WASHINGTON -- Rep. Frank Guarini has asked the General Accounting Office to study whether the private-activity bond volume cap is hurting the ability of state and local governments to finance environmental infrastructure projects.

"In light of the ever-increasing level of federal environmental mandates, I deem it essential that we assess the practical and financial effect of the volume cap on reaching ... environmental goals," the New Jersey Democrat said in a letter Thursday to the agency, the research arm of Congress.

Mr. Guarini, a member of the House Ways and Means Committee, made his request a month after he signaled his interest in the issue of how to finance infrastructure improvements by introducing legislation that would exempt municipal bonds issued for environmental facilities from certain tax law bond curbs, regardless of the level of private participation in the projects. One such curb is the volume cap limit, which is the greater of $50 per person or $150 million for each state annually.

Within the overall subject of the volume cap and environmental bonds, Mr. Guarini's letter called on the GAO to research a number of questions, including:

* Whether environmental projects are being scrapped or deferred because of volume cap restrictions;

* How individual states are allocating their volume cap among competiting priorities, including environmental projects;

* What the future impact of the volume cap will be on the ability of state and local governments to meet federally imposed environmental mandates;

* Whether the increasing demand for environmental projects can be met through tax-exempt financing, or if states and localities will have to resort to taxable issues to finance some of them.

An aide to the congressman said he was certain the GAO would respond to Mr. Guarini's request, but he did not know long it would take for the agency to complete the study.

Mr. Guarini has said he is especially concerned about the volume cap's constraints on environmental bonds in light of various standards imposed by the Environmental Protection Agency on state and local governments, requiring them to upgrade systems that clean up water and air and remove solid waste and hazardous waste from the environment. Those requirements often are referred to as "unfunded federal mandates" because the federal government has not offered state and local governments financial aid to implement them.

Rep. Guarini's legislation, which is similar to a measure introduced by Sen. Pete Domenici, R-N.M., and Sen. David Boren, D-Okla., would change tax law as it applies to private-activity bonds issued for sewage, solid waste, hazardous waste, and mass commuting facilities. A new classification created by the bill, bonds for recycling facilities, also would be covered by the changes.

In addition to exempting the bonds from the volume cap and the alternative minimum tax, the bill would allow the bonds to be advance refunded under the rules that now apply to public-purpose general obligation bonds; exempt them from the 2% cost-of-issuance ceiling for private-activity bonds; and make the bonds eligible for the 1989 arbitrage rebate relief law, which now applies only to governmental and 501(c)(3) bonds.

Municipal lobbyists said the GAO research could help strengthen the case they have been making to Congress that various curbs imposed on tax-exempt bonds by the Tax Reform Act of 1986 are hindering important public-purpose activities.

"If they can do careful analysis based on issuance and projected demand, it will be a big help in terms of expressing the need for Congress to reconsider some of the issues they seemingly put behind them by virtue of creating the volume cap," said Amy K. Dunbar, the director of governmental affairs for the National Association of Bond Lawyers.

Another municipal lobbyist said that while the research suggested by Mr. Guarini is important, it needs to be broader. Congress also should be studying whether tax-exempt bonds should be allowed to be issued for uses that are not currently eligible for financing under the volume cap, the lobbyist said.

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