WASHINGTON -- The tax-exempt bond market's 13-year courtship of Rep. Dan Rostenkowski, D-Ill., offers a valuable lesson for the future.
After enduring rocky times for much of the 1980s, the market's relationship with the now deposed chairman of the House Ways and Means Committee had gotten progressively better over the last years.
It had reached the point where many market participants had hoped Rosty would be a major force next year in helping roll back some of the tough curbs that were imposed on municipal bonds by the Tax Reform Act of 1986.
The irony for the market, of course, is that just when the relationship was really getting somewhere, Rosty was forced to step down as committee chairman to defend himself against a 17-count federal indictment.
But there were some important milestones in the relationship with Rosty that may bode well for the market's dealings with Rep. Sam Gibbons, D-Fla., who will take over as committee chairman this week after he returns from the D-Day anniversary in France.
Even though Rosty willingly helped push through Congress the toughest curbs ever imposed on municipal bonds in both 1984 and 1986, he listened, and increasingly acted, when state and local officials cried foul.
The first milestone came in 1985 when Rosty refused to buy the Reagan Administration's plan to completely eliminate private-activity bonds. He then led the charge to postpone the curbs on governmental bonds to Sept. 1, 1996, from Jan. 1, 1996, after local officials complained that the earlier date was impairing their ability to issue bonds.
In the next few years, further bond curbs were imposed, setting the stage for the watershed event that took place in 1989 when Rosty delivered what became known as his "let sleeping dogs lie" speech at a meeting of the Public Finance Network in Chicago.
Rosty warned that if market participants pushed for easing too many bond curbs, they might be hit with even heavier restrictions.
It didn't look promising that day in Chicago, but newly elected Chicago Mayor Richard Daley and other city, county, and state officials from Illinois were able to convince Rosty that cities were in trouble and needed help.
They further convinced him that the use of municipal bonds was one of the only things that could help Chicago and other cities make up for scarcity of federal funds.
Their efforts eventually led Rosty to push for legislation, enacted last year, that permanently extended the use of single-family mortgage bonds and small-issue industrial development bonds and to propose a measure that would simplify and ease some of the curbs on municipal bonds.
Rosty's indictment may have all but snuffed out hope that he will be able to push to ease more bond curbs. However, his conversion to a bond supporter is an important lesson for the market's future dealings with Gibbons, who is not considered a friend of tax-exempts.
As former House Speaker Tip O'Neill said, "All politics is local." So when it's time to talk to Gibbons, send in the mayor of Tampa.
