropriations Committee voted last Wednesday to pass and send to the full House HR 4990, a bill cutting $5.8 billion in already enacted funding or appropriations for the current year, including $734 million in programs affecting cities and towns. The Senate Appropriations Committee reported out a similar bill late Thursday, but did not adopt the House proposed cuts in the HOME or EPA municipal wastewater program.

The House unit adopted an alternative to the 98 different cuts or rescissions requested by President Bush in March, including substituting a cut of $61 million in the new HOME state and local housing block grant program and $24 million in the EPA municipal wastewater construction grants program. The construction grants program is supposed to pay for a share of the $80 billion in federally mandated sewage treatment construction costs imposed on cities and towns under the Clean Water laws.

The pressure to cut the already approved funding for cities comes as the White House and Congress are gearing up to act on the president's request for the $24 billion bailout package for Russian cities and towns prior to the arrival of Boris Yeltsin at the White House in June.

Municipal Privatization

President Bush signed an executive order at the White House on Wednesday afternoon which would allow cities and towns to reduce the amount of money they would have to turn back to the federal government in the event of selling a public facility built or purchased with federal grants.

Under the prior system, a community was required to remit whatever percentage the federal grants were. If 50 percent of the construction costs of a municipal airport were funded through federal grants, than a city would have been required to give half of whatever final selling price it realized back to the federal government.

Under the President's executive order, a city could sell any public facility by competitive bidding. In a non-competitive sale, however, the selling price would have to be approved both by the head of the appropriate federal agency and the president's director of the Office of Management and Budget (OMB). The city would be able to, first, recoup all its costs (construction, transaction, and fix-up). If there were additional funds, the city would be required to remit the full amount of the federal share, less the accumulated depreciation. The city would be permitted to keep the rest, but only if:

[Section] the city agrees to use the proceeds for investment in public infrastructure, or debt or tax reduction,

[Section] that the facility will continue to be used for its originally intended purpose--even if the private owner goes bankrupt, and

[Section] that any user changes will be consistent with protecting the public interest and limiting charges to users.

Extension of Regulatory Moratorium

President Bush held a separate announcement on Wednesday afternoon extending for an additional 120 days the regulatory moratorium he announced last January.

The moratorium has had a mixed impact on communities, delaying some rules which could simplify and reduce liabilities for cities and towns.

Constitutional Balanced Budget

Amendment Set to Move

Both the House and Senate appear to be moving closer to adopting and sending to the states a Constititional amendment to require a balanced federal budget. The Senate could take up its version of such an amendment as early as next week. The House might take up the Senate version or one proposed by Rep. Charles Stenholm (D-Tex.).

The Senate measure would require a three-fifths majority of Congress to override the balanced budget requirement in any year. It does not provide any enforcement mechanism nor any means to reduce the record federal deficits.

Sen. Nancy Kassebaum (R-Kans.) warned her Senate colleagues that if adopted, it could cause the complete elimination of state and local aid, accelerating the increase in unfunded federal mandates.

Kassebaum said:

"The political appeal of the amendment is obvious. It permits strong public advocacy of a balanced federal budget without necessitating public advocacy of the extremely unpopular steps necessary to accomplish the goal. The balanced budget amendment is a politician's delight--it's popular, it's safe, and so far it's fooled most of the people most of the time."
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Article Details
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Author:Shafroth, Frank
Publication:Nation's Cities Weekly
Date:May 4, 1992
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