WASHINGTON -- A new survey on the effects of the private-activity bond volume cap bolsters earlier findings that about half the states feel constrained by the cap, and most of those feeling the pinch are large states.
"The survey data indicate that the unified volume cap has placed an effective constraint on the issuance of private-activity bonds for about half the states," according to a recently issued report on the survey's findings. The survey was sponsored jointly by the Advisory Commission on Intergovernmental Relations and the National Bureau of Economic Research.
"The extent to which states are constrained by the cap varies widely, although the volume cap seems to be more constraining for the more populous states," says the report.
The report, "Private-Activity Bonds and the Volume Cap in 1990," appears in the summer 1991 edition of Intergovernmental Perspective, which is published by the commission. The survey was conducted by Daphne A. Kenyon, a professor of economics at Simmons College, and Dennis Zimmerman, a specialist in public finance with the Congressional Research Service.
The survey obtained data on the 1990 cap from all but one state -- Illinois. The report also used data compiled by Mr. Zimmerman last year on how the cap was used in 1989.
The volume cap law was enacted as part of the Tax Reform Act of 1986. It allows each state to allocate the greater of $50 per capita or $150 million in private-activity bond authority every year.
The survey found that "small" states -- defined as those that qualify for the $150 million level -- used an average of 48% of their volume cap authority in 1989 and 47% in 1990. The more populous states used an average of 77% of their volume cap authority in 1989 and 80% in 1990.
Ms. Kenyon and Mr. Zimmerman said in the report that, because allocation systems and efficiency of use vary widely from state to state, they believed states could still be considered "constrained" by the volume cap's issuing limits "even if they use well under 100% for a given year."
The two researchers said they assumed a state was constrained when it hit 80% use. By that gauge, 27 states did not have enough bond authority under the cap in one of the two years for which they compiled data. The other 23 states did not find the cap constraining in either year.
The survey results "do not indicate the cap was significantly more constraining in 1990 than in 1989," the researchers said in their report. They suggested the recession that began in 1990 "reduced the issuance of private-activity bonds generally and thus made the cap less constraining."
But they also said that once the recession ends, other factors may combine to make the cap tighten up in many states that are not now experiencing problems. "Because of expiring carryforwards and transition rules, once the national recession is over, the volume cap may become more of an effective constraint for more states," the report says.
Those transition rules, which expired on Dec. 31, 1990, were written into the 1986 tax act, and many of them allowed state and local governments to issue private-activity bonds without obtaining allocations under the volume cap. "Carryforward" refers to the amounts of unused bond authority that states are allowed to keep on their books for three additional years.
Overall, the study's results are similar to those found in a survey conducted by The Bond Buyer earlier this year. That survey found 29 states reported dissatisfaction with the volume cap in 1990. An earlier survey by The Bond Buyer on the 1989 cap also found that, of the 25 states reporting problems meeting the volume cap's constraints, nearly all were states with large populations.
But the two surveys also differ. While Ms. Kenyon and Mr. Zimmerman said they did not believe the cap tightened up significantly between 1989 and 1990, The Bond Buyer found that it did. The Bond Buyer figure of 29 states reporting problems with the cap in 1990 is an increase of four from 1989.
In its survey on the 1990 cap, The Bond Buyer survey also discovered that officials in 16 states reported they had difficulty meeting demand for bond authority under the cap or expect to have problems in the future because of large requests for environmental facilities. At the same time, the recession dampened demand in some states, the survey found.