WASHINGTON -- In a surprise move, the Senate yesterday approved and sent to President Bush urban aid tax legislation that would make permanent the low-income housing tax credit and the tax exemption for mortgage revenue bonds.
The 67-to-22 vote was a defeat for Senate Republicans, who were hoping to keep the bill from ever reaching Bush's desk. Administration officials and Republican members of Congress have said the President will veto the bill, but Bush himself has not said what action he will take.
Along with the two permanent extensions, the bill would continue the tax exemption for small-issue industrial development bonds through Sept. 30, 1993. The three tax breaks expired June 30.
In addition, the bill contains a broad range of other provisions beneficial to the municipal market, including one that would increase the supply of bank-eligible bonds and another that would eliminate the $150 million limit on the amount of bonds that individual 501(c)(3) organizations may have outstanding at any one time.
Stalling tactics of Senate Republicans earlier this week had led Senate Majority Leader George Mitchell, D-Maine, to schedule a so-called calture vote yesterday to choke off any filibusters and allow the chamber to complete action quickly on the bill. The 80-to-10 vote gave Mitchell far more than the 60 votes he needed to limit debate.
Republicans then tried one last maneuver, raising a parliamentary point of order against the bill in which they charged that various sections of the bill violated laws designed to keep Congress from busting the budget. Mitchell again needed 60 votes to waive the point of order, and barely managed to prevail on the 60-to-29 vote. Had Mitchell failed to muster 60 votes, the bill would have been killed.
Attention now switches to the White House, where the President is left with a dilemma, lobbyists and congressional aides said. If Bush signs the bill, he could open himself up to charges that he has violated his "no new taxes" pledge, which he had appeared to repeat in August when he said he would "never, ever" raise taxes again.
On the other hand, sources said, if Bush vetoes the bill he will be rejecting a package full of urban aid provisions and economic initiatives he has demanded that Congress approve.
The overall urban aid package was built around a proposal to create enterprises zones, economically depressed areas in which tax incentives would be offered to create new companies or lure existing firms from other areas. The final bill allows the House bill's version of enterprise zones, which would create 50 zones and ease curbs on qualified redevelopment bonds in the zones.
In addition to making the mortgage bond exemption permanent, the bill also allows mortgage bond proceeds to be used for home-improvement loans in Florida, Louisiana, and Hawaii, the three states recently hit by hurricanes. The provision on extending IDB authority includes a proposal that would increase the $10 million limit on the total amount of money that can be spent on an IDB project to $20 million.
But the agreement also includes two items that the municipal bond community opposes. One would expand the use of Series EE U.S. Savings bonds to finance a college education. The other would require securities firms, for tax purposes, to count the market value of the municipal bonds and other types of securities they hold in their inventories.