WASHINGTON - Sen. Lloyd Bentsen, D-Tex., said Friday he will propose relaxing curbs on private-activity bonds in enterprise zones as part of the urban aid package the Senate Finance Committee is scheduled to vote on this week.

Committee aides are still working out details, but Senate sources said the plan will probably involve a new type of exempt facility bond to finance small-business loans in the zones. The bonds likely would be partially exempt from the private-activity bond volume cap, and banks would be able to deduct 80% of the cost of carrying the bonds.

Sen. Bentsen, who chairs the finance panel, told reporters his package will also propose renewing the tax exemptions for mortgage revenue bonds and small-issue industrial development bonds and the low-income housing tax credit, and extending them through Dec. 31, 1993. Those and other tax breaks expired June 30.

The package is also expected to contain tax simplification provisions approved earlier this year by the committee, the senator said. They include proposals that would increase the supply of bank-qualified bonds, loosen restrictions on 501 (c)(3) bonds, and ease the arbitrage rebate requirement.

On the negative side for the municipal market, Sen. Bentsen said his package will include a provision that would require securities firms to report, for tax purposes, the market value of municipal bonds and other securities they hold in their inventories.

The finance panel is tentatively scheduled to vote on the package tomorrow, but Sen. Bentsen said the vote may be postponed until later in the week because his staff may need more time to prepare the plan. He said he hoped the full Senate could act on the measure before Congress adjourns for a four-week recess on Aug. 13, but doubted if could be reconciled with the House-passed bill by then.

"I'd like to finish with conference before the recess, but it's going to be tough," Sen. Bentsen told reporters.

Support has been growing in Congress for creating enterprise zones since rioting broke out in Los Angeles and other cities early in May. Located in economically depressed areas, the zones would provide tax incentives and other financial assistance to help start up companies or businesses relocating to those areas.

In June, Bush administration officials said the President favored an enterprise zone proposal that would essentially be an entitlement program, with any qualified area designated as a zone. The officials also suggested the creation of a new type of exempt facility bond that would be used to finance loans to small businesses.

Municipal lobbyists, however, criticized the bond proposal because the loans would be capped at $250,000, and the bonds would be subject to the private-activity bond volume cap.

Later that month, the House passed legislation that would create 50 enterprise zones and expand the use of qualified redevelopment bonds so they could be used in the zones. Proceeds could be used to make loans to small businesses, with a $2.5-million per-business limit. Only 50% of each issue would need a volume-cap allocation.

Sen. Bentsen's enterprises zone proposal provides for only 25 zones. The Senate source said, however, that Sen. Bentsen may propose allowing the bond component of the plan to be used in areas that are not designated as enterprise zones, but which fit the criteria for becoming a zone.

The senator's proposal for the bond extensions repeals legislation the committee approve last month. At that time, lawmakers were attempting to extend those and other tax breaks before they expired on June 30.

The House urban aid bill included permanent extensions for the mortgage bond and industrial development bond exemptions, but Sen. Bentsen was not ready to offer his urban aid plan. So the finance panel opted instead for passing a narrow bill in mind-June containing only the extensions. But the Senate failed to take up the bill before its Independence Day recess, and the bond exemptions expired as scheduled on June 30.

Among the tax simplification proposals likely to be in Sen. Bentsen's package, the provision on bank-qualified bonds would ease restrictions enacted in 1986.

The tax reform act passed that year allows banks to deduct the cost of purchasing and carrying tax-exempt bonds only if they are bought from an issuer expecting to sell no more than $10 million of governmental bonds annually. If Sen. Bentsen follows the bill passed earlier by his committee, his proposal would increase that limit to $25 million.

The House did not propose increasing the amount of bank-qualified bonds in its urban aid package, but did attach such a proposal to energy legislation it passed in May. Under that plan, the issuer limit would increase to $20 million.

The provision on 501 (c)(3) bonds expected to be in Sen. Bentsen's bill would remove the $150 million limit on bonds that individual private, nonprofit entitles other than hospitals may have outstanding at one time.

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