WASHINGTON - With the Senate's unexpected passage Thursday of the urban aid tax bill, President Bush is faced with a decision many say he would rather have avoided with the presidential election just weeks away.

Does he sign a bill that contains a host of revenue-raising items, thereby violating his anti-tax pledge? Or does he veto the bill and risk being criticized for rejecting proposals to aid cities and revive the economy?

The municipal market in particular will be watching closely, because Bush's signature on the bill would immediately revive three dormant tax breaks: the tax exemptions for mortgage revenue bonds and small-issued industrial development bonds, and the low-income housing tax credit. All three expired June 30.

The $27 billion bill would make the housing credit and the mortgage bond exemption permanent, and extend the IDB exemption through Sept. 30, 1993. It also contains a multitude of other items beneficial to the municipal market.

It is unclear how long the President will take to make his decision, because there is not deadline by which Congress must deliver the bill to him. Once he receives the bill, he has 10 days, not counting Sundays, to sign or veto it. if Bush takes no action within the allotted time, he will be deemed to have exercised a "pocket veto," because Congress is out of session.

Only a few days ago, many Capitol Hill observers were saying the President would have no choice but to reject the legislation. Now, however, some of those same people are suggesting there may be a glimmer of hope for the bill after all.

That is because bond proponents and scores of other lobbyists who support the bill showed their strength in pulling out all the stops to make sure Senate Democrats beat back attempts by Republicans to kill the bill on the Senate floor Thursday.

The Republican's strategy had been to try to keep the bill from reaching the President. They had raised a parliamentary "point of order," charging that the bill violated laws against busting the budget. The maneuver forced a showdown in which Democrats needed 60 votes to waive the point of order. They won by the slimmest of margins, 60 to 29. Thirteen Republicans abandoned the President and sided with 47 Democrats. The Senate then passed the bill by a 67-to-22 margin.

Lobbyists are hoping the same pressure that worked on those Republicans will work at the White House.

"I think the President will not be able to withstand the public pressure to sign the bill," said John T. McEvoy, the executive director of the National Council of State Housing Agencies. "Our concern all along was the president was going to seek to kill the bill in the Senate. We have always though if we got him to this point, he would sign."

The Senate's top tax writer, Sen. Lloyd Bentsen, D- Tex., has started his own lobbying campaign, holding a news conference the morning after the vote to urge Bush to accept the bill.

"I think we'll see the focus of public discussion change in days ahead from the price the President would pay if he signs [the bill] to the consequences of a failure to sign," Bentsen told reporters.

Bentsen, who chairs the Senate Finance Committee, ticked off a list of provisions in the bill that would benefit business and consumers: extensions of the targeted jobs tax credit and the research and development credit,and expanded individual retirement accounts.

"A failure to sign would rank among the worst mistakes the President has made in office," Bentsen said.

Bentsen pointed out that Bush has already agreed to sign the comprehensive energy bill, which also contains a number of tax increases. "I don't see the difference between the tax bill and the energy bill," Bentsen said.

Even so, all the pressure that may be brought to bear on the administration will be meaningless if the President decides he would suffer politically in signing the tax bill. The fact remains that Bush, in Bentsen's own words, "painted himself into a corner" on the tax issue in August by saying he would "never, ever" raise taxes again.

On top of that, a group of top congressional Republicans, led by Senate Minority Leader Bob Dole, R-Kan., and House Minority Leader Bob Michel, R-Ill., contributed to the paint job this week by predicting a veto.

In addition, various press reports have quoted unnamed White House officials as saying Bush would veto the bill.

To make matters even worse, Gov. Bill Clinton of Arkansas, one of Bush's rivals in the presidential race, said Monday that a veto would be consistent with the President's recent statements.

"There's no question that if he signs it, it's inconsistent with his position, which is that he's not going to raise any new taxes, even though we all know he has already raised a slew of them," Clinton said.

Amid all the public statements leading up to the Senate vote, Bush remained silent, possibly in the hope that he would not have to make the decision he now faces in the next few days or weeks.

Bush Cabinet Officials

To Speak Next Month

At MBIA Conference

Jack Kemp, President Bush's secretary of housing and urban development, and Louis Sullivan, secretary of health and human services, will be among the featured speakers at a conference next month sponsored by Municipal Bond Investors Assurance Corp.

Other speakers at the conference, to be held in Tucson, Ariz., from Nov. 8 through Nov. 11, include Paul A. Volcker, chairman of James D. Wolfensohn and former chairman of the federal Reserve, and Kurt L. Schmoke, major of Baltimore.

In addition, state treasurers Francisco L. Borges of Connecticut, Kay Bailey Hutchison of Texas, and Grady L. Patterson Jr. of South Carolina will speak.

The conference will include a panel on the latest advances in municipal swaps and a discusion on challenges associated with major infrastructured projects.

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