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House passes budget in big Clinton victory.

President Bill Clinton appeared on the verge of his greatest victory as President as Congress headed toward passage of his $496 billion economic recovery and deficit reduction package, HR 2264, last week as the Weekly went to press. The bill would set in motion the five-year plan the President presented to Congress and the American people last February.

For the nation's cities, the bill would meet a double goal: it would provide significant federal deficit reduction over the next five years while at the same time reducing human and family deficits in cities by increasing economic incentives for a number of key municipal priorities. Moreover, in the closing days of the House-Senate conference, conferees rejected two separate efforts to preempt municipal rights after hard lobbying efforts by municipal leaders from across the nation.

For towns and cities the plan would:

-cut spending $255 billion and increase taxes $241 billion over five years;

-permanently extend municipal authority to issue municipal mortgage revenue and small issue industrial development bonds;

-authorize a new, $3.5 billion enterprise zone program;

-extend the current 2.5 cent gas tax for four more years from 1995 to 1999, but transfer the revenues raised into the Highway Trust Fund and Mass Transit Accounts;

-increase the current federal gas tax by 4.3 cents per gallon, exempting cities and towns, and rejecting White House and House proposals to mandate a BTU energy tax directly on cities and towns;

-extend the expiring provision limiting the deductibility of state and local taxes;

-extend both the employer-provided educational assistance and targeted jobs tax credit programs through December 31, 1994;

-extend permanently the low income housing tax credit;

-expand and simplify the earned income tax credit (EITC) program and create a new family preservation program;

-reject a proposal to preempt state and local authority to impose property and other taxes on companies with FCC licenses; and -- reject a proposal to preempt the authority of cities to annex and provide utility services to rural electric coops.


Overall the plan fell just short of the President's goal of reducing the federal deficit by $500 billion, a cut expected to leave the deficit in five years at about the level it is today, and growing--but $496 billion less than would it would otherwise be. But the plan also would significantly alter federal budget priorities, aimed at reducing physical and human deficits in communities.

The largest spending cuts are made in discretionary programs, especially defense, subject to annual review by the Congress through the imposition of a five-year spending freeze. This is projected to achieve $102 billion in deficit savings, with much of the savings coming in the latter years as city programs are pitted against defense, foreign aid, and other domestic programs.

The plan also includes $88 billion in net cuts in entitlement spending, programs not subject to annual review which are the largest and fastest growing part of the federal budget. But not only does the bill cut, it also changes the direction of federal entitlement spending away from higher income to lower income families. The bill would provide nearly $25 billion in new entitlement spending for low income Americans for the Earned Income Tax Credit (EITC), enterprise zones, and family preservation. The largest cut, some $55.8 billion, would come from the Medicare entitlement program. The growth in entitlement spending is expected to account for some 93 percent of increased federal spending over the next five years.

Finally, the plan assumes $65 billion in savings from reduced costs of paying interest on the national debt.

In revenues, the bill would raise $268 billion in taxes over five years, but offset the increases with $29 billion in increased or new tax incentives. More than half the tax increases would come from increasing the top individual and corporate tax rates.

For municipal leaders, the key tax issues are:

-retroactive and permanent reauthorization of authority for cities and towns to issue single family mortgage revenue bonds and credit certificates and to issue small issue industrial development bonds. The plan would make the low income housing tax credit permanent. This authority expired on June 30th last year;

-retroactive and temporary extension of targeted jobs tax credits through December 30, 1994;

-municipal exemption from the 4.3 cent gas tax increase. The final bill rejected the administration and House proposal to impose a BTU energy tax on cities and consumers, projected to cost state and local governments $ 10 billion. The final plan instead adopted a gas tax retaining the existing exemption for state and local governments. House and Senate conferees, however, rejected the NLC-supported Senate approach and an option proposed by the White House to dedicate the $23.4 billion in new gas tax revenues to the Highway Trust Fund and an infrastructure trust fund. All the revenues will be used for federal deficit reduction;

-creation of a $3.5 billion federal empowerment and enterprise zone program. The plan would provide $2.5 billion in tax incentives, almost all of which would be targeted to nine empowerment zones--five large cities, one medium sized, and three rural areas--for wage credits and expensing.

Cities would be selected competitively by HUD Secretary Henry Cisneros based upon meeting the distress criteria and the submission of a strategic plan.
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Title Annotation:includes related information on key budget issues
Author:Shafroth, Frank
Publication:Nation's Cities Weekly
Date:Aug 9, 1993
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