WASHINGTON - Buried in the 19 hours of discussion during last week's economic conference in Little Rock is a brief statement by President-elect Bill Clinton that indicates he would favor easing the private-activity bond volume cap.
Clinton said he agreed with the concerns over the private-activity volume cap expressed by Ann Kaplan, a general partner with Goldman, Sachs & Co., on the second day of the summit.
Kaplan said Congress needs to make a number of tax changes to facilitate municipal issuance, including permanently extending the tax exemptions for mortgage revenue bonds and small-issue industrial development bonds, and lifting the $150 million limit on the amount of bonds that individual 501(c)(3) institutions may have outstanding.
At the end of her statement, Kaplan also criticized the volume cap law, which allows each state to allocate annually an amount of private-activity bond authority equal to $50 per capita or $150 million, whichever is larger.
Kaplan said she believed it was "absurd that pollution control projects, housing projects, economic development projects have to fight with each other in order to be able to issue debt based on federally imposed caps on what states can issue."
Clinton responded, saying, "I wasn't for that when it was done. I appreciate that."
Municipal lobbyists who later learned of the statement said that while they did not want to read too much into it, they were encouraged that Clinton demonstrated an understanding of one of the problems posed for public finance by 1986 tax law bond curbs.
The statement shows "that when faced specifically with the issue of public finance, publicly, he remembers the pressures that were faced by state and local officials" when the 1986 tax act was enacted, said Micah S. Green, the executive vice president of the Public Securities Association.
"The fact that he remembers his position on tax reform issues as it relates to public finance is encouraging," Green added.
Kaplan said that, in speaking with Clinton after her presentation, she came away with an impression "that Clinton, having been governor, is extraordinarily knowledgeable about public finance and is sympathetic to many of the things we would like to do" to ease tax law bond curbs.
Arkansas is one of 17 states small enough in population to have a volume limit of $150 million each year. Of that total in 1990, $90.8 million was issued for housing, $17.9 million for economic development, and $40.1 million for environmental facilities, according to a May 20, 1991, survey by The Bond Buyer. Another $1.2 million in bond authority was carried forward into 1991.
At that time, Arkansas officials said that while the volume cap had not been too constraining in the first years after tax reform, it was beginning to become restrictive in 1990. The main problem, they said, was increased demand from environmental projects, also known in tax code parlance as "exempt facilities."
"Our cap has eroded very seriously with these exempt facilities," Kay Bell, development finance officer with the Arkansas Development Finance Authority, told The Bond Buyer in 1991. "Every year it gets tighter."