WASHINGTON - Limiting the term members of Congress is a ticking time bomb for the municipal market.

Admittedly, there might be a lot of superficial appeal to getting entrenched incumbents out of office, especially those who have supported tough curbs on tax-exempt bonds.

But doing it by tossing a term-limit hand grenade into congressional delegations is an idea that is almost certain to come back to haunt the municipal market and a lot of other public interests.

Voters in 14 states pulled the pin on that grenade, however, when they approved measures on Election Day that would limit senators to 12 years in office and representatives to between six and 12 years, depending upon the state.

The limits have no immediate effect because they apply only to terms starting with next year's Congress. No matter how long they have served, current members will start off with a clean slate in January, so the limits will not present a problem until 1998 or beyond.

Some say they may never go into effect because opponents are almost certain to challenge the limits in the courts, contending that any attempt by the states to impose restrictions on members of Congress is unconstitutional.

However, the first court challenge probably cannot be mounted until 1998, when the first of several term limits is scheduled to apply to members of the House.

Interestingly, the election results showed a major inconsistency among voters.

While voters in the 14 states were approving term limits, they also reelected most incumbents.

As the accompanying table shows, many of those incumbents have served far longer than permitted by the new limits.

What that incongruity shows is that there is a prevailing anti-incumbency mood in the country that voters generally do not apply to their hometown members of Congress.

But, as the saying goes, you can't have your cake and eat it, too.

That's where the ticking time bomb comes in for the muni market.

If the drive for term limits catches on and leads to a constitutional amendment, it could drastically alter the way Congress operates and undermine the seniority system on Capitol Hill that usually gives the most power to those who have served the longest.

If the limits in the 14 states applied immediately to incumbents, there would already be a small, but noticeable effect on muni market issues.

Sen. Bob Packwood, R-Ore., the ranking Republican on the Senate Finance Committee, would be out of a job because he has been in the Senate for 24 years.

There might be cheers if that happened from those who remember when Packwood, as finance committee chairman, shut down the muni market in March 1986 when he proposed slapping a minimum income tax on the interest earned from all outstanding and new tax-exempt bonds held by both individuals and corporations.

But Packwood backed away from that plan and exempted individuals. He has since admitted that the curbs put on bonds by Congress in 1986 went too far and supports easing some of those curbs.

However, the term limits have the potential to toss Packwood and others out just when they have developed an understanding and appreciation of the workings and needs of the municipal market.

That certainly can be said of two congressmen who have a long history of involvement with tax-exempt bond legislation.

Rep. Fortney Stark, D-Calif., who has served 20 years, and Rep. Sam Gibbons, D-Fla., with 30 years' service, were very vocal in pushing in the early 1980s for tough curbs on both private-activity and governmental bonds. So, many in the municipal market would be quite happy to see both forced into retirement.

While still not considered "friends" of the muni market, both have quietly pushed in recent years to ease the curbs on governmental bonds.

If the term-limit drive spreads to other states, the ramifications for municipal finance could be severe.

For instance, it could lead to a case in which both Sen. Lloyd Bentsen, D-Tex., the chairman of the Senate Finance Committee with 24 years in the chamber, and Rep. Dan Rostenkowski, D-Ill., chairman of the House Ways and Means Committee with 34 years' tenure, would be sent packing.

If that had been the case, their ouster would come just after both championed provisions included in the ill-fated urban aid tax bill that would have eased and simplified many bond curbs. And it would come just as both are expected to push again next year for similar, and perhaps, expanded provisions that would benefit municipals.

If that happened, then the market would have to start over again to persuade the next heads of the panels to champion their cause.

An equally good example involves rank and file members of Congress, such as Rep. Beryl Anthony, D-Ark., who has been the most effective champion of municipals in the Congress in decades.

Although Anthony lost his House seat in June when he was defeated in a primary runoff, the six-year term limit approved by Arkansas voters, if it had been in effect, would not have allowed Anthony to spend the 14 years in Congress that he did.

That's where the municipal market and the public would suffer because Anthony developed an interest in and became proficient in understanding the problems of bond issuers only after his state's term limit would have expired. If term limits become a reality, the next champion of municipal bonds arbitrarily could be tossed out just when he or she is making real progress.

Issues such as public finance are complex and often arcane. It takes time for members of Congress to develop both an interest in and knowledge of such issues.

If hometown voters don't think they are being represented properly, they should toss the person out of office. But they should not use a clock to decide who goes.

Arbitrary limits on congressional terms will only blow up in the face of voters by setting back the development of public finance and other legitimate public interest issues. They should be strongly opposed.

[TABULAR DATA OMITTED]

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.