WASHINGTON -- "The more things change, the more they remain the same."
That old French saying is certainly apropos to the situation the municipal bond market is likely to face in Congress next year.
Despite the sea-change election that put the Republicans in control of Congress for the first time in 40 years, the outlook for enactment of legislation next year to ease some of the curbs on tax-exempt bonds appears to be as dim as it was this year under the Democrats. The reason? The usual nemesis of muni bonds -- money. Some municipal market participants have been hoping that the expected push for major tax legislation by the new Republican majority would mean that tax-exempts would have as good, or better, a chance to win some improvements as they did in the last few years under the Democratic-controlled Congress.
The market, you will recall, has been buoyed by the permanent extensions for mortgage bonds and industrial development bonds as well as the creation of enterprise zone bonds that were enacted as pan of President Clinton's 1993 economic and tax package and hoped to enlarge on those gains in future years.
With the Republicans now in control of Congress and pledging to pass a tax cut bill, market participants have had a glimmer of hope that they might be able to fide the coattails of any tax measure and wi.n a further easing of the bond curbs, eSpeCially if the provisions are designed to help finance needed improvements in the nation's infrastructure.
But the cold reality is that tax-exempt bonds simply. will not be a priority, at least for this year and probably next.
The new GOP majority has a long shopping list of expensive items it wants to enact that will eat up any scarce revenue that might be spent on bond provisions.
Beside plans to lower the deficit and increase defense spending, the list includes a number of very expensive tax cut proposals ranging from slashing capital gains taxes to cutting taxes on middle-income people by reducing the marriage penalty, allowing increased use of individual retirement accounts and increasing child credits.
SOme Republicans want to temper those costs by changing the revenue estimating system to take into account added revenues that might be triggered by tax cuts and by amending the Budget Act of 1990 to eliminate the requirement that tax bills be revenue neutral -- two proposals that are likely to push the bond markets off a cliff.
Even if the current budget rules are bent, however, the GOP tax proposals will be so costly that it would be very difficult to include any substantive bond proposals this year.
There is also an even worse prospect -- the possibility that legislators might try to impose new restrictions on tax -exempt bonds to raise added revenue needed to pay for the tax cuts.
That's what the Democrats did in 1986 as part of tax reform.
If tax cut fever becomes all consuming, the same thing could happen again. The only change would be the party in power.