WASHINGTON - Good ideas, it is said, eventually prevail.

That certainly is proving to be the case in the perpetual battle between the tax-exempt bond market and federal tax policy.

When the economy was breezing along in the mid-1980s and the Reagan administration and Congress were looking for ways to slash income taxes and spur private investment, the toughest curbs ever were imposed on tax-exempt bonds.

Part of the rationale for the move was to help pay for the tax cuts. But many in government also felt municipal bonds to be an inefficient federal subsidy and a drain on private credit.

That was then. Events, notably the protracted recession, are changing both administration and congressional attitudes toward municipal bonds.

The government is essentially broke and cannot afford to pour out billions of dollars in grants to finance desperately needed repairs to the nation's infrastructure, clean up the environment, and spur investments in new housing and industry.

Yet those investments must be made if the U.S. economy is to have a chance to compete in world markets.

At last, a realization is steadily taking hold within the Bush administration and Congress that tax-exempt bonds can attract capital and be an important contributor in the drive to solve the nation's economic problems.

The path toward enlightenment began in early May when the House Ways and Means Committee included a provision in its portion of the energy bill that would increase the supply of bank-qualified bonds.

In late June, the panel approved its urban aid bill, which would allow the expanded use of redevelopment bonds in enterprise zones, permanently extend the use of mortgage bonds and industrial development bonds, and ease some of the arbitrage curbs on bonds.

The Bush administration finally acknowledged the need for bonds when it supported the committee's permanent extensions for mortgage bonds and IDBs and the expanded use of the bonds in the proposed enterprise zones.

Now the Senate Finance Committee, which is scheduled to start drafting its urban aid plan tomorrow, is poised to add several bond provisions to its urban aid package, including increasing the limit on bank-qualified bonds, loosening the restrictions on 501(c)(3) bonds, and easing the arbitrage rebate requirements.

It's a shame that it has taken the equivalent of an economic hurricane for Congress and the White House to rediscover the value of municipal bonds.

But it is fortunate they at last are recognizing that tax-exempt bonds can help put the nation back on a sound course.

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