The American Public Power Association passed a resolution in support of a bill sponsored by Rep. Richard Neal, D-Mass., that would eliminate the $15 million private-use restriction placed on public power bonds by the 1986 Tax Reform Act.

At its annual conference last month, the association also passed a resolution to oppose a bill sponsored by Rep. Jim McDermott, D-Wash., that would eliminate tax-exempt financing for public power facilities.

For most types of public purpose bonds, the tax law requires that no more than 10% of each issue benefit private business.

But the private business restriction for public power bonds is the lesser of 10% or $15 million, and public power officials charge that the $15 million limitation is unfair.

Enactment of a bill such as Neal's would provide equal treatment for all governmentally financed and operated facilities by placing public power in the 10% category, the association's resolution states.

McDermott sees another side to the issue. By eliminating tax-exempt financing for public power projects, there would be more incentive to invest in renewable and energy-efficient technologies, he contends. His bill would encourage such investment through tax credits.

The power association, however, says it would be getting a raw deal.

"Although the intent of the bill is to eliminate tax benefits for investments in coal, oil, or nuclear generation, the legislation unfairly penalizes only one segment of the electric utility industry: public power systems," the resolution says.

The association claims that one part of the bill would benefit only investor-owned utilities.

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