WASHINGTON - The Senate approved legislation last week that would partially lift a ban against the use of private-activity housing bonds in conjunction with the HOME housing affordability program.

The bill, part of a larger measure needed to reauthorize HOME, now must be reconciled with a House-passed bill that would go even further in expanding Housing and Urban Development Department rules that favor the use of public-purpose bonds under the program.

The HOME program requires the federal government to match contributions that state and local governments make to low-income rental and home ownership projects. The 1990 law that created the program did not specify what financial instruments may be counted among the contributions eligible for federal matching funds.

Last year, HUD issued regulations stating that general obligation bonds are eligible for the match, but private-activity bonds are not. The rules sparked criticism from housing lobbyists, who urged Congress to reverse HUD's decision on private-activity bonds.

The Senate bill, approved by voice vote Thursday night, would permit state and local governments to count 10% of the value of their multifamily housing bond issuances in the contributions they make to the program that are eligible for matching funds. Mortgage bond issuances would not be eligible.

The figure originally approved by the Senate Banking Committee was 25%, but housing lobbyists said the full Senate bowed to pressure from the Bush administration by lowering the percentage.

Last month, the House approved an authorization bill that would allow states and localities to count the full value of both multifamily and mortgage bond issuances as part of their eligible contributions.

HUD has argued ttlat private-activity bonds should not be considered a true contribution by a state or local government because those bonds, unlike general obligation bonds, are repaid through project revenues.

But housing lobbyists say state Find local issuers of private-activity housing bonds are taking a risk with their credit ratings that should be considered as a contribution to housing. In addition, issuance of the bonds cannot occur without an allocation under the private-activity volume cap, a scarce resource in many states, the lobbyists have said.

The Senate's action on the authorization bill came one day after the chamber approved a separate measure to allocate $1.5 billion to the HOME program in 1993, equal to the level appropriated for 1992. That bill must now be reconciled with a House-passed bill that would give the program only $600 million next year.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.