WASHINGTON -- The Congressional Budget Office estimates that Sen. George Mitchell's proposal for easing curbs on 501(c)(3) bonds would cost the federal government a staggering $1 billion over the next 10 years.

Lobbyists said the high price tag, announced by the budget office yesterday, puts the Maine Democrat's provision in danger of being eliminated or scaled back in the final version of health care legislation, which Congress is expected to attempt to pass later this year.

The proposal, which Mitchell gleaned from the Senate Finance Committee's health care bill. would eliminate the $150 million cap on the amount of bonds that individual nonhospital 501(c)(3) organizations may have outstanding at one time. The provision covers not only health care institutions, but also all other types of 501 (c)(3) entities, such as colleges and museums.

It would also remove some of the post-1985 restrictions that were placed on 501(c)(3) bonds, in an effort to put the bonds more on a par with governmental bonds.

Mitchell, the Senate majority leader, cobbled his bill together from various committee measures, including the one passed by the Finance Committee on July 2. Mitchell has said he expects the Senate to begin debate on his measure next Tuesday.

The CBO estimates that there would be a negligible revenue effect from the 501(c)(3) bond provision through 1997. From 1998 to 2001 the provision would cause a revenue loss of $100 million a year, and between 2002 and 2004 the revenue loss would rise to $200 million a year, for a total of $1 billion over the 10-year period.

That compares with a proposal on the House side, covering only health care institutions, that was estimated to cost between $400 million and $600 million over 10 years. That measure was proposed by Rep. Charles Rangel, D-N.Y., but the House Ways and Means Committee declined to add the proposal to the reform bill it passed in June.

A municipal lobbyist, when told about the $1 billion figure, said she was stunned and that revenue estimators "must feel there is a large pent-up demand" for issuance of 501(c)(3) bonds. The lobbyist added that the provision's high price tag might create concern among lawmakers. who will be striving to cut unnecessary costs out of the reform bill.

A hospital industry lobbyist said the provision will probably not survive in its present form. "It's likely to get scaled back to health facilities only," the lobbyist said.

"I think the House is going to really dig its heels in on that," the lobbyist said, and House lawmakers probably "will say, 'This is the health bill, and you shouldn't have universities in there.'"

But an education lobbyist disagreed, saying that a $1 billion cost figure, though seemingly large, takes on a different look when compared with the entire health care reform bill.

Health reform legislation "is restructuring and reallocating hundreds of billions of dollars," the education lobbyist said. The bond provision "is a lot of money, but you've got to look at it in the context of the whole bill," he said.

That lobbyist and others said the bond provision still has a chance of surviving because it is championed by Sen. Daniel P. Moynihan, chairman of the Senate Finance Committee. "I think we can count on" Moynihan's continued strong support. the education lobbyist said.

Another provision of interest to the municipal market in Mitchell's bill would set new community benefit standards for health care organizations that want to get or maintain 501(c)(3) status. The budget office estimated that the provision would have a negligible effect on federal revenues.

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