WASHINGTON -- The Senate approved legislation last week that provides funding for the new federal housing affordability program but also removes incentives for issuing tax-exempt housing bonds under the program during fiscal year 1992.

The bill now goes to a House-Senate conference for reconciliation with the House version passed last month. The House's bill does not tamper with the housing program's provisions that spur tax-exempt bond issuance, but lobbyists have predicted the Senate's provision will prevail.

The program, popularly known as HOME, requires the federal government to match financial contributions state and local governments make to low-income housing projects. The Department of Housing and Urban Development has said it would allow general obligation bonds to count toward the match, and housing industry officials have been pushing for HUD to make private-activity bonds and revenue bonds eligible as well.

The Senate bill would waive all matching requirements for one year, allowing financially strapped states and localities to receive federal funds without having to put up their own money. This provision, while favorabloe for state and local governments, would mean less bond issuance because those governments will have no need to sell bonds to finance their portion of the program, industry officials have said.

The House bill does not contain a waiver provision, but housing lobbyists said House conferees would be inclined to go along with the Senate version and defer the match during fiscal 1992, which begins Oct. 1. They would not elaborate on their reasons why the House would accede to the Senate.

Another issue the conferees will have to settle is how much funding the program will receive in fiscal 1992. The two sides are far apart, with the House having approved $500 million and the Senate $2 billion. Housing industry officials have said the program needs at least $1 billion annually to operate effectively, and that is the amount the Bush administration has requested.

During Senate debate on the bill, Sen. Connie Mack, R-Fla., had been expected to propose an amendment that would have reinstituted the matching requirements for fiscal 1992 -- a move that would have been good news for the municipal bond market but put the burden back on states and localities to come up with funding for the HOME program.

Lobbyists said Sen. Mack decided not to offer the amendment after determining it did not have the votes to pass. Attempts to reach Sen. Mack's staff were unsuccessful.

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