WASHINGTON--No matter what fate befalls the urban aid tax bill, the municipal bond market got much further on the legislative front this year than anyone might have dreamed possible.

Even if the tax bill has vetoed or many of the favorable tax-exempt bond provisions are dropped from the final bill, 1992 can be considered the year when the municipal market made its greatest strides forwaard in the dark days after imposition of the 1986 tax reform curbs.

As the current legislative year passed on, a large number of substantive provisions to liberalize and simplify the use of tax-exempt bonds successfully worked their way into both the House and Senate tax measures.

For years, municipal bonds have been considered by many in Congress to part of the nation's deficit problem because they allegedly drain away federal revenues and compete with private credit.

But this was the first year since the tax reform disaster that a substantial number of tax legislators began to recognize municipal bonds can be an essential part of the solution to the nation's economic problems.

Since the government is basically broke and can't afford to pour out billions of dollars in grants to spur the economy, more and more legislators are beginning to see that municipal bonds offer one of the most efficient ways to finance desperately needed repairs to the nation's infrastructure, help clean up the environment, and spur new investments in housing and industry.

This change of attitude triggered tax bill provisions that were unthinkable a couple of years ago, including the house proposal to

permanently extend the use of mortgage bonds and small issue V

industrial development bonds.

It also prompted the provision in the Senate bill that would encourage greater demand for municipals by increasing the limit on bank-eligible debt to $25 million from the present $10 million, as well as the plan to eliminate the $150 million cap on the amount of bonds a private nonprofit institution other than a hospital can have outstanding.

The new attitude also triggered provisions in both bills to allow the increased use of tax-exempts in enterprise zones and several provisions that would simplify and ease the arbitrage restrictions on bonds.

The possibility that the tax bill may be vetoed or many of the favorable bond provisions may be dropped because of revenue costraints should be viewed only as a temporary setback, not a defeat.

While it would be far better to have the bond measures enacted into law this year, the fact that the bond measures got as far as they did constitutes a victory of ideas for the market.

More importantly, this victory sets the stage for physically putting those measures on the tax books next year.

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