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Btu tax, annexation, enterprise zones top city priorities in budget debate.

The Clinton administration last week made clear its intent to play a key role as House and Senate conferees seek a compromise on the President's economic recovery plan. The White House statements came as House Speaker Thomas Foley (D-Wash.) said he would not appoint House conferees until July 12 when Congress returns from its Independence Day recess.

Some of the key issues for cities in-the conference will be: the Btu tax, a House-passed preemption of municipal annexation rights over rural electric cooperatives, enterprise zones, and the length of extension of priority municipal programs.

The administration sad that the final version must include an energy tax despite growing opposition from both liberal and conservative House Democrats. The issue of the energy tax is expected to be one of the most difficult for the Congress and administration.

The House version would raise $72 billion over five years through the phase in of a federal excise tax on the heat content of fossil fuels, alcohol fuels, and electricity--the filly energy tax.

The energy tax is the second largest component of the President's deficit reduction package. As proposed by the administration and passed in-the House, it would impose a new federal mandate of as much as six to seven percent of municipal energy budgets. It would set a precedent of the federal government imposing a direct tax on state and local governments, forcing cities and towns to either pass the mandates on in the form of higher city taxes or in reduced services.

The Senate agreed to a controversial alternative to the administration's proposed $71 billion BTU energy tax by substituting deeper Medicare spending cuts, reductions and eliminations of some tax incentives affecting cities and towns, and a 4.3 cent transportation fuel tax.

House Version

The House passed 1500 page, $343.9 billion deficit reduction or reconcilition legislation, HR 2264, would bring in a net of $275.5 billion in new revenues and mandate $68.5 billion in permanent spending cuts. Together with more than $100 billion in defense spending cuts and a virtual freeze on new domestic discretionary spending, the President's plan is projected to reduce the federal deficit by nearly $500 billion over the next 'five years.'

For cities and towns, the package represents the largest deficit reduction proposal ever sought by any president. But, in addition to the deficit reduction, the package also includes parts of the President's long-term investment proposals to leverage investment in communities in housing, economic development, and transportation.


The Senate version, HR 2264, of the President's economic recovery plan is similar, but it does contain a number of key changes. The Senate dropped the BTU energy tax and replaced it with a transportation fuel tax that exempts cities and towns; the Senate Agriculture Committee rejected territorial protection preempting state laws and municipal rights.

Part of the means to make up for the foregone revenue from the abandoned Btu energy tax was to-eliminate entirely the President's $5.2 billion enterprise and empowerment zones for cities and towns, to cut short the extensions of municipal authority to issue mortgage revenue and small issue industrial development bonds to one year, and to make deep cuts in the President's proposed increase in earned income tax credits (Errc).

The tax and spending agreement, packaged together with the work of eleven other Senate committees, and combined with spending cuts through Congress' appropriations or spending bills, is projected to produce $499 billion in deficit reduction-$248 billion in tax increases and $251 billion in spending cuts over the next five years.


The key issues and differences will be in the areas of energy taxes, levels of cuts in Medicare and Medicaid entitlement spending, aid to severely distressed cities and towns, the earned income tax credit, and family preservation.

For cities and towns, the key issues in conference will be:

* energy taxes: the House has a broad-based $71 billion BTU energy tax, of which $10 billion' would be levied directly on essential state and local services; the Senate opted for a $24 billion 4.3 cent gas tax on transportation fuels, which retains the exemption for state and local governments. There seems to be general agreement that conferees will seek to find $25 to $30 billion in additional energy tax revenues, but how is expected to be an especially difficult question. The White House has indicated it will push for the BTU tax; others have discussed either an increased gas tax or a federal sales tax on electricity.

* municipal tax priorities: the House proposed permanent extension of municipal authority to issue tax exempt mortgage revenue and small issue industrial development bonds, as well as targeted jobs tax credits; the Senate extended these programs only until June 30, 1994.

* enterprise zones: the House adopted $5.2 billion in tax incentives for empowerment and enterprise zones in distressed cities and towns; the Senate has no provisions.

* REA: The House bill contains a provision to preempt the municipal power of eminent domain for the purpose of extending new federal rights and protections to rural electric cooperatives. That section would preempt state law and insulate rural electric cooperatives that have outstanding federal loans from loss of service territory through the lawful exercise of a municipality's power of eminent domain. In particular, the proposed provision would prohibit a municipality from condemning rural electric cooperative facilities and territory in annexed areas; granting a franchise to a competing utility in annexed areas; or, collecting a franchise or licensing fee from a cooperative that serves an annexed area. The Senate has no comparable provision.

* family preservation: The House bill would provide $1 billion in new assistance for families at risk of having children removed from the home; the Senate has no comparable provision.

* earned income tax credit (EITC): the House bill would increase benefits for families by $28 billion over five years; the Senate bill would increase the credit by $18 billion, but restrict it to families with children.
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Author:Shafroth, Frank
Publication:Nation's Cities Weekly
Date:Jul 5, 1993
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