WASHINGTON -- It's time for a thorough re-examination of the restrictions on private-activity bonds, including the $50 per person state volume cap.

That was apparent after a little-noticed but thoughtful debate that took place on a sleepy Saturday late last month when the Senate was debating the tax bill.

Sen. Pete Domenici, R-N.M., had taken the floor with his arguments for a proposal to ease curbs on tax-exempt bonds used to finance environmental infrastructure projects that benefit private firms and aren't counted as traditional governmental projects.

Domenici argued for a rollback of the curbs because the federal government is saddling state and local governments with large numbers of environmental rules and regulations, but is providing no funds to help meet those mandates.

At this point, Sen. Howard Metzenbaum stood up. Anyone who had witnessed the Ohio Democrat's attacks on private-activity bonds in the early 1980s must have been cringing.

But something interesting happened.

Metzenbaum opposed the amendment, but not viciously. Chiefly, he said its $2 billion cost was too high to include in the current tax bill and the amendment came too late to be carefully considered.

However, he also praised the basic concept and urged Congress to take a hard look at the curbs on private-activity bonds next year.

"It is a worthwhile amendment. It is good. It is a step in the right direction," he said.

"But you cannot go back to the days" when private firms were able to make widespread use of municipal credit, either, he said, adding that "there is just not that much money around."

Metzenbaum raised his point at a very good time.

It has been more than six years since the current private-activity restrictions were imposed by the Tax Reform Act of 1986, and the world of public finance is a vastly different place.

Demands for environmental and infrastructure projects have multiplied during that time, while the amount of federal money available for such projects has declined.

Groups such as Rebuild America, the Public Securities Association, a panel of the Government Finance Officers Association, and an advisory board to the Environmental Protection Agency have all been urging that states and localities be given more flexibility to enter into public-private partnerships for infrastructure and environmental projects that serve public health and safety, including those that benefit private firms.

The time is ripe to revisit the whole question of private-activity bonds and set a new line of demarcation -- one that helps rebuild the nation's economy without returning to the excesses of the days before 1986.

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