WASHINGTON -- The U.S. Conference of Mayors is pushing a "compettive cities" bill that would free tax-exempt bonds issued to finance the development of inner cities and other economically depressed regions from the tough bond curbs that were included in the Tax Reform Act of 1986.

The group has been trying to sell the legislation to Rep. Charles Rangel, D-N.Y., the House Urban Caucus, and the House Massachusetts delegation in hopes that individual members will volunteer to sponsor the bill, Howard R. Leibowitz, an aide to the conference's new president, Mayor Raymond Flynn of Boston, said yesterday.

Mr. Flynn, who conceived the legislation, is scheduled to testify today before the House Ways and Means Committee on the bill, which also proposes new education incentives, such as creation of federally tax-exempt education savings accounts similar to individual retirement accounts.

The legislation, which has virtually no chance of being approved by the tax writing committees this year, would exempt any bonds issued to finance projects located in 100 proposed "economic opportunity zones" from the 1986 act's state-by-state private-activity volume caps.

By proposing the creation of economic opportunity zones, the legislation is similar to several bills that have been introduced calling for the creation of urban enterprise zones.

However, the mayors' proposal differs in two significant ways. None of the other pending enterprise zone bills would ease curbs on bonds for projects within the zones.

But, beyond that, the mayors' measure proposes the establishment of 10 regional development authorities that would correspond to the 10 federal statistical regions.

Each of those regional authorities could issue tax-exempt bonds for development projects in economically depressed areas and also could allocate their authority to issue bonds among existing state and municipal issuers.

The bonds issued by the authorities would be free not only from the volume caps but from arbitrage rebate requirements and other 1986 restrictions, according to a summary of the bill, which says that the bonds would be treated as if they were issued before the law was passed.

To qualify for the highly preferential bond treatment, project sponsors would have to demonstrate to the authorities that their regions are experiencing high unemployment and other depression-like conditions, such as those felt in the Southwest during the mid-1980s and current conditions in New England.

While the bill would do much more to help distressed cities than other enterprise zone legislation pending before the committee, it faces some serious obstacles to enactment in Congress, said Frank Shafroth, lobbyist with the National League of Cities.

Even if the bill attracts numerous sponsors, one of the biggest problems it faces is finding a way to pay for the greatly expanded tax exemption, he said. A bill proposing to extend mortgage revenue bonds has garnered 388 supporters in the House, he pointed out, but so far it has gone nowhere because of the revenue problem.

"The prospects are not sunny and clear" for the mayors' bill, he said, given that the Ways and Means Committee has not moved on the revenue bond measure or even taken up Rep. Beryl Anthony's D-Ark., bond simplification bill. Both of the other measures are "far more modest than this," he said.

Mr. Leibowitz said the competitive cities bill could be expected to pay for itself because, by stimulating economic activity and increasing jobs, it would in the long run raise as much revenue for the government as it loses.

However, Mr. Shafroth said the bill's sponsors will have to come up with a more specific revenue source to offset the tax exemption. The Joint Tax Committee could be expected to produce large cost estimates of the bill and has consistently rejected the "supply side" theory that expanded bond exemptions generate increased economic activity and pay for themselves, he said.

Beyond the cost problem, Mr. Shafroth said, the bill, as described in the broad-brush summary passed out to reporters yesterday, would have to be refined to avoid raising the possibility of reviving tax-exempt bond abuses like those that spawned Congress's 1986 assault on bonds.

While the bill would allow unrestricted private-activity bond issuance only in extremely depressed areas, it could open the door to abuses such as financing for "dog tracks and lotto tickets," he said.

That would not only raise objections in Congress but would prevent most other state and local lobbying groups from signing on to the bill, he said.

"I don't think anyone wants to get back into that. We've made slow, steady progress since 1986 trying to deal with [Congress's] overbroad strokes. We don't want to go back and have that hanging around our necks again," he said.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.