Conference on state/federal parnerships stresses sticking points with Washington.

WATERVILLE VALLEY, N.H. -- The state treasurers and public finance officials who gathered here this week for a conference entitled "State/Federal Partnerships" said that most of those partnerships need improvement.

The prevailing sentiment among treasurers and other bond issuers was that the federal government has cut the tax-exempt market some much-needed slack by postponing the effective date for new reimbursement rules and by easing arbitrage rebate regulations.

But still, the consensus at the conference of the National Association of State Treasurers was that the combination of rising federal mandates and declining revenue sharing is proving near fatal for many municipalities.

"I think federal and state partnerships are an illusion unless mandates from the federal government are matched with resources from the federal government," said Philip N. Shapiro, chief financial officer of the Massachusetts Water Resources Authority.

Mr. Shapiro said that one of the larger attempts at state and federal partnerships, the funding program established by the Clean Water Act, has all but dried up. While federal mandates under the act remain in place, federal funding for the program has dropped from about $5 billion to $1.8 billion.

On Tuesday, the treasurers passed resolutions calling for, among other things, solutions to what remain two of the most nettlesome problems treasurers face in dealing with Washington: the arbitrage rebate requirements and tax-exempt reimbursement.

At the conference, which is the association's 16th, participants said that while relations with Washington have improved since the nadir of the Tax Reform Act of 1986, those issues still demand attention.

Lucille Maurer, treasurer of Maryland, said the group's resolutions will "call attention to where the partnerships of [state and local governments] cause strains as the federal government increases mandates and decreases support."

On the issue of arbitrage earned on tax-exempt bond proceeds, the treasurers said the federal government should repeal the rebate requirements stemming from the tax reform act.

Failing that, the treasurers declared in a resolution, the United States government should "enact meaningful, fair and equitable sharing of any arbitrage profits with state governments."

The resolution also thanked the federal government "for enacting the two-year 'construction period' provisions in 1991 to provide limited relief to these onerous and offensive requirements."

In response to admissions of fraudulent bidding at U.S. Treasury auctions, the Treasurers adopted a resolution exhorting "all market participants to work to restore confidence in the government securities market."

Ms. Maurer said that treasurers decided to pass a resolution on the Salomon Brothers situation because "so much of the financial world is pegged to the rates of the U.S. Treasury market, that we feel that it is crucial to maintain confidence in that market."

One treasurer, who requested anonymity, voiced concern over the fate of Salomon Brothers Inc., the largest of the 40 primary dealers of United States Treasury securities and the house that shocked the fixed-income market this month by admitting to violations of Treasury bidding regulations.

"I hope that [U.S. Rep. Henry] Gonzales acts judiciously, that he just doesn't go full speed ahead and do something that's harmful to a major United States player," the treasurer said.

This week Rep. Gonzalez called on the Federal Reserve to block Salomon from participating as a primary dealer in Treasury auctions until the government finishes investigating charges against the firm.

Another treasurer, Mississippi's Marshall Bennett, took a global stance on the issue of fraudulent bidding at Government securities auctions. "With the changes that are occurring all around the world." he said, "it's very important that the capitalist system be viewed in the best light, and we certainly ought to ferret out the problems and the abuses."

The association also passed a resolution warning the federal government's various retail sales operations against abusing their exemption from state and local sales taxes.

According to Robert E. Hanson, treasurer of North Dakota, most of the federal government sales take place on military bases, where liquor and other goods are sold to military personnel. The United States Postal Service also has started to get into the retail business, selling commemorative items free from local sales levies.

"It's time that the federal government got out of competing with the private sector," Mr. Hanson said. In one instance, lingerie being sold at a convention of motorcycle enthusiasts in Sturgis, S.D., was exempted from local taxes, he said. The resolution charged the federal government with "allowing the postal service to seel such items as clothing, including ladies lingerie, as well as the department of defense allowing alcohol, cigarettes, and numerous other items to be diverted off military bases without complying with state tax and regulatory laws."

In other balloting, the association elected its regional vice president, including Georgia's treasurer, Claude Vickers, as southern regional vice president; Mr. Hanson as the midwestern regional vice president; and Samuel Shapiro of Maine to be the Northeast's regional vice president. Oregon's Tony Meeker, the Western vice president, was elected earlier this year to his post.

The association also presented several awards, including the Jesse Unruh to Treasurer Jummielou Fisher Lumpkin of Arkansas; the treasurer emeritus award to former Connecticut Treasurer Henry E. Parker; and the corporate affiliate of the year award of Kenneth C. Olson, a vice president at Goldman, Sachs & Co. Mr. Unruh was treasurer of California from 1975 until he died in August 1987.

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