The man who wants to be municipals' next voice in Congress.

When Beryl Anthony lost his bid for re-election last year, municipal bond proponents immediately began asking themselves who would take his place as the chief advocate in Congress for tax-exempt bonds.

One lawmaker who wants to fill Anthony's shoes is Rep. Benjamin L. Cardin, D-Md.

First elected to Congress in 1986, the 49-year-old Cardin has spent much of his career in state government. He served in the Maryland House of Delegates for nearly 20 years, becoming the chairman of its Ways and Means Committee and later the House speaker.

Cardin's resume is peppered with indications of his involvement in state and local finance and his understanding of the relationship among the federal, state, and local governments. For example, from 1980 to 1981, Cardin was the chairman of the State-Federal Assembly of the National Conference of Legislatures. In 1981, he was a member of the Presidential Advisory Commission on Federalism. And in 1984, he was a member of the Committee on Federalism and National Purpose.

Two years after arriving in Congress, Cardin was named to the House Ways and Means Committee. Last year, be shot up the committee's seniority ladder, from 22d to 13th, after many of his colleagues retired, resigned to run for higher office, or lost their re-election bids.

The first indication Cardin was going to become more involved in public finance issues came in March, during a Ways and Means hearing on President Clinton's economic package. Cardin told Treasury Secretary Lloyd Bentsen, who was testifying on behalf of the administration, that the White House should consider adding to its tax package several bond items that were passed by Congress last year but vetoed by then-President Bush.

The items, which were part of the tax bill known as H.R. 11, would increase the supply of bank-qualified bonds, raise the small-issuer arbitrage rebate exemption, and remove the $150 million cap on nonhospital 501(c)(3) bonds.

Since then, Cardin has said it may be possible for Congress this year to go farther than those proposals, and at least consider easing the private-activity bond volume cap and removing some alternative minimum tax restrictions on municipal bonds.

In an interview with staff reporter Joan Pryde, Cardin explained why he is an advocate of tax-exempt financing, what Congress needs to do to make bond issuance easier, and what the outlook is this year for passing proposals to ease bond curbs.

Q: How did you become involved in public finance issues?

A: I was the speaker of [the Maryland] state Assembly and I chaired our Ways and Means Committee. I was extremely active in the National Conference of State Legislatures, and have a deep respect for states' rights in our federalist system. I believe states should have much more flexibility in determining how they wish to do their business. From a philosophical point of view, I think many of the restrictions we in the federal government have placed on states on issuing tax-exempt bonds are not justified within this system of federalism.

Q: It sounds like you're saying that the federal government doesn't view the states as equal partners. What is the attitude of Congress toward the states?

A: Many members of Congress look upon states as an interest group, another interest group that comes before us here on the Hill. That's very sad, particularly because many of the members are former state legislators. I was amazed at that. I don't share that view at all. I'm not sure that the federal government is a higher level of government than state government. These are real partners here, so I find it regrettable that we don't have more understanding and sensitivity to this partnership.

Q: You've talked about philosophical reasons for wanting to ease bond curbs. Are there practical reasons as well?

A: We need to make more investment in this country. We just are not making enough investment. One of the real deficiencies is in public investment. Public investment requires making it easier rather than more difficult for state and local governments to be able to use tax-exempt financing. A significant part of their public investment is done through tax-exempt financing. So that's a reason. Another reason is that the federal government over the last decade has been reducing its support for state and local governments in many, many different areas. So cutting back in this area, where states or local governments are trying to help themselves, is just another blow to the ability of state and local governments to carry out their important functions.

Q: How do you sell proposals for easing curbs on tax-exempt bonds on Capitol Hill? By using a philosophical argument or a practical one?

A: Our hook this year is investment. Our message is going to be, not "help the states," not "give them more flexibility." Our message is going to be that we need to increase investment activity in this country. The President is talking about increasing private sector investment and public investment. Initiatives he's coming forward with are all called investment strategies ... Investment also means public investment at the state and local level. Therefore, let's make this part of the investment strategy. That's the message, the selling point.

Q: In what way did federal curbs on tax-exempt bonds affect you when you were a state legislator in Maryland?

