Orlando--Congress should seriously consider a number of changes in tax-exempt bond rules in forming its urban aid package, former New York City Council President Carol Bellamy said yesterday.

Washington should also end its practice of enacting unfunded federal mandates, and needs to approach cautiously the idea of developing urban enterprise zones, said Ms. Bellamy, who is managing director in the public finance department of Bear, Stearns & Co.

Ms. Bellamy was speaking during the Government Finance Officers Association's annual conference here.

Providing more federal aid to urban areas has become a top priority of Congress and the Bush administration since riots and looting occurred in Los Angeles and other major cities in late April. Top law-makers and President Bush have said they are committed to drafting legislation that would offer long-term solutions to urban problems.

One reason cities have been unable to raise enough money to solve their problems is the Tax Reform Act of 1986, which sharply restricted the issuance of tax-exempt bonds, particularly private-activity bonds, Ms. Bellamy said.

In an interview after her speech, Ms. Bellamy said she realizes that "they're not going to roll back the tax reform act," but she told the finance officers that federal officials could help cities simply by placing no new restrictions on debt issuance.

"At a minimum, the federal government should leave the tax exemption of municipal debt entirely alone and they should say so," she said.

Cities would also be aided by permanent extensions of the authority to issue mortgage revenue bonds and small-issue manufacturing industrial development bonds, which are set to expire Tuesday, Ms. Bellamy said. Congress's penchant for granting short-term extensions to those tax breaks each year has complicated the ability of local issuers to use those bonds, she said.

One of the biggest financing obstacles for municipalities is the tax reform law's 10% private-use test, Ms. Bellamy noted.

Under that rule, a municipal bond issue is taxable if more than 10% of the proceeds benefit private business. Before 1986, the threshold was 25%. "In my view, their definition of private activity went too far," she said. "You're having to stretch to figure out what is and what isn't private activity."

Ms. Bellamy also called on Congress to stop imposing new environmental and other requirements without offering the funds necessary to comply with those rules.

"It's time to end federal mandates that come without federal funding," she said. "It's time to trust governors and counties and city officials to actually do their jobs."

Congress should "do away with the outrageous maze of bureaucratic compliance issues in existing programs," she said. "What we have to keep reminding them is that in many ways we are saying, 'get off our backs.'"

In developing urban aid legislation, one of the ideas that Democrat lawmakers and the Bush administration agree on is the creation of enterprise zones -- economically depressed areas where tax breaks and regulatory relief are offered to lure new businesses or maintain existing ones.

President Bush, in fact, has proposed the formation of a new type of exempt-facility bond, the proceeds of which would be used to make loans to small businesses in enterprise zones.

Lawmakers have come to view an enterprise zone measure as the centerpiece of an urban aid bill. The House Ways and Means Committee is scheduled to draft an enterprise zone bill today, and Senate Finance Committee Chairman Lloyd Bentsen, D-Tex., has said he plans to introduce an enterprise zone bill soon.

Ms. Bellamy cautioned, however, against counting on enterprise zones as a cure for urban ills.

"Enterprise zones have long been touted as job creators, but they have shown that they are at best a partial solution," she said. "I do not suggest that we reject them, but I think we have to understand there is not one single solution."

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