Q: President Clinton plans to unveil a major infrastructure bill next year that could include proposals to ease curbs on tax-exempts. Have you heard anything about what may be in the plan?
A: I think his interest is to continue to push some sort of a financing initiative. I'm less skeptical than I was since the revelations that have come out of [Washington Post reporter Bob] Woodward's book recently about the real dilemma that Clinton was faced with, in the last year or so, of trying to pursue a two-pronged agenda that was antithetical to both a strong budget deficit reduction initiative and trying to provide more funding in infrastructure financing. Obviously, we know which one won. I do know that there is some effort going on in the White House, headed mainly by the economic policy office, to try to reinitiate some sort of a new investment program in infrastructure, but they'll run up against the realities of the budget and it's going to be difficult.
Q: Is there a real chance Clinton will include bond proposals? Which ones would be the most helpful in triggering new infrastructure construction?
A: I would hope that they would begin to look toward some relief for tax-exempt financing. Some of the provisions have been suggested, and recommended over the last several years, that would at least make financing a little easier and a little more economical -- opening the availability of tax-exempt bonds relating to a broader array of access and purposes. The danger is that they'll get gimmicky. There are proposals floating around that end up, as you examine them carefully, really not doing much. The realities of this tight budget, the deficit reduction problems and so forth are going to constrain what any administration can do, at least in the near future.
Q: What are some of the specific bond proposals we might see in an infrastructure bill?
A: In terms of improving financing, increasing the bank deductibility exemption is one. [The council has] pushed a provision that for anything that is mandated or required by federal law, like environmental compliance provisions, that it would automatically be considered a tax-exempt financing. It would be considered a government bond by definition. There was a real reluctance to make any changes in the tax law that appeared they were going back on tax reform. But that's something that we would strongly advance.
Q: Rep. Dan Rostenkowski, D-Ill., had evolved into a supporter of bond proposals within the last three or four years and market participants had been hoping he would push next year for an casing on some of the bond curbs imposed in the 1986 tax reform bill. Is Rostenkowski's indictment and removal as Ways and Means Committee chairman a fatal blow to the bond proposals?
A: No, because Rosty, in truth, was never -- I mean he had come around to a position of at least accepting the concept of some modification of the tax reform act that would accommodate and loosen up some of the restrictions on bonding, but he never was a real out-front advocate. Even in his more recent statements he hasn't gone that far. He's just a little more solicitous to some ideas. He's never been a cheedeader though. So I don't think his demise as chairman is going to really change that much.
Q: And what do you think the climate will be for municipals under his replacement, Rep. Sam Gibbons, D-Fla.? Gibbons has generally been an opponent of private-activity bonds.
A: Gibbons, on the other hand, has never been a strong supporter of taxexempt financing. And right behind him is [Rep. J.J. Pickle, D-Tex.], who thinks tax-exempt financing and original sin are the same thing. Populist sentiment against tax-exempt bonds is that this is a benefit to the rich and allows them to accrue income that they don't have to pay taxes on. They seem to forget the public finance aspect of that. Where you'll get more support for this really is from some of the more junior members.
Q: What, if anything, do you think can be done to change Gibbons' mind?
A: My sense is that he's not going to have a heart change on this. The issue Gibbons may push, that has always been near and dear to him, is the value-added tax.
Q: Could the financing mechanism in a health care reform bill be large enough to support casing curbs on municipal bonds?
A: No, there's no environment for big financing. The administration would probably oppose it if Congress did come out with a big tax bill.
Q: What bond-related items may come out of health care reform?
A: Just hospital, 501(c)(3). I don't see anything wider than that. It would be very health facilities-specific. Of course if anything moves through Ways and Means it will be a vehicle everyone will try to ride.
Q: What do you see happening with the safe drinking water and wastewater treatment reauthorizations this year?
A: With the Safe Drinking Water Act, the problem is more of a divisiveness that has been created between the environment and public health advocates who see what the Senate did to the bill as overly relaxing the regulatory requirements. They would allege endangering the public health. That's the main dichotomy in that bill. Another issue is whether [House environment subcommittee Chairman Henry Waxman, D-Calif.] will be sufficiently comfortable with the bill. If he does [try to reestablish the relaxed regulations] it's going to run into big trouble in the House. You've got the utilities and the rural water people who are now supportive of the bill as it came through the Senate. So I think it's got a little clearer sailing and isn't carrying quite as much baggage.
Q: Consideration of the water sewage treatment bill has been postponed again on the Senate floor because the House hasn't acted yet. Why not?
A: Non-point source and exurban pollution. Exurban is outside the surrounding suburban area -- areas that are not yet sewered, don't