A: I suffered from some of these problems when I was in the state legislature trying to figure out what the federal government was doing when I was putting together a policy for our state in housing or in economic development, and putting together all the tools I had, one of which is tax-exempt financing. I was trying to figure out how to put that together, only to find out that the federal government was putting real roadblocks in our way by putting caps on the amounts that we could issue and how we were going to allocate it between this agency and that agency. So it just didn't make any sense to me and so that's where I guess I came to the table when I was elected to Congress in 1986. When I was appointed to the Ways and Means Committee, I brought that as a major area of interest.

Q: In your opinion, did the Tax Reform Act of 1986 go too far in the bond area, particularly in curbing private-activity bonds?

A: I supported in 1986 the concept of broadening the tax base and reducing the tax rates. That concept I thought was very favorable. But then they threw in all these complexities in an effort to close what the legislators thought at that time were loopholes ... It isn't only tax-exempt financing, it's other areas as well. It's our pension laws, and all the different definitions we put in to protect the lower- and middle-income people in pension plans. We ended up eliminating their pension plans altogether because companies couldn't deal with the complexities, particularly small employers. The same thing happened with tax-exempt financing. I must tell you I don't find it objectionable that tax-exempt financing is used for economic development activities. To me that's what we're supposed to be (doing). And I don't second-guess a state's judgment as to whether it's appropriate or not. I think the states are in as good a position as we are on the national level to make those judgments.

Q: Are you advocating rolling back major portions of the 1986 act as it relates to tax-exempt bonds?

A: I'm not suggesting we repeal all the restrictions on tax-exempt financing. I don't think that's politically feasible. But I do think we should be more sensitive to allow states to make legitimate decisions as to what is a public interest ... There's no question there were abuses. And we don't want to pass a law that would allow those abuses to come back, and so our objective will be to make sure there are adequate controls at the national level on tax-exempt financing.

Q: But you have talked about going further than the proposals already on the table, in trying to ease volume cap restrictions and AMT restrictions on bonds. How ~feasible are those ideas in light of Congress' perennially tight budget? Won't they be viewed as items that would lose revenue for the federal government?

A: I think there is an ability to try to work some reasonable compromises. But you know our scoring rules, and we'll have to work within those rules. That's one area where we really are discriminated against. We get scored with the full cost almost always, the full potential cost. The scoring rules here really hurt US.

Q: Won't you have difficulty persuading the committee to repudiate parts of an act it worked on so diligently six years ago?

A: Remember, the committee is new. Half our committee was not there in 1986. So I don't think there's a strong institutional memory on the problems. I believe the Congress was punitive in 1986 in what it did with tax-exempt financing. There was. a problem and they overreacted to the problem.

I think that there are still those on the committee that are going to protect the 1986 tax law to the fullest extent. [But] I think most members are going to be balanced on their views on what we should do. I don't think we have a large number of members who will put this high up on their list of priority areas, but I do think that many members will be sympathetic to providing help. Q. Last year Congress passed, and President Bush vetoed, a number of bond simplification proposals that were part of the tax bill, H.R. 11. House Ways and Means Committee Chairman Dan Rostenkowski, D-Ill., has re-introduced them in a new bill, H.R. 13. What is your view on it?

A: I'm a big fan of simplification. What we've done in tax-exempt financing is just a nightmare for people to try to figure out whether they come under this rule or that rule for issuing a bond, or whether the alternative minimum tax will apply or will not apply, and what impact it has on the rates you pay for bonds that are under the private-activity cap. It just doesn't make any sense to me. I think the complexities that we have added to the code and the cost that ensues as a result of it are counterproductive to what Congress was attempting to do.

Q: What do you think of the President's tax package as it relates to municipal bonds?

A: We're very pleased with the Clinton package as it relates to the extenders and as it relates to expansions of certain tax-exempt financing in the areas of high-speed rail and enterprise zones. We're pleased about those inclusions. We want to make sure that the simplification provisions of H.R 11, now H.R. 13, are incorporated into the [tax bill].

Q: How quickly do you think the tax package can be enacted? What might happen if congressional leaders decide to add health-care reform legislation to the tax package?

A: I think the whole tax package could slip. There's a real belief that health care could be passed this year. You can't move the tax package too quickly if health care is going to become part of it. You may finish up the package [if it does not have a health-care component] by the August congressional recess. It's possible. That's about as early as I think it could be done. But I don't think health care could be finished by the August recess. That's going to be the fall.

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