WASHINGTON - Nine of the 24 Democrats on the House Ways and Means Committee are urging panel chairman Dan Rostenkowski to include three provisions in health care reform legislation that would benefit the tax-exempt bond market.

Led by Rep. Peter Hoagland, D-Neb., the tax legislators made their appeal to Rostemkowski, D-Ill., in a letter dated Monday, to coincide with the beginning of efforts by the, 38-member committee to draft its version of health care legislation.

Rostenkowski has spent this month meeting privately with various committee members and may convene a formal drafting session as early as next week, a committee spokesman said.

In their letter, the lawmakers said they support a proposal to end the $150 million limit on the amount of outstanding bonds that individual 501(c)(3) health care institutions other than hospitals may have outstanding at one time.

They also want Rostenkowski to endorse provisions to ease rules governing bank deductibility and advance refundings, as they apply to health care institutions.

"Comprehensive health care reform legislation presents a vehicle to resolve the health care aspects of these tax-exempt bond provisions," the letter said. Hoagland's office did not release the names of the other eight members who signed the letter, but said a list would be available later this week.

"We understand it will be necessary to address the problems noted above in a revenue-neutral manner, and we stand ready to work with you to find acceptable revenue offsets," the letter said.

The lawmakers said the $150 million cap impedes health care reform for two reasons. First, the type of health care institutions created under reform legislation may not f it the narrow definition of "hospital" that is exempted from the cap.

Second, health care reform is prompting a number of mergers, and the lawmakers envision instances when the combination of two large health care facilities would push the newly created institution above the $150 million limit.

The $150 million cap also applies to other 501(c)(3) institutions, such as universities, but the proposal endorsed by the nine committee members only covers health care institutions.

On advance refundings, the law-makers are targeting the rule that limits 501(c)(3) bonds issued before 1986 to two refundings, and those issued after 1986 to one. Many health care facilities used up the refundings permitted them over the last few years to take advantage of dropping interest rates.

An expansion of the refunding rule is needed because those same hospitals may need to undertake an additional advance refunding "to eliminate bond covenants that inhibit hospital mergers," the letter said.

The rules on bank deductibility permit banks to deduct 80% of the costs of purchasing and carrying tax-exempt bonds only if they are purchased from an issuer that expects to sell no more than $10 million annually. But many small health care facilities cannot take advantage of the small-issuer exemption because they borrow through large state authorities, which are too big to issue bank-qualified bonds.

The legislators said they favor a modification of the bank deductibility rules to permit the debt of small health care institutions that borrow through larger entities to be deemed bank-qualified as long as the amount borrowed by the institution does not exceed $5 million.

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