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City priorities likely to escape tax unit's cuts.

Top House leaders indicated last week that President Clinton's long-term spending initiatives for people and communities are in trouble. At the same time, the House tax-writing committee prepared to make changes this week in the President's tax priorities. They are likely to approve the key tax provisions important to city leaders.

Rep. Vic Fazio (D-Calif.), a key member of the House Appropriations Committee, indicated last. week that the President's plans for significant new investments in infrastructure, housing, and families for next year is in danger:

"It will be inevitably less than-significantly less than--the initiatives package that the President submitted as investments for the future.

The President had requested Congress to approve nearly $7 billion in new domestic investments for next year, but his overall domestic discretionary spending requests exceed the amount Congress can appropriate or spend by $6.8 billion. This means the House Appropriations Committee has no choice but to either sharply cut the new initiatives, or to make deep, off-setting cuts in existing programs.

The Clinton administration has, so far, refused to propose a list of priorities or to poffer specific cuts in existing program. According to some sources on Capitol Hill, the administration has suggested making across-the-board cuts in all existing programs-- such as Community Development Block Grants, wastewater, and other programs--in order to pay for the new initiatives. This appraoch has so far been unacceptable to Congress.

Taxing Questions

The situation in the House tax-writing committee, charged with coming up with nearly 80 percent of the deficit reduction sought by the President, has shown some similarities. According to Congress' Joint Tax Committee, the President's tax changes and entitlement spending cuts could fall as much as $30 billion below the deficit reduction target the committee is mandated to meet by this Friday.

NLC President Don Fraser wrote to House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.) to support "your courage in confronting the hard choices [on tax increases and spending cuts] that are key to any long term investment and deficit reduction needs critical to reviving the national, state and local economies. We are convinced that the nation must make the hard choices and sacrifices necessary for the country's future."

Fraser also wrote to urge the committee to adopt the President's proposed permanent extensions of municipal tax-exmpt mortgage revenue and small issue industrial development bonds and the low income housing and targeted jobs tax credit provisions:

"These are important tools for state and local governments to provide shelter and economic opportunities, especially for families and communities most adversely affected by our economy."

Fraser urged the committee to modify portions of the bill dealing with traditional public purpose bonds, social security taxes on state and local elected and appointed officials, and pensions:

"We urge the committee to adopt proposals on municipal bonds to enable states and local governments to help finance the nation's infrastructure, health, and education needs, and to comply with unfunded federal mandates. We strongly urge you to consider changes in the definition of public purpose bonds, the arbitrage rebate provisions, the bank interest deduction, and volume caps."

The NLC President expressed strong concern about two provisions:

"We oppose the application of the BTU energy tax directly on state and local governments, and the extension of the limitations on the deductibility of state and local taxes. The imposition of the energy tax on states and local governments will have a significant budget impact, especially on police, fire, and emergency rescue agencies; schools, hospitals, and other public buildings; and street lighting. It will force our levels of governments to either cut those public services or increase other taxes to pay the federal taxes. It violates the principle of intergovernmental reciprocal immunity. We do not believe any level of government should be in the business of taxing other levels."

The gap between the deficit target the committee has to reach and the President's proposals is expected not only to make it exceptionally difficult to make any of the changes advocated by state and local leaders, but also to put at risk some of the incentives for cities in the President's proposal.

Rostenkowski made it clear that the committee will reject the President's proposed investment tax credit (ITC) incentive. That would save the committee some $27 billion. But the committee and administration spent much of last week considering alternative ways to "spend" that money, instead of dedicating it to deficit reduction.

Under the budget instructions, the committee is supposed to complete action by May 14th, sending its portion to the full House, where it will be joined together with twelve other committee's permanent spending cut proposals. House Speaker Thomas Foley (D-Wa) has indicated he would like to complete action and send the entire package to the Senate before the Memorial Day recess.
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Author:Shafroth, Frank
Publication:Nation's Cities Weekly
Date:May 10, 1993
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