WASHINGTON -- Congress often gives with one hand and takes away with the other.

That's exactly the shell game some congressmen tried to put over on their fellow members and the municipal market this past week when the House acted on two involving tax-exempt bonds.

In one case, the House failed to recognize the game. Members quickly passed a measure sponsored by Rep. Charles Rangel, D-N.Y., that would allow New York City to issue tax-exempt bonds to finance office space for the United Nations. New York is trying to stop Germany from tempting the organization into shifting some of its operations to Bonn after country's capital is moved to Berlin.

Keeping economic activity produced by United Nations offices in New York City is worthwhile, but using bonds is counterproductive for the rest of the state and sets a dangerous precedent.

Because any bonds issued for United Nations offices would be subject to the $50 per person private-activity volume cap, those securities would crowd out financings in the rest of the state for multifamily and single-family housing, student loans, industrial development, and a host of private-activity environmental and infrastructure projects that already consume the state's volume limit.

The bill, which deserves to be ignored when it reaches the Senate, also would open the door for others to pressure Congress to allow tax-exempt bonds that finance foreign embassies and consulates across the country. That move would up the volume cap in other states and crowd out financing for other desperately needed private-activity projects.

Fortunately, most House members later spotted a similar charade involving the municipal market and overwhelmingly rejected a bill to fully exempt high-speed rail bond issues from the private-activity volume cap.

They crushed the measure, sponsored by Rep. Bill Coyne, D-Pa., on a 369-to-48 vote after local governments mounted a huge lobbying campaign against a provision in the measure. It would have cost localities a fortune by requiring them to sort out fees included in property tax bills that are not eligible to be deducted from federal income taxes.

The bill, which requires that one provision must raise enough revenue to pay for the other, was either a deliberate setup by House tax staffers to get the rail measure killed or an underhanded way to impose new burdens on local governments.

Whatever the motivation, the House measure deserved to be killed.

The time has come for Congress to consider redrawing the definition of public and private activities so tax-exempt bonds can be more easily used to help rebuild the nation's infrastructure and clean up the environment.

But it should not be done at the expense of financially beleaguered local governments.

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.