WASHINGTON -- We all know it's impossible, as the saying goes, to turn a sow's ear into a silk purse.

But Ways and Means Chairman Dan Rostenkowski may have come close to doing that -- at least as far as the municipal bond market is concerned -- with an element of President Bush's proposal for creating enterprise zones, economically blighted areas where special tax breaks and regulatory relief would generate jobs.

The Illinois Democrat took a slapdash Bush proposal for allowing expanded use of tax-exempt bonds within the zones and transformed it from a weak, disjointed effort into something that has a chance of working.

The White House proposal, unveiled early this month, calls for creation of a new category of exempt-facility bond that would finance loans of up to $250,000 per business in qualified zones. The loans would be subject to the $50 per capita private-activity volume cap.

True, the President's plan marks the first time in the last 11 years that the White House has admitted tax-exempt, private-activity bonds can be valuable economic tools. But municipal lobbyists rightly blasted the proposal for being too limited and containing flaws that would prevent it from being effectively used in the zones.

Most notably, those flaws included making the bonds subject to the existing volume cap, a requirement that would force many states to eliminate other kinds of bond issues if they wanted to issue the enterprise zone bonds. In addition, the $250,000 limit on the size of loans would also make it difficult to finance anything but small projects.

Rep. Rostenkowski's plan would go a long way toward overcoming those flaws by permitting the expanded use of qualified redevelopment bonds in the zones, including allowing the bonds to be used to finance loans to businesses.

His proposal, which would liberalize many current law curbs on redevelopment bonds while targeting their use to prevent possible abuses, would exempt 50% of an issue from the volume cap and would cap loans at $2.5 million per business.

Not only should Rep. Rostenkowski's plan make the bonds far more useful in the zones than President Bush's plan would, but it represents an important acknowledgement by the Ways and Means chairman that tax-exempt bonds can be one small, but important, element in the search for a solution to the nation's blighted areas.

The jury certainly is still out on whether enterprise zones are an efficient way to fight poverty and on exactly what elements should be included in any final zone proposal.

But Rep. Rostenkowski's fine-tuning gives the bond proposal a fighting chance of being able to help to make a success of whatever enterprise zone plan Congress and the Bush administration finally agree to enact.

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