WASHINGTON - House leaders were struggling to obtain an agreement late yesterday that would allow the House to vote on the urban aid tax package that includes provisions to permanently extend the tax exemption for two popular bond programs and ease curbs on redevelopment bonds used in enterprise zones.

The package, which would permanently extend the use of tax-exempt mortgage revenue bonds and small-issue industrial development bonds that expired Tuesday night, had been scheduled for debate by the full House yesterday. But action was postponed after Rep. Barney Frank, D-Mass., threatened to block the measure unless lawmakers got assurances there would be a vote this year on a measure designed to resolve the so-called "notch baby" Social Security problem.

The "notch baby issue, which involves individuals born between 1917 and 1921 who receive lower benefits than those born earlier but higher benefits than those born later, flared up after House leaders had reached agreement with the administration and Republicans on major elements of the bill, such as capital gains and the so-called "weed and seed" issue.

Under those agreements, 50% of the capital gain from the sale of a business in an enterprise zone would be excluded from tax and additional money would be provided for law enforcement, job training, and Social Services in such zones.

The Social Security issue had not been resolved by late yesterday afternoon, raising questions about whether the package would hold together for a House vote today. There also were ongoing disputes about whether the capital gains break should involve existing as well as new businesses and other issues such as retirement for non-unionized pilots and depreciation of intangible property.

"There are all kinds of rumors flying around here. Things could blow up anytime," said one congressional aide.

Another question was whether a controversial mark-to-market requirement, which would raise $2.5 billion to $2.65 billion in federal revenues, would remain in the urban aid tax package or in a bill to extend jobless benefits that was expected to be approved by House and Senate conferees late yesterday and by the full Congress today. Lawmakers were racing to approve the bill before the current benefits package expires on Saturday.

The mark-to-market proposals would require securities firms to report for tax purposes the market value of municipal bonds and other securities they hold in inventory. Securities firms already are required to mark their securities to market for accounting purposes, but for tax purposes, they have been allowed to choose whether to report the market value or the cost of those securities.

The mark-to-market requirement in the unemployment compensation bill would be less onerous than the one pending in the urban aid tax package, industry officials said yesterday. Both would be phased in over 10 years. But the increase in firms' taxable income attributable to the change would be felt evenly, at 10% per year, under the requirement in the unemployment bill and would be front-loaded, at 17% the first year, 10% in each of the next seven years, and 6.5% in the last two years under the requirement in the urban aid and tax package.

Even if the House postpones a vote on the package until next week after it returns from a July 4 recess, the Senate will not be able to consider it until late July or early August.

While the Senate Finance Committee has approved 18-month extensions for mortgage revenue bonds and small-issue industrial development bonds, it has not yet considered the urban aid proposals. The Senate recesses after today and does not come back into session until July 20.

If the House package holds together with continued administration support, it would be something of a "first" in the bond area, industry officials said. "The administration appears for the first time to be supporting permanent extensions of tax-exemption for mortgage revenue bonds, small-issue industrial development bonds, and the low-income housing credit," said John McEvoy, executive director of the National Council of State Housing Agecies.

Members of the bond community also are pleased tha the package would ease tax law restrictions on redevelopment bonds used in enterprise zones. "We're starting to see municipal bonds used as a way to solve problems, as a way to attract capital," said one congressional aide. This is a real change from the past when bonds were criticized as inefficient federal subsidies, he said.

The urban aid tax package calls for up to 50 enterprise zones to be created in economically distressed urban and rural areas. Tax-exempt redevelopment bonds could be used to finance loans of up to 2.5 million per business in these zones.

The measure would ease use, repayment, volume limit, and other current restrictions on redevelopment bonds.

For example, under current law, redevelopment bonds can only be used to finance the clearing of land, the rehabilitation of buildings, and the improvement of infrastructure. Tax revenues must be pledged to repay bonds, and 100% of a bond issue is subject to state volume limits.

But under the package, an issuer could provide its own guarantee or could obtain a letter of credit or bond insurance to repay bonds. The bonds could also be used to acquire land or to purchase equipment. And only 50% of an issue would be subject to volume limits.

The urban aid tax package also includes several bond-related tax simplification provisions, such as increases in the small-issuer and six-month-spending exemptions to rebate requirements.

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