This article was reported by Martha Canan, Stephen A. Davies, Heather Ann Hope, Lynn Stevens Hume, Joanne Morrison, and Joan Pryde and was written by Ms. Pryde.
WASHINGTON -- The Republican Party's takeover of the House and Senate brings with it the strong likelihood of a major tax bill in 1995 and the opportunity to pass proposals for easing tax-exempt bond curbs, lobbyists said yesterday.
But Republican pledges to cut middle-income taxes, lower the federal deficit, pass a balanced budget amendment, and increase defense spending also mean tax writers will be looking to raise revenues, which could lead to proposals for further restrictions on municipal bonds, the sources said.
The political upheaval in Congress also may mean changes for the way lawmakers will handle legislation governing securities regulation, the derivatives market, and the Federal Reserve Board, according to congressional aides and lobbyists.
In the tax area, the new top two lawmakers will be Rep. Bill Archer, R-Tex., who will take the helm of the House Ways and Means Committee, and Sen. Bob Packwood, R-Ore. who will run the Senate Finance Committee. Packwood is well known in municipal circles, having been one of the chief architects of the Tax Reform Act of 1986.
Archer is more of an unknown quantity, although several sources said they do not think he is an opponent of tax-exempt financing.
A lawyer from Texas who knows Archer and his staff said that while the congressman would not move aggressively to ease tax-exempt bond curbs, "he is certainly going to be open-minded and approachable on those issues." The source added, "I don't think he has any kind of predisposition against tax-exempt finance."
Housing lobbyists said Archer has in the past shown support for tax-exempt mortgage revenue bonds and the low-income housing tax credit.
"Bill Archer has been a very good friend," said John T. McEvoy, the executive director of the National Council of State Housing Agencies. "He has spoken publicly in favor of the kinds of programs we care about."
In a surprising footnote to the up-heaval on the Ways and Means panel, Rep. Dan Rostenkowski, D-Ill., was defeated in his re-election bid., leaving Rep. Sam Gibbons, D-Fla., as the top Democrat on the committee.
Gibbons, the number two man on the committee behind Rostenkowski for more than a decade, has been acting chairman since June when Rostenkowski was charged in a 17-count felony indictment related to the House Post Office scandal.
Yesterday, Senate Republicans issued an agenda of top items for their attention in the 104th Congress that includes a pledge to provide a middle-class tax cut, advancing an idea put forward before the election by House Republicans.
Sen. Phil Gramm, R-Tex., told reporters that Senate Republicans favor an income tax exemption of $5,000 per child. House Republicans have proposed a $500 per child tax credit for families with income up to $200,000.
The prospect of such a bill is both positive and negative for the municipal market, lobbyists said.
"The bottom line is that I think this strongly increases the chances for a tax bill and creates a window to try and do something" favorable in the bond area, said Frank Shafroth, the director of policy and federal relations for the National League of Cities.
On the other hand, "one must be vigilant in this area as the Republicans seek to carry out their commitments for balanced budgets and things like that because you can't get there from here without some revenue as well as spending cuts," said a lobbyist who requested anonymity. "That could put a number of things at least on the margin on the table," including tax-exempt bonds.
The Republican victory may mean an even greater upheaval on committees handling securities matters. For example, a Republican source who is a close observer of Congress suggested that GOP leaders may consider abolishing the House Energy and Commerce Committee, which includes the telecommunications and finance subcommittee.
"Don't assume there will be an Energy and Commerce Committee in the next Congress," said the source, who added it is "an open question as to how the House will be structured" under the new Republican leadership.
House GOP leaders could decide to combine securities and banking issues under the jurisdiction of a single new committee, the Republican source said. The idea has been talked about among Republicans and other lawmakers for years, but was unlikely before now given the entrenched positions of most House committee chairmen, the source said.
Energy and Commerce Committee chairman John Dingell, D-Mich., who remains in Congress but will lose his chairmanship, and Rostenkowski "were very powerful members. But it's over, they're gone. They're history," the source said.
If there is no restructuring and the Energy and Commerce Committee remains, sources said they expect Rep. Tom Bliley, R-Va., to become chairman, although Rep. Carlos Moorhead, R-Calif., is the senior Republican on the panel. An aide to Bliley declined comment.
Rep. Jack Fields, R-Tex., is expected to chair the energy and commerce panel's telecommunications and finance subcommittee. Fields has supported, and voted with Democrats, on a large amount of legislation affecting the Securities and Exchange Commission and securities law issues.
Fields supported legislation to fully fund the SEC from the fees it receives from registrants, as well as an investment advisers bill that would increase fees for advisers and authorize the SEC to use the new money to hire more inspectors to monitor advisers for compliance with securities laws.
"A lot of the issues in the securities area have not been partisan. Both sides of the aisle have worked together," said a committee aide. One exception is derivatives legislation, which Fields and other Republicans on the subcommittee did not support.
Supporters of the various securities bills, however, are quaking at the likely changes in the Senate, particularly the prospect of Gramm becoming chairman of the Banking Committee's securities subcommittee.
It's no secret that Gramm thinks the financial markets are overregulated. He has blocked major securities bills, including the bill to provide full funding for the SEC and the investment advisers bill.
One key Senate aide said of Gramm: "As a minority member, he thought the most he could do was block legislation. As a majority member, he may feel that he can actually take some initiative and roll back some of the laws or regulations that he sees as more onerous."
