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Politics test strength of House, Senate urban aid accord.

Congress passed and sent the urban aid bill to the President last Thursday, but the bill's fate was in doubt as the Weekly went to press. Presidential politics threatened the $28 billion tax and urban aid bill even as Congress easily reached agreement and sent the President a $24 billion Russian bailout package.

The Russian bailout is one of the president's highest priorities.

In contrast, the urban aid bill, which would provide about $11 billion in tax and direct investment in distressed American cities and towns, faces a likely Presidential veto.

A veto would leave cities and towns unable to issue municipal tax exempt mortgage revenue and small issue industrial development bonds at least until next year, further eroding local ability to provide jobs and affordable housing in communities. It would also undermine administration promises to respond to the events of Los Angeles last spring.

The House passed the agreement at 4:10 a.m. last Tuesday morning on a narrow 208--202 margin. The Senate passed the agreement 67- -22 and sent it to the White House late Thursday afternoon.

Urban Aid Agreement: Meeting Post-Los Angeles Promises

The House-Senate agreement on urban aid marked the first step taken by Congress in response to promises made by both President Bush and the bipartisan Congressional leadership in the aftermath of the riots in Los Angeles last spring.

For the nation's cities and towns, the bill includes permanent reauthorization of expired, priority municipal affordable housing and job training programs; over $5 billion in new enterprise zone programs; significant simplification and reduction of federal mandates on the issuance of traditional municipal bonds; positive changes in municipal 415 and 457 pension provisions; and changes in mandatory Social Security for some municipal officials.

As completed, the bill contains some $28 billion in tax incentives and breaks paid for by an offsetting $28 billion in tax and revenue increases, so that there is no increase in the federal deficit over the next five years.

Key, Expired Municipal Tax Programs

The agreement would reauthorize and extend permanently three of the four priority municipal tax programs, all of which expired last June 30th:

* municipal mortgage revenue bonds;

* low income housing tax credits; and

* expanded targeted jobs tax credits.

It would reauthorize and extend for 15 months the authority of cities to issue small issue industrial development bonds, and raise the capital expenditure limit from $10 to $20 million.

Enterprise Zones

The agreement would create 50 urban and rural enterprise zones, providing $2.5 billion worth of tax incentives in those zones and $2.5 billion in new, direct spending to the cities and towns with the designated zones. The enterprise zone cities would also be able to issue a workable version of qualified redevelopment bonds, a kind of tax increment financing tool largely eliminated by Congress in 1986.

House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.) insisted upon the $2.5 billion House enterprise zone provisions rejecting the NLC-supported Senate version. That version would have given every distressed city and town new authority to issue a new kind of tax-exempt economic development bond with strong incentives for local banks to invest in community projects financed by the bonds. The Senate version also would have provided $5.5 billion for the creation 130 enterprise zones.

The final, conference agreement reflects the House position almost entirely. It would provide for 50 rural and urban enterprise zones. Cities and towns designated by HUD or the Department of Agriculture for enterprise zones would be able to issue a modified of qualified redevelopment bonds--only half of which would count against the state private activity volume cap. And it would provide $500 million next year and $2.5 billion over the next five years in direct aid to the 50 designated cities and towns.

The qualified redevelopment bond provisions were drafted by a member of Congress' Joint Tax Committee staff to ease some of the severe restrictions this staff member drafted in 1985 to curb tax increment financing. Under the changes, enterprise zone cities would be able to use the bond proceeds to provide capital loans to businesses up to $2.5 million, but the bonds would have to guaranteed by a the city, either directly or through third party credit enhancement.

In addition to the tax incentives to lure businesses into city enterprise zones, the conference agreement includes two new direct assistance programs to enterprise zone cities and towns. The first would be a national public partnership program to provide $180 million this year increased assistance for Head Start, community health centers, and the Job Corps.

Second, the agreement would fund a new $320 million enterprise zone block grant fund. 70 percent of thee block grant funds would go to urban enterprise zone cities, 30 percent to rural enterprise zone towns for crime and community policing; job training ; child are and education; health, nutrition, and family assistance; and housing and community development.

Children & Families Programs

The final agreement also includes nearly $3 billion over five years for services to families. These new programs are designed to reduce foster care needs, including substance abuse services; to enhance family preservation services; and to restore the tax deduction for non-recurring adoption expenses for children with special needs.

Reducing Municipal Bond Mandates

The agreement includes a number of municipal bond simplification provisions. The two most important would increase the current $10 million limit on bank deductibility to $20 million--significantly increasing the number of communities eligible to benefit from incentives to banks to purchase and hold their tax exempt bonds. The agreement also doubles the exemption from the arbitrage and rebate mandates from $5 million to $10 million, which could significantly reduce the cost for many more smaller communities to issue traditional general obligation and revenue municipal bonds.

Municipal Pension Provisions

The conference report includes NLC-supported changes in both the municipal section 415 and section 457 retirement programs. The 415 changes would ease restrictions on portability and modify some of the limits on contributions and benefits as applied to state and local plans. The 457 changes would modify existing restrictions on distributions and index the dollar limits on deferrals.

Other Issues

For cities, the final agreement eliminated a Senate Proposal to permanently extend the 1990 limits on the deductibility of state and local taxes. It does not include proposals made earlier in the year in both the House and Senate to mandate new property tax reporting requirements. And while the agreement includes almost every federal tax increase requested by the White House, Congress rejected the President's request to impose mandatory Medicare taxes on state and local governments and their employees.

To Tax or Borrow

The Preident's renewed vow to never, "ever" again raise taxes made last month contributed to the confusion about whther the President would support the urban aid bill or not. Because federal law requires any new expenditure or tax incentive to be paid for by offsetting tax increases in order to avoid increasing record federal deficits, the conference agreement includes nearly $28 billion in revenue increase. While the White House supported those last July when the House passed its version of the bill on a bipartisan 356--55 vote, the latest version of the "Read My Lips" promise altered the debate and led many Congressional Republicans to insist that the President would never be able to sign the Urban Aid bill into law.
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Copyright 1992 Gale, Cengage Learning. All rights reserved.

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Author:Shafroth, Frank
Publication:Nation's Cities Weekly
Date:Oct 12, 1992
Previous Article:St. Louis area governments have positive impact on families.
Next Article:Outlook good for housing program reauthorization.

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