The election of Arkansas Gov. Bill Clinton as President appears to have put the municipal bond market in the proverbial catbird seat.

The market is salivating at the prospect that the new President's economic program will increase both the supply and demand for tax-exempt bonds.

As a governor who has relied heavily on municipal bonds to spur development and as a member of the Anthony Public Finance Commission, which was founded to get relief from the 1986 bond curbs, Clinton is almost certain to support easing many of those curbs so that states and localities can issue more bonds to help rebuild the nation's infrastructure.

At the same time, Clinton is likely to propose raising taxes on people earning over $200,000 a year - a move that will boost the demand for bonds.

But the market's excitement may be premature.

Here's why: Clinton promised, if elected, to put the nation's economy back on track as quickly as possible.

But he faces a dilemma. He needs to reinvigorate the economy and provide new jobs. However, he can't risk harming prospects for term growth by proposing an overly expensive recovery plan that will further escalate the nation's record deficit and rile nervous financial markets.

That limits his options, especially the amount he can pour into a recovery package.

Up to a point, that bodes well for municipals. It costs less to ease the bond curbs to make it easier for states and localities to leverage the federal funds they get than it does to buy the same amount of infrastructure with outright grants.

But the cost of easing the curbs does add up and may take longer to do on a limited budget than the market expects.

That became particularly clear after President Bush vetoed the urban aid tax bill last week that contained numerous provisions helping municipals. Those included extensions in the use of mortgage bonds, small-issue industrial development bonds, and the low-income housing credit; an increase in the supply of bank-eligible debt; ending the $150 million limit on the outstanding debt of 501 (c)(3) entities; and several provisions simplifying the use of bonds.

Next year Congress will have put those items back into its 1993 tax bill. But that means there will be less money for quick action on other proposals that some have advocated, such as expanding the state volume caps or easing curbs on government-mandated environmental projects that also benefit private firms.

Clinton's strong support for bonds and his incoming administration's emphasis on rebuilding infrastructure certainly should be the dawn of a new day for the municipal market.

But the market must be patient because it may take longer for municipals to reach high noon than some expect.

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