WASHINGTON -- House Ways and Means Committee Chairman Dan Rostenkowski yesterday threw his support behind legislation that would permit private firms to use tax-exempt bonds to clean up contaminated industrial sites for redevelopment.

The bill "is something I can certainly see helping an urban area," the Illinois Democrat said during a hearing by the Ways and Means panel's subcommitee on select revenue measures.

Rostenkowski's comments came as the subcommittee heard testimony on nearly two dozen proposals that would ease tax law bond curbs, which could become part of a second tax bill that the committee may draft later this year.

The industrial cleanup bill, sponsored by Rep. Mel Reynolds, D-Ill., would set up a pilot program in 24 cities and several rural areas in five states, where tax incentives would spur redevelopment of contaminated sites.

One incentive would be a new category of private-activity bond, called an environmental remediation bond. that could be issued in t he designated areas to help private firms purchase and clean up the sites. At least 60% of the proceeds would have to be used for cleanup expenses. The other 40% could finance acquisition of the property. The bonds would be subject to the private-activity bond volume cap.

Chicago's Mayor Richard M. Daley told the subcommittee that his city is a prime candidate for the kind of financial help the bill would provide to rehabilitate abandoned manufacturing sites contaminated by industrial use.

"Without these tax incentives, contaminated properties will remain polluted and unproductive for an indefinite period of time," Daley said in testimony prepared for the subcommittee. "The economic base of communities will remain impaired, while the need for new growth will push urban areas ever outward."

Charles Bartch, senior policy analyst for the Northeast-Midwest Institute, said it Congress ultimately decided to expand the pilot program, it would find at least 500,000 abandoned. contaminated industrial, sites around the country that would benefit from the tax incentives in Reynolds' bill.

The Treasury Department opposes the plan, according to written testimony the department submitted on June 22, because the bill's tax incentives "would have significant revenue cost, and would not be the most efficient means of providing subsidies to finance cleanup costs."

On another subject, Rep. Ted Strickland, D-Ohio, urged the subcommittee to support his bill to allow more outside funds to be spent for projects financed with industrial development bonds.

Under current law, individual IDB issues are capped at $10 million, and there is an overall $10 million limit on the amount of money that may be spent on a project financed with such bonds. Strickland's bill would not change the per-issue limit, but would raise the capital expenditure limit to $20 million. Sen. John Glenn, D-Ohio, has introduced similar legislation in the Senate.

The need is national in scope, said the Council of Development Finance Agencies, in a written statement submitted to the panel. "From California to Illinois to Massachusetts to Georgia, CDFA members report numerous examples of smaller manufacturers who are unable to go forward with plant expansion plans."

For Strickland's bill to have any practical effect, Congress would have to renew the tax exemption for IDBs, which expired June 30, 1992. The House version of President Clinton's budget and tax package would make the IDB exemption permanent, while the Senate bill would extend it through June 30, 1994.

The subcommittee also heard a number of representatives from the municipal finance community testify in support of proposals that would: expand the amount of private involvement in projects financed with public-purpose bonds; increase the supply of bank eligible bonds; end the so-called $15 million limitation on public power bonds; and eliminate the $150 million cap on the amount of bonds that individual 501(c)(3) organizations may have outstanding at one time.

A number of other witnesses complained to the committee about the private-activity volume cap. The volume cap law, enacted in 1986, allows states to allocate $50 per capita or $150 million, whichever is greater, in private-activity bond authority each year.

"Many worthwhile projects never get financed because of volume cap limitations," R. Fenn Putman, managing director of Lehman Brothers and vice chairman of the Public Securities Association, said in prepared testimony. "The problem is particularly acute in large, populous states."

Putman and Aurel M. Arndt, the general manager of the Lehigh County Authority in Allentown, Pa., said one way to alleviate the pressures of the volume cap would be to index it for inflation.

Such a change is not a panacea, but it does provide "a mechanism for the volume cap to keep pace with rising construction costs and increased financing needs," said Arndt, who testified on behalf of 12 state and local organizations.

State and local housing officials urged the subcommittee to support a number of changes that would expand the use of mortgage revenue bonds and multifamily housing bonds.

For example, Angelo J. Aponte, representing the National Council of State Housing Agencies, said housing officials support legislation that would increase the limit on home improvement loans financed with mortgage bonds to $25,000 from $15,000.

The $15,000 limit, enacted in 1981, "no longer reflects today's cost of undertaking home improvements," said Aponte, who is the commissioner of the New York State Division of Housing and Community Renewal.

State and local housing officials also want Congress to permit mortgage bonds to be used to finance new two-family homes in certain distressed areas, said Stephen G. Leeper. the director of housing for the Urban Redevelopment Authority of Pittsburgh.

"By expanding home ownership opportunities. this change would also free up rental housing for other low- and moderate-income households in need of such housing," said Leeper. who was also representing the Association of Local Housing Finance Agencies.

Leeper said that Congress should consider expanding the proposal to cover dwellings that could house up to four families.

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