The huge health care reform bill that Congress will consider next year could become the vehicle for passing proposals to ease tax-exempt bond curbs, a key congressional tax aide said yesterday.

"I don't know how much that [bill) will open up to other items," said H. Ben Hartley, senior legislation counsel for the Joint Tax Committee. "But I've never seen a revenue bill yet that doesn't contain such extraneous items before it gets enacted."

Hartley, who was speaking to the Association of Local Housing Finance Agencies' fall conference here, said the potential exists to add bond amendments because the health care bill will almost certainly have to include a tax component.

In drafting health care reform, tax lawmakers will have to deal with such issues as extending expired tax breaks in the health care area and finding revenues to cover some of the bill's cost, Hartley said. "There are any number of tax issues in the health arena that will have to be addressed as part of that health bill," he said.

Whether that tax section will contain unrelated bond provisions is an open question, Hartley said. "How much you can stretch the health nexus, or whether the barrier falls down altogether I don't think any of us will know until spring of next year at the earliest," he said. "But I wouldn't rule any of that out."

Another possible vehicle for bond changes is the pending tax simplification bill, Hartley said. The House Ways and Means Committee passed the bill earlier this month without extraneous amendments, and even stripped out two bond simplification provisions because they would lose money for the federal government.

But time is running out on the bill because Congress is expected to adjourn before Thanksgiving. The House has not yet voted on the bill and the Senate Finance Committee has not begun drafting a similar piece of legislation. So when Congress returns next year, "that will be the pending business at some point in time," Hartley said.

One bond-related tax change that the housing community will seek next year will be to increase the amount of low-income housing tax credits that developers can use when their projects also contain tax-exempt financing, said John C. Murphy, the executive director of the local housing group.

Generally, current law permits a developer to take a credit based on the percentage of the low-income units in his project. But when bond financing is combined with the credit, the law reduces the amount of credits available to the developer.

Murphy said he believes that "there is sufficient protection under current law that would insure that projects are not oversubsidized" if bonds were permitted to be combined with a larger amount of credit. He did not elaborate on what the protections are.

But Hartley indicated that housing advocates may have to work to make the case to Congress. "There is an ongoing concern in the credit area that projects are oversubsidized," even with the penalty in current law for using bond financing, he said.

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