Washington -- The House Ways and Means Committee formally approved an urban aid tax package yesterday that would ease curbs on municipal bonds in enterprise zones and permanently extend the tax exemptions for mortagage revenue bonds and small-issue industrial development bonds.
The panel had given preliminary approval to the bond extensions and the enterprise zone plan on Wednesday. In wrapping up its work yesterday, the committee also approved tax simplification provisions, such as raising the $5 million small-issuer exemption from the arbitage rebate requirement to $10 million and eliminating the so-called 5% unrelated-use test.
In addition, the committee included in its bill a proposal for mark-to-market accounting of securities that is tougher than a version the panel approved in March.
Time is running out on the mortgage bond and IDB exemptions, which are scheduled to expire Tuesday. The Senate Finance Committee has approved 18-month extensions for the two tax breaks, but panel aides have said there is no timetable for action by the full Senate on the measure.
A key congressional aide said he doubted there would be enough time for Congress to give final approval to the extensions before adjourning for its Independence Day recess on July 3.
The mark-to-market proposal, as originally approved by the committee in February, would require securities firms to report for tax purposes the market value of municipal bonds and other securities they hold in their inventories.
Firms must already mark to market for accounting purposes, but for tax purposes they may choose whether to report the market value of face value. The proposal would take effect with the current tax year.
As approved in February, the proposal gave firms transitional relief by allowing them to spread out over 10 years any tax increase associated with the accounting change. Yesterday, the committee modified the proposal to increase the amount of gain reported in the first years after entactment.
Municipal lobbyists, meanwhile, roundly praised the committee's bond plan for enterprise zones, which would ease current law governing tax-exempt qualified redevelopment bonds so that they could be used in the zones.
"This is an excellent new tool for local ecnomic officials to use in working with the problems of distressed areas," said Guy Land, a lobbyist with the Council of Industrial Development Bond Issuers, which is scheduled to reorganize as the Council of Development Finance Agencies next month.
"It's highly significant" that the members of the Ways and Means Committee "are recognizing the utility of bonds," said Milton Wells, the director of federal relations for the National Association of State Treasurers.
Current law allows redevelopment bonds to be used in so-called blighted areas, but with tight curbs. For example, the proceeds would have to be repaid through tax revenues, and the bonds are subject to the private-activity bond volume cap. Proceeds may be used only for clearing land, rehabilitating buildings, or improving infrastructure.
Under the committee bill, an issuer would not have to pledge tax revenues to repay the bonds, but could provide its own guarantee or obtain a letter of credit or bond insurance. In addition, only 50% of an issue would need a volume cap allocation.
The proposal would also allow the proceeds to be used to make loans to businesses within the zones. Loans would be capped at $2.5 million per business.
The changes proposed by the panel constitute "an extraordinarily creative proposal that should be very effective at generating capital in a very targeted, direct sort of way, which is the purpose of enterprise zones," said Micah S. Green, the executive vice president of the Public Securities Association.
Lobblyists said the plan is a marked improvement over President Bush's proposal for using tax-exempt bonds in enterprise zones. Bush administration officials have said the President wants to create a new category of exempt-facility bond that would finance loans of up to $250,000 per business in qualified enterprise zones. The bonds would be subject to the volume cap.
The committee's loan limit is 10 times that proposed by President Bush, and it "recognizes the reality of business credit needs in the zones," Mr. Land, the lobbyist, said. The higher limit "will enable most businesses to accomplish expansion, growth, or new enterprises, so it's a good figure."
The House panel's plan is also more workable than the Bush administration's because it offers a partial exemption from volume cap restrictions, lobbyists said. That is particularly important to the larger states where there is stiff competition for bond authority under the cap, they said.