WASHINGTON -- With time running out, the Senate Finance Committee yesterday approved an extension of the tax exemptions for mortagage revenue bonds and small-issue industrial development bonds through Dec. 31, 1993.
The panel also approved energy legislation containing a House-passed provision to remove investment restrictions on nuclear trust funds, which municipal market participants have warned would curtail demand for municipal bonds. But the committee omitted another House provision that would increase the supply of bank-qualified bonds.
With the mortgage bond and IDB exemptions and other tax provisions due to expire in two weeks, the Senate panel's approval of an 18-month extension is a promising development, lobbyists said.
"This keeps the expiring provisions on an independent fast track," said Micah S. Green, the executive vice president of the Public Securities Association. "The possibility for final passage [before June 30] is still out there."
But prospects in the House seemed far less clear. Mortgage bond and IDB proponents have been predicting the House Ways and Means Committee would meet on the extensions sometime next week, but a panel spokesman said yesterday that "we have no plans to do them." When asked why, the spokesman said, "because no one has come up with a way to pay for them."
Extending the dozen or so expiring provisions for 18 months would cost the federal government about $5.4 billion over the next five years, according to an estimate by the Joint Tax Committee. In approving the extensions, the Senate Finance Committee included several revenue-raising items, such as an increase on a tax on ozone-depleting chemicals.
The energy bill also faces an uncertain future, although in this case the Senate looms as the road-block. Nevada's senators have said they may filibuster the bill because it contains a provision that would adversely affect a nuclear power system in their state. The provision is unrelated to tax section of the bill.
Of concern to the municipal market is the Senate bill provision on nuclear decommissioning trust funds. That measure would end the requirement that the funds invest only in Treasury securities or tax-exempt municipal bonds. Lobbyists said the Senate panel provision is slightly less onerous for the municipal market than the House version, which would lower the funds' 34% tax rate to 20%.
The House bill's provision on bank-qualified bonds was designed to offset the potential negative effects on the municipal market of the nuclear decommissioning measure. Under current law, banks may deduct 80% of the cost of carrying tax-exempt bonds only if they are purchased from issuers who expect to sell no more than $10 million annually. The provision would raise that amount to $20 million.
Senate aides said the Senate panel did not add the provision on bank-qualified bonds because Sen. Lloyd Bentsen, D-Tex., the chairman of the panel, had decided not to allow any amendments to the energy bill that did not pertain directly to energy issues.
In approving the energy bill, the committee added an amendment by Sen. Bob Packwood, R-Ore., to exempt certain types of environmental bonds from the private-activity bonds volume cap.
Bonds would not be subject to the volume cap if they were used to finance "environmental and other improvements required by federal licensing terms to publicly owned and operated hydroelectric facilities," according to a description of the amendment. "To qualify, 80% of the bond proceeds must be used for environmental improvements to the facilities, such as fish ladders to allow fish migration."
Sen. Packwood said he offered the amendment to make it easier for the Mid-Columbia River Power Project in Washington State to comply with federal environmental laws.
But he rejected the notion that he was proposing a "rifleshot" -- a provision that benefits only one specific project or taxpayers. Sen Packwood said his amendment would be of use to at least eight public utility districts in the Pacific Northwest.