Sources said Gramm wants a position on the Senate Finance Committee, which would mean dropping one of his three current committee assignments. If Gramm were to leave the banking committee, Sen. Richard Shelby, the Alabaman who announced yesterday that he was joining the Republican Party, would be chairman of the securities subcommittee.
The House Banking Committee, whose new chairman will probably be Rep. Jim Leach, R-Iowa., is expected to continue its aggressive approach toward legislation to regulate derivatives. Rep. Henry Gonzalez, D-Tex., is the current chairman.
Leach has been a supporter of increased oversight of the derivatives market and introduced a bill last January that called for the creation of an inter-agency commission to set uniform standards to regulate derivatives.
Leach has said that he plans to reintroduce the legislation.
However, it's unclear if the passage of a derivatives bill in the House will bring forth much response from the Senate.
The Senate Banking Committee has taken little action on derivatives legislation, and, now under Republican control, is even less likely to move toward any tough legislation. The new chairman of the Banking Committee is expected to be Sen. Alfonse D'Amato, R-N.Y., who is not an advocate of strong derivatives legislation. In addition, Gramm and Shelby support leaving current law alone.
In an editorial in Roll Call, a Capital Hill newspaper, last month, Shelby wrote, "Heavy-handed legislative responses, like those already proposed to regulate derivatives use, ignore ongoing efforts of banking regulators and the industry itself to analyze and minimize the systemic risks created by these sophisticated financial instruments."
One municipal bond industry source said the turnover in the House and Senate "is not going to be fun for [SEC chairman Arthur] Levitt.
Levitt suffered some legislative disappointments this year but was careful never to criticize Republicans, who were primary obstacles to the regulatory measures he supported.
However, a Republican source said the Senate could paralyze the SEC by refusing to approve nominees to be SEC commissioners if Republicans think the commission is overregulating the financial market.
In the area of government securities, the GOP takeover of Congress is not expected to make much of a difference. One reason is that the Government Securities Act Amendments of 1993, which stepped up federal oversight of the market, are now law. Moreover, the legislation was enacted with strong bipartisan support.
The main area of regulatory interest to the government market is the proposed sales practice rules issued by the National Association of Securities Dealers. Rep. Edward Markey, D-Mass., outgoing chairman of the telecommunications and finance subcommittee, raised questions about whether dealers were seeking to get out of their obligation to make suitable recommendations to institutional customers.
The issue, which is also of interest to state and local government finance officers who rely on dealers for market advice, is expected to go through further scrutiny at the NASD before any final rules are issued. It will now be up to the Republicans to follow through on the oversight initiated by Markey.
House and Senate Republicans also will have to monitor the large-position reporting rules for government securities dealers that are due to be issued by the Treasury Department. The Treasury has said it expects to release an outline of its rule proposals sometime this fall.
The changeover in leadership on the House Banking Committee also has implications for how Congress responds to Federal Reserve Board policymaking. Gonzalez was a long-standing and persistent critic of Fed policy, while Leach has generally been supportive.
In the Senate, the retirement of Banking Committee chairman Donald Riegle, D-Mich., removes a frequent critic of the Fed. Republicans in general have supported the Fed, but not always. D'Amato, Riegle's expected successor, was a harsh critic of the Fed for lowering rates too slowly during the Bush Administration.
The House and Senate budget committees may see the most action in the 104th Congress if last year's Republican attempts at budget reform are any indication. The two incoming chairmen were outspoken opponents of Clinton's 1993 economic package, and were enthusiastic supporters of a balanced budget amendment and line item veto power for the president.
Sen. Pete V. Domenici, R-N.M., will be the new chairman on the Senate side and Rep. John R. Kasich, R-Ohio, is the incoming chairman for the House Budget Committee, committee sources said.
Legislation aimed at protecting cities and states from unfunded federal mandates is a virtual certainty under a Republican-led Congress, said Larry Jones, lead lobbyist on mandates legislation for the National Association of Counties.
With Sen. William V. Roth, R-Del., at the helm of the Senate Governmental Affairs Committee, Jones said he fully expects mandate relief legislation to be at the top of the agenda. On the House side, the incoming chairman of the Governmental Operations Committee will be William F. Clinger, R-Pa., who was a sponsor of the unfunded mandates legislation that was approved at the committee level in the last Congress.
"Generally speaking, we are in good shape," Jones said.
Environmental legislation may be another story. Attempts last year to reauthorize legislation to revamp drinking water and wastewater regulations failed because Republicans and Democrats couldn't reach an agreement.
However, extending one state revolving loan. fund and creating another was agreed upon by both Democrats and Republicans. The issue will not be whether to continue the loan program, but where in the budget to find the money to pay for them, said James N. Smith, executive director of the Council for Infrastructure Financing Authorities.
Historically the House and Senate public works committees have passed legislation on a bipartisan basis, but last year that cooperation broke down and it probably won't get any better next year, Smith said.
Sen. John Chafee, R-R.I., the ranking member of the Senate Environment and Public Works Committee, is likely to take over as chairman of the panel, while Rep. Bud Shuster, D-Pa., is a shoo-in for chairman of the House Public Works and Transportation Committee, committee aides and lobbyists said.
Several infrastructure initiatives fall under the Senate Commerce, Science, and Transportation Committee. The consensus is that Larry Pressler, RS.D., will be the new chairman and that he intends to hold hearings on aviation safety, said Sam Whitehorn, senior Democratic staff member on the aviation subcommittee.