WASHINGTON -- President Bush is proposing to expand the use of tax-exempt bonds to help revitalize economically distressed areas, administration officials told Congress yesterday.
The proposal, which was not spelled out in detail, is included in the President's plan for creating urban enterprise zones as part of an urban aid package that Congress and the White House are trying to hammer out in the wake of recent riots in Los Angeles and other cities.
Support has been growing in Congress for creating the zones, areas within economically depressed regions where tax incentives and other financial assistance would be available to start-up companies or businesses that wanted to relocate to those areas.
The administration officials disclosed the President's plans for bonds during a Senate Finance Committee hearing on enterprise zones, and created some confusion over exactly what type of bond Mr. Bush is supporting for the zones.
Housing and Urban Development Secretary Jack Kemp, in prepared testimony, said the President wants to resurrect tax-exempt commercial industrial development bonds within the zones. Congress abolished those bonds in 1986.
President Bush's proposal "will permit the use of tax-exempt IDB financing for loans to almost any enterprise zone business, such as retail stores," Mr. Kemp said in his statement.
But Fred Goldberg, assistant Treasury secretary for tax policy, described a slightly different approach in his written testimony.
Mr. Goldberg said President Bush is proposing the creation of a type of exempt-facility bond that would allow the use of tax-exempt bond proceeds "to make loans to an enterprise zone business for the acquisition of tangible property up to a maximum of $250,000 per business."
Afterward, when asked by a reporter to clarify which type of bond the President is advocating, Mr. Goldberg said "you can't get hung up on the technicalities." He added, "The point is making meaningful tax-exempt financing available to businesses."
Guy Land, a lobbyist for the Council of Industrial Development Bond Issuers, said the type of bond authorized was probably less important than President Bush's overall willingness to use tax-exempt financing to help rebuild in the wake of riots in Los Angeles and other cities.
"It appears the administration is embracing the use of IDBs for a broad range of economic development in enterprise zones," Mr. Land said. "Probably the nomenclature isn't relevant."
Mr. Land said the proposal had one drawback: the $250,000 per business cap. He said it would be difficult to issue such a small bond, and suggested the issues would have to be sold as pooled bonds.
During the hearing, Mr. Goldberg also disclosed several ways the administration is proposing to pay for the cost to the federal government of creating the enterprise zones. One of those is a mark-to-market accounting provision that has been roundly criticized by Wall Street.
The proposal would require securities firms to report the value of their securities for tax purposes, rather than the face value, as they are permitted to do now.
The mark-to-market accounting proposal was included in President Bush's fiscal 1993 budget plan, as well as tax proposals approved this year by the finance committee and the House Ways and Means Committee.
Over the years, congress has considered, but never passed, various proposals for enterprise zones. Until now, none of the plans has had a bond component, except for a 1988 proposal by Rep. Dan Rostenkowski, D-III.
He had suggested allowing the tax exemption for small-issue manufacturing IDBs to die on schedule that year, but he retained in enterprise zones.
Since the Los Angeles riots in late April, the idea of creating enterprise zones has gained renewed attention from both Congress and the President.
Both Mr. Bush and top lawmakers have said an enterprise zone proposal should be a part of urban aid legislation they want to pass this month.
Sen. Robert Dole, R-Kan., a member of the finance panel, said during the hearing that Congress has only a small window of opportunity to pass an urban aid bill.
"The longer we wait, the less the chances are of getting any satisfactory legislation," Mr. Dole said. Mr. Kemp agreed, saying that a bill needs to be passed by the July 4 congressional recess.
Mr. Dole said an urban aid package should include enterprise zones, extension of expiring unemployment benefits, the repeal of the luxury tax on boats, and some extensions of expiring tax provisions. He did not, however, specify which ones he wants to see extended.
The 12 or so expiring provisions include three that affect the municipal market: the tax exemptions for mortgage revenue bonds and small-issue manufacturing IDBs, and the low-income housing tax credit. All three are set to terminate on June 30.
During the hearing, Mr. Kemp said the President strongly supports extending those three expiring provisions, and urged Congress to do so quickly.
"I think we've got about two weeks to act," Mr. Kemp said. "If we don't act, we're going to end up without the low-income housing credit, we're going to end up without mortgage revenue bonds, we're going to end up without industrial financing bonds."
If they are allowed to expire, "that would be a tragedy," Mr. Kemp said.