WASHINGTON - President Bush and Sen. Lloyd Bentsen have proposed major liberalizations of the limits on bank-eligible municipal bonds in their separate urban aid bills.
The Bush administration and the Texas Democrat alike would significantly ease a provision in the Tax Reform Act of 1986 by permitting banks to deduct 80% of the cost of purchasing and carrying a new kind of private-activity bond that could be sold by any size issuer in enterprise zones. Outside of the enterprise zones, Sen. Bentsen, chairman of the Senate Finance Committee, would go even further. His bill would allow banks to deduct carrying costs for issuers anywhere in the country that expect to sell no more than $25 million in governmental bonds annually. The current limit is $10 million.
Push for Committee Vote
Sen. Bob Packwood, R-Ore., the finance committee's ranking Republican, said he would also push for a committee vote on the President's package. Other Senate sponsors of that package are Sen. Bob Kasten, R-Wis., and Sen. Joseph Lieberman, D-Conn.
The enterprise-zone proposals are cornerstones of Sen. Bentsen's and President Bush's urban aid bills. Despite major differences, they are similar in their proposals for easing tax-exempt bond curbs in the zones, defined as economically depressed areas in which tax incentives would be offered to lure new businesses or retain existing ones.
Sen. Bentsen and President Bush both propose creating a new category of exempt-facility bond, with enterprise zone businesses using the proceeds to purchase land, buildings, and equipment, but not housing facilities.
Disagreement on Caps
Under both bills, bonds issued for such businesses would be bank-eligible, regardless of the size of the issuer. Currently, banks can only deduct 80% of the cost of carrying government bonds sold by issuers that expect no more than $ 10 million annually.
Bonds issued under President Bush's proposal would be subject to the private-activity bond volume cap, but Sen. Bentsen's proposal would allow 50% of each issue to be exempt from the cap. The limit on the amount,of bonds that could be issued for one business is $5 million under the President's plan, while Sen. Bentsen's proposed limit is $1 million.
In addition, proceeds of enterprise zone bonds would have to be spent within 18 months of the date of issuance under Sen. Bentsen's plan. President Bush's proposal is silent on that issue.