WASHINGTON - The House Ways and Means Committee yesterday gave preliminary approval to an enterprise zone proposal that includes a surprise provision that would ease curbs on tax-exempt qualified redevelopment bonds if they are used in the zones.

The proposal is included in a tax package the committee debated throughout the day yesterday. The panel also gave preliminary approval to provisions that would permanently extend the tax exemptions for mortgage revenue bonds and small-issue industrial development bonds.

The committee was expected to take a final vote on the package last night or today.

The Senate Finance Committee approved legislation last week that would extend the bond exemptions and other tax breaks for 18 months beyond their scheduled June 30 expiration date. But the panel has not taken up the enterprise zone issue, and committee Chairman Lloyd Bentsen, D-Tex., has said he does not plan to call a meeting on the issue until sometime next month.

Rep. Dan Rostenkowski, D-Ill., who chairs the Ways and Means committee, recommended creating 50 enterprise zones that would operate for 15 years, including the provision that would expand current law to allow the expanded use of qualified redevelopment bonds to redevelop so-called blighted areas.

Current law requires that the proceeds be repaid through tax revenues, and the bonds are subject to the $50 per capita private-activity bond volume cap.

With Rep. Rostenkowski's proposal, an issuer would not have to pledge tax revenues to repay the bonds, but could provide its own guarantee or obtain a letter of credit or bond insurance. In addition, only 50% of issue would need a volume cap allocation.

Under current law, redevelopment bonds may be used only for clearing land, rehabilitating buildings, or improving infrastructure. The proposal would also allow the proceeds to be used to make loans to businesses within the zones. Loans would be capped at $2.5 million per business.

A congressional aide said the provision would have the effect of setting up "a redevelopment bank for cities."

Support has been growing in Congress for creating enterprise zones in the wake of recent riots in Los Angeles and other cities. The zones are envisioned as economically depressed areas in which tax incentives would be available to start-up companies or businesses willing to relocate to those areas.

Bush administration officials have said the President wants to create a new category of exempt-facility bond that would finance loans of up to $250,000 per business in qualified enterprise zones. The loans could finance only tangible property, and the bonds would be subject to the $50 per capita private-activity bond volume cap.

But municipal lobbyists have criticized the President's plan because the bonds would be under the private-activity volume cap and the loans that could be financed would be extremely small.

Rep. Rostenkowski's plan to use qualified redevelopment bonds in enterprise zones is a surprising departure from a plan he offered in 1989, lobbyists said.

At the time, he proposed an enterprise zone bill whose only bond provision involved allowing the continued use of small-issue manufacturing industrial development bonds in the zones. But that proposal also would have called for the expiration of small-issue IDBs outside the zones.

Rep. Rostenkowski's tax package also involves a number of simplification items the committee had approved earlier this year. Those include: * Expanding the six-month exemption from the arbitrage rebate requirement to an issuer who has spent 95% of proceeds within that period; * Easing requirements for bona fide debt service funds under the 1989 arbitrage rebate relief law; * Ending the requirement that two bond issues paid from substantially the same source of funds be treated as the same issue if they are issued within 31 days of each other; * Making it easier for state and local governments to use proceeds from tax-exempt bonds to prepay purchases of equipment at a discount.

Rep. Rostenkowski did not include in his bill one simplification item the committee had earlier approved. That provision would have automatically extended the temporary period for construction bonds for an additional year as long as the issuer spent 85% of the proceeds of the issue and expected to spend the other 15% in the next year.

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