Congress likely to act quickly on taxes, but bond legislation isn't a high priority.

WASHINGTON -- Congress will get a fast start on tax legislation in 1995 but is not likely to turn its attention to issues involving taxexempt bonds until late in the year, if at all, according to congressional aides and lobbyists.

Lawmakers initially will be focusing on the tax component of the GOP's Contract With America, which includes tax cuts for the middle class and expanded Individual Retirement Accounts, but no proposals for easing or tightening tax law bond curbs.

Those legislators will hit the ground running, because incoming House Speaker Newt Gingrich, R-Ga., has pledged to work day and night to bring the Contract With America proposals to a vote in the House within the first 100 days of the legislative session.

To facilitate quick passage of a tax bill, lawmakers will try to keep the legislation free of extraneous amendments, which does not offer much of an opportunity for municipal bond proponents seeking to add proposals easing restrictions on tax-exempts, lobbyists said.

"There's going to be tremendous pressure to keep the Contract clean," a congressional aide said, adding that if the tax bill becomes loaded down with extras, "that defeats everything the Republicans have been after."

Milton Wells, the director of federal relations for the National Association of State Treasurers, agreed. "They're going to try and fend off everything they can with the first bill and say, 'we'll take care of you later,'" he said. "Whether 'later' comes is another story. It's hard to look beyond the first hundred days."

Some lobbyists said that, given the busy agenda of the congressional tax committees next year, the outlook for bond proponents isn't bright.

"By the time they have put all their energy into getting the major bill through, they're not going to have any energy for anything else," said a municipal lobbyist who asked not to be identified.

"Moreover, the [tax] committees are going to work on welfare reform, so I don't think they can be doing several tax bills and welfare reform all at the same time," the lobbyist said. The idea will be "to clear tax out of the way and get to welfare."

If, however, there is a tax bill vehicle for bond proposals, municipal lobbyists said Republicans are likely to be responsive to easing curbs on municipals.

"We feel very strongly the message of the election and the message of the governors to the Congress has been clearly stated as [eliminating] unfunded mandates and shifting power back to the states," said Micah Green, the executive vice president of the Public Securities Association.

"Municipal bonds are [such] an important source of financing for ... those needs that we feel very strongly we are 'on message' as it relates to the results of the election," Green said.

Wells of the treasurers group agreed. "I think this is one of the best opportunities we have had from the standpoint of being responsive to unfunded mandates," he said. In that regard, easing bond curbs "is certainly an area they ought to look at."

With that opportunity, however, comes an equal and opposite problem: Congress' perennial need to cut the federal budget deficit and raise revenues. Those budget constraints not only make it harder to pass proposals to ease bond curbs, they also raise the possibility that Congress could consider additional restrictions on bonds, lobbyists said.

"We do know there will be severe revenue pressures that will be felt both because of the budget generally and because of some of the other items on the agenda," Green said. "With every opportunity is a risk and we need to make sure that we have an educated Congress as to the benefits and efficiencies of tax-exempt bonds."

Frank Shafroth, the chief lobbyist for the National League of Cities, said the tax proposals in the Contract With America are so costly there will probably be little room left over for bond proposals.

The changes the bond community would like to see "are not expensive, but my guess is the big things are going to go through relatively easily. The ironic thing is that it's going to be easier to talk about tax breaks that cost $50 billion than about bank deductibility, which has a very small cost," said Shafroth. He was referring to the $10 million small-issuer exemption to limits on bank deductibility, which bond proponents want to see increased.

In past years, lawmakers sometimes have been permitted to add extraneous amendments to big tax bills in return for their vote for the overall package. The need to "buy" lawmakers' votes would be an opportunity to pass provisions to ease bond curbs, but those trade-offs are not likely to be made in 1995, lobbyists predicted.

"They're not going to need to buy members off," said a state and local lobbyist who requested anonymity.

"The big-ticket items themselves will drive the package and they'll give you the votes," the lobbyist said. In the House, in fact, "Gingrich is ruling with such an iron fist right now he doesn't need to give anybody anything."

If bond proponents do get an opportunity to make proposals for easing bond curbs, their efforts will probably center around legislation sponsored by Rep. Bill Coyne, DPa.

In November 1993 Coyne, a member of the House Ways and Means Committee, introduced a bill that would ease a broad range of restrictions on bonds. The bill proposed creating a new type of exempt facility bond to aid distressed areas. In addition, it proposed indexing the private-activity bond volume cap for inflation and offered a safe harbor that issuers could use to avoid the arbitrage rebate requirement. The bill died at the end of the 103d Congress without being acted on.

Although Coyne is now in the minority party and thus may have less influence on tax legislation, he still plans to reintroduce the legislation in 1995.

Coyne "believes there still is a strong need for publicly financed infrastructure to promote economic development in communities around the country," said an aide to Coyne. "He thinks bipartisan action on the issue is possible, and consequently, he will continue to push for enactment of this legislation next year."

Another piece of unfinished business from last year is the tax simplification bill. This legislation was approved by the Ways and Means panel in November 1993 and the full House last May, but was never taken up by the Senate.

Tax lawmakers have said they want to make a new effort to pass simplification, although lobbyists predict the Republicans will want to draft a new bill. With that would come the possibility for bond proposals, because bond proponents have argued that the changes they are seeking would simplify the tax law in the municipal area.

Despite all their predictions, however, many lobbyists were very uncertain about prospects in 1995, probably more so than in the last several years. The Government Finance Officers Association's chief lobbyist said her strategy will simply be to stay alert in 1995 and watch for both positive developments and dangers that may arise in Congress.

"The main thing is to be ready when the opportunities present themselves and be prepared to marshal your forces to do the defensive work" if necessary, said Catherine L. Spain, the director of the association's federal liaison center.

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