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Recovery plan makes progress in Senate; negotiations deal two wins for cities.

Twelve Senate committees were near meeting the June 18 deadline for completing action on the President's economic recovery, $500 billion deficit reduction package last week Friday as the Weekly went to press, clearing the way for full Senate action this week.

In acting, two committees reacted positively to the concerns of municipal leaders in setting the stage for the final action. The Senate Agriculture Committee rejected efforts to preempt state laws to obstruct power of eminent domain over rural electric coops in annexed areas, while the Senate Finance Committee rejected efforts to impose a federal energy tax on cities and towns.

The key action came late Wednesday when Senate Finance Committee Democrats agreed to a controversial alternative to the administration's proposed $70 billion BTU energy tax by substituting deeper Medicare spending cuts, reductions and eliminations of some tax incentives affecting cities and towns, and a transportation fuel tax. The new fuel tax would continue the existing exemption for state and local governments.

Senate Finance Committee Chairman Daniel Patrick Moynihan (D-N.Y.), Bentsen's successor, called the committee agreement "the most progressive change in taxes since World War II."

But 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 (EITC).

With the compromise between the 11 Democrats, the full committee began action on Thursday and reached a time agreement to consider a dozen Republican amendments and complete action by late last Friday on the tax and entitlement portions of the House-passed reconciliation bill, HR 2264. None of the Republican amendments are expected to be adopted.

Key Preemption Victory

The same day, the Senate Agriculture Committee--in its portion of the reconciliation or deficit reduction legislation--rejected House-passed territorial protection for rural electric coops. Sen. Richard Lugar (R-Ind.), the former Mayor of Indianapolis and a past NLC president, took a key role in protecting the rights of cities. The committee omitted any mention of the preemption issue when it acted, with staff expressing concerns both about its relevance to reducing the federal deficit and the lack of opportunity for the concerns of cities and towns to be heard in the House. Nevertheless, the House is expected to push for the NLC-opposed language when the House and Senate meet next month to work out their differences on the massive legislation.

Tough Negotiations

Although the deficit reduction, reconciliation package still closely resembles the President's plan, the struggle to replace the Btu energy tax involved weeks of closed door negotiations among the eleven Democrats and threatens to remain the most difficult issue both on the Senate floor this week and then in conference with the House next month.

The key action was the agreement on a 4.3 cent per gallon excise tax on transportation fuels. It would be imposed upon all motor, diesel, boat, train, and aviation fuels; it would not apply to state and local governments. None of the new gas taxes would go to the Highway Trust Fund. As adopted, the new tax is projected to raise $24.2 billion over the next five years, far short of the $71 billion Btu energy tax proposed by the President and adopted by the House. The White House and many House Democrats have made clear this will be a key issue in House-Senate negotiations on shaping the final package.

To make up the rest of the difference, the Democray eliminated the President empowerment and Enterprise zone proposals, cut short the extensions for municipal mortgage revenue and small issue industrial development bonds, targeted jobs tax credits, and employer-provided educational assistance from permanent to June 30, 1994, cut Medicare spending by $19 billion, and reduced the expansion of the earned income tax credits from $28.3 billion to $1.4 billion over the next five years.

Municipal Issues

For cities and towns, the key provisions in the Finance Committee portion of the bill include:

* retroactive reauthorization and permanent extension of the low income housing tax credit program;

* retroactive reauthorization and a twelve month extension of the mortgage revenue and small issue industrial development municipal bond programs. Municipal authority to issue expired June 30, 1992. This provision would retroactively extend the expiration from that date to June 30, 1994.

* replacement of the Btu energy tax which would have cost cities and towns nearly $9 billion with a 4.3 cent transportation fuels tax. Units of local government would be exempt. 74 percent of the $24.2 billion in new revenue would come from highway gasoline, 14 percent from diesel, and 9.3 percent from airline jet fuel use.

* the committee retained the administration proposal to extend the existing 2.5 cent federal gas tax beyond its current expiration date of 1995, but to transfer the revenues from the general treasury for deficit reduction into the federal Highway Trust Fund and Mass Transit accounts.
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Title Annotation:includes related information on tax issues
Author:Shafroth, Frank
Publication:Nation's Cities Weekly
Date:Jun 21, 1993
Previous Article:Municipal concerns surface as Senate begins Clean Water.
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