WASHINGTON -- Twelve months ago there was substantial optimism that 1991 would be the year that Congress would ease and simplify some of the curbs on tax-exempt bonds imposed in 1986.
Some municipal market participants also thought there was a good chance Congress might permanently extend mortgage revenue bonds and, perhaps, small-issue industrial development bonds.
Nothing happened. With Congress and the White House deadlocked over budget and tax policy, the market was lucky that both mortgage bonds and IDB's won a last-minute reprieve to remain alive until at least next June 30.
On the surface, it appears as if 1991 was a year when the federal government kept the municipal bond market in a holding pattern.
That's generally true when it comes to legislation. With the exception of the short extension for mortgage bonds and IDBs, no legislation was passed that improved the lot of tax-exempt bonds. However, no legislation was passed that look anything away from the municipal market either.
But some significant developments in other areas kept the year from being a complete zero.
After years of showing an often justifiable distrust for the market, the Internal Revenue Service appears to have adopted a new attitude, especially when it comes to issuing rules that affect municipal bonds.
While the IRS is still rightfully cautious of not creating inadvertent loopholes for new abuses, market participants say that in recent months the agency has become more flexible and has taken a more practical approach toward framing its rules, perhaps because most of the attorneys that now draft the rules have actually worked in the municipal market.
This also has been a year of important steps toward improving municipal disclosure, especially in the secondary market.
The Municipal Securities Rulemaking Board made a small bust significant advance two months ago when it proposed its revamped system for accepting disclosure information from bond trustees and issuers.
That systems, which may be approved by the Securities and Exchange Commission early next year, should held provide a vastly improved level of ongoing disclosure.
Numerous industry groups, such as bond trustees and the Association of Local Housing Finance Agencies, also spent much of the year drafting voluntary guidelines designed to improve disclosure.
And the SEC spent considerable time nudging the municipal market to improve disclosure before the agency is forced to jump in with some kind of costly corporate-style registration.
While this was not a year of legislative progress for the municipal market, it was a year of quiet but significant regulatory and self-regulatory progress.
