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Urban aid gains momentum as recess nears: Bentsen bill pushes economic development bonds, lending incentives.

The Senate Finance Committee passed and sent to the full Senate its own $21.8 billion version of the House-passed urban aid tax package, HR 11, late last Wednesday evening. The full Senate could take the bill up as early as this week in an effort to get it to conference with the House before Congress recesses at the end of next week until after Labor Day.

The bill, Bentsen II, includes an NLC-backed provision to authorize all distressed cities and towns to issue a new kind of tax exempt economic development bond as well as create incentives for bank lending or credit availability in those communities.

It would reauthorize key, expired municipal tax programs for 18 months, would simplify a number of municipal bond restrictions and obstacles facing cities and towns, and would authorize the designation of 25 enterprise zones--15 urban, eight rural, and two Indian reservations over the next four years.

Sen. Bob Packwood (R-Ore.) indicated he might offer an alternative enterprise zone amendment on behalf of the administration when the bill is debated by the Senate. That amendment, because it would eliminate capital gains taxes in enterprise zones, and thus be far more expensive per zone than either the House or Senate Finance Committee versions, is projected to make only about 20 urban and rural areas eligible for designation as enterprise zones.

The administration bill would make cities eligible on a first-come, first-served basis until the Treasury determined that the revenue loss to the federal government would be $2.5 billion. In addition, it would remove any city role in designating businesses eligible for enterprise zone tax incentives. It would not provide any financing incentives or bank credit incentives except in designated enterprise zones.

Although the effort to craft a federal urban aid bill began shortly after the civil disturbances in Los Angeles last April, less than $5.5 billion in the Senate Finance Committee version is focused on cities. Much of the bill focuses on retirement savings incentives, economic growth incentives, and repeal of the luxury taxes enacted in 1990 to help reduce the federal deficit.

Moreover, in order to comply with the 1990 budget agreement, state and local governments would be tapped for about $6.6 billion of the $21.8 billion in new, offsetting revenue increases. The largest impact on state and local governments would come from a proposal to permanently extend the current law limitation on the itemized deduction of state and local taxes. That provision, which imposes double taxation on state and local taxpayers, is scheduled to sunset or expire in 1995 under current law.

The second major impact would come from a new reporting mandate--overwhelmingly rejected by the House last Tuesday--requiring cities and towns to report to their taxpayers and the Internal Revenue Service (IRS) the amounts of property taxes paid that are deductible for federal income tax purposes. The revenue provision, which would impose enormous paperwork requirements on local governments as well as substantial new liabilities, is projected to raise about $155 million in new federal tax revenues by discouraging local taxpayers from overdeducting from their federal income taxes.

For cities, the key provisions are the new sources of financing for economic development in all distressed communities and the reauthorization of expired municipal tax priorities.

The bill would:

* create authority for any distressed community to issue exempt facility bonds for economic development and job creation--with the bonds only counting 50 percent against the state private activity volume cap;

* making any such bond or note issued by a distressed city or town bank deductible--that is creating a major incentive for banks to invest in distressed areas as partners with the city;

* reauthorize the expired mortgage revenue and small issue industrial development bond (idb) programs through December 31, 1993; and

* reauthorize the expired low income housing and targeted jobs tax credit programs through December 31, 1993.
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Title Annotation:Senator Lloyd Bentsen
Author:Shafroth, Frank
Publication:Nation's Cities Weekly
Date:Aug 3, 1992
Previous Article:House rejects unfunded tax reporting mandate.
Next Article:CDBG gets $1 billion boost in subcommittee.

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