WASHINGTON - President Bush vetoed the urban aid tax bill yesterday, leaving the tax exemptions for mortgage revenue bonds and small-issue industrial development bonds in limbo for several more months and jettisoning a host of other provisions beneficial to the municipal market.
In the month since Congress approved the $27 billion urban aid measure, several administration officials had predicted the President would veto it and stick to his pledge to "never, ever" raise taxes again.
The bill's benefits are overwhelmed by provisions that would endanger economic growth," Bush said in a statement. "It includes numerous tax increases, violates fiscal discipline, and would destroy jobs and undermine small business."
For the municipal market, the package would have made the mortgage bond tax exemption and the low-income housing tax credit permanent and would have extended the IDB exemption through Sept. 30.
All three bond breaks expired more than four months ago, making their suspension the longest of any bond-related tax exemptions since the mortgage bond exemption died at the end of 1983. It was renewed six months later, in June 1984.
In his veto message the President appeared to sharply criticize the permanent extensions for mortgage bonds and the housing credit, even though he had thrown his support behind them earlier in the year.
Though he did not mention them by name, Bush said he disapproved of the bill in part because "it would make permanent those expiring measures that are very costly and have negligible long-term benefits, according to a broad range of government and private-sector analysts."
John McEvoy, the executive director of the National Council of State Housing Agencies, said he was perplexed by that statement. "If there was something wrong with those extensions, why did he have him in his budget [proposal]?"
Other municipal bond proponents said they were disappointed the President was unable to find enough beneficial provisions in the bill to be able to sign it.
"I think it's outrageous," said John C. Murphy, the executive director of the Association of Local Housing Finance Agencies. "Here he was presented with a bill that has many, if not most, of his priorities to stimulate the economy and provide some measure of investment in depressed inner areas."
The core of the tax package was a proposal to create urban enterprise zones, economically depressed areas in which tax incentives would be offered to encourage start-up companies or lure existing firms from other areas. The proposal would have eased tax law curbs on qualified redevelopment bonds so they could be issued in the zones.
Also in the package was a provision that would have expanded the supply of bank-qualified bonds.
In addition, the bill would have lifted the $150 million cap on the amount of tax-exempt bonds that individual 501(c)(3) organizations may have outstanding at any one time.
The bill also included two items opposed by the municipal bond community: the so-called mark-to-market provision and a proposal that would expand the use of Series EE U.S. Savings bonds to finance a college education.
Micah S. Green, the executive vice president of the Public Securities Association, said that even though the bill contained elements unfavorable to the securities industry, such as the mark-to-market provision, "there were many provisions in that bill that really need to become law."