WASHINGTON - Rep. Fortney Stark has reintroduced legislation that would prevent the use of tax-exempt financing for projects built in the United States using Japanese services.

Under the California Democrat's bill, the use of tax-exempt bonds would not be permitted if more than 1% of the cost of a project goes to pay Japanese architects, engineers, or others who provide services in developing the structure.

Although Stark's bill is not expected to be enacted, it indicates a larger problem that municipal market participants have been complaining about for years: Members of Congress using the threat of withdrawal of tax-exempt financing as a weapon to force changes in areas unrelated to the financing itself.

Stark first offered his bill in 1988, saying he hoped it would force then-prime Minister Noboru Takeshita to live up to his promises to increase business opportunities for U.S. construction companies in Japan. The legislation was never acted on by Congress.

In reintroducing the measure last week, Stark said that Japan has not stopped discriminating against U.S. firms. "After seven years of pressure, there is no improvement." Stark said in a statement.

"Maybe this problem is just not amenable to resolution through trade laws," Stark said. "If that is the case, we can at least protect our own architectural, engineering, and construction firms from losing U.S. business to Japanese competitors."

In addition to the restriction on tax-exempt financing, the bill would also make depreciation rules less generous for owners of buildings constructed using Japanese services. If enacted, the legislation would be effective for projects where construction begins after Dec. 31.

At the time Stark first introduced the bill, he was criticized by municipal market participants for linking tax-exempt financing with the unrelated issue of trade sanctions against Japan.

In 1989, the Government Finance Officers Association approved a resolution denouncing such tactics. "Imposition of restrictions on tax-exempt bonds whose sole purpose is to achieve objectives totally unrelated to the proposed restrictions is an inappropriate use of federal regulatory power," the resolution stated.

Trade is not the only area in which Stark has wielded tax-exempt financing as a weapon. In 1989, he introduced legislation that would have eliminated the tax exemption for bonds issued to build structures that are not protected against earthquakes.

Stark also introduced a bill that would have wiped out a state's authority under the private-activity bond volume cap for any year in which the state did not comply with a federal law that requires states to assist in paying the Medicare expenses of poor senior citizens.

Neither the earthquake bill nor the Medicare bill was acted on by Congress.

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