WASHINGTON -- Legislation that would ease curbs on 501(c)(3) bonds cleared a big hurdle to enactment last week by landing in the health care reform package of Senate Majority Leader George Mitchell, D-Maine.

On the surface, it would look like the 501(c)(3) measure will be able to enjoy smooth sailing from here on in: It isn't controversial, and it has the staunch backing of Sen. Daniel P. Moynihan, D-N.Y.

But supporters of 501(c)(3) bonds have seen this provision come tantalizingly close to enactment before, only to be disappointed. Then, as now, the 501(-c)(3) measure was attached to a bigger bill with bigger political problems that overshadowed all else.

The provision in question would remove the $150 million limit on the amount of bonds that individual nonhospital 501(c)(3) organizations may have outstanding at one time. That limit was enacted eight years ago as part of the Tax Reform Act of 1986.

But the proposal would do much more. To put 501(c)(3) bonds more on a par with governmental bonds, the bill would remove some of the restrictions that were placed on them after 1985. For example, under the pro-. vision, 501(c)(3) bonds would not be subject to a 2% limit on issuance costs that now applies to them and to private-activity bonds but not to governmental bonds.

As far back as 1989 Moynihan began agitating to lift the 50t(c)(3) bond cap. He introduced legislation in 1989 and 1991, and was followed in his effort in the House by Rep. Robert T, Matsui, D-Calif., who introduced a companion bill in 1990 and 1991.

There was little movement on the issue at first, but then 1992 rolled around and it looked as if the provision would finally have its day.

That year, in March, the Senate passed a tax package that included a proposal for lifting the $150 million limit, though tax conferees omitted the provision in the final bill.

At the time, a congressional aide said the provision was not dropped on its merits, but was a victim of last-minute horse-trading by conferees.

Congress again passed comprehensive tax legislation in October, and this time tax conferees included the proposal for lifting the 501(c)(3) bond cap in the final bill. But once again, the provision was a victim of forces beyond its control, President Bush vetoed the legislation because, he said, it would have violated his "no new taxes" pledge.

Fast-forward to 1994: Moynihart, now chairman of the Finance Committee, added the 501(c)(3) bond provision to his panel's health care reform bill. A big step, to be sure, but not big enough given the fact that the Finance Committee bill was not likely to reach the Senate floor intact.

But, realizing that none of the various reform bills passed by Senate committees have enough support to pass the Senate, Mitchell stepped in and developed his own bill, retaining the bond provision.

Now, in some ways, the journey for the bond proposal is beginning, not ending. The size and shape of the overall health care re.form bill is still in serious doubt, and 1.ikely to remain so through the fall.

When 1994 began and Capitol Hill watchers were making their predictions for bond legislation, they said 1994 would be the best chance for years to come for the 501(c)(3) bond provision to he, come law, They reasoned that it could ride to enactment on the wave of health care reform with a few nudges from Moynihan.

If they needed a precedent, they could point to 1993. when the tax exemptions for mortgage bonds and small4ssue industrial development bonds were made permanent as part of a larger urban aid bill. Though they clearly benefited the bond ma{ket, both provisions were portrayed as having broader appeal and aiding economic 'development efforts in cities.

So those prognosticators knew what they were talking about. But they need to remember that the big bills that little bond provisions get attached to are often are as controversial as to be easily derailed. That in fact, almost happened to the urban aid bill last year, and more than once.

Now Senate and House leaders are running out of time in this legislative session, and they are frantically trying to get reform bills passed by their respective chambers before the end of August. Although lawmakers seem loath to go home for the November elections without taking any action, it is also easy to see how the entire effort could fail, with so many contentious issues unresolved.

If health care reform legislation stays afloat, the 501(c)(3) provision probably will as well. But even at this late stage of the game, that's still a big "if."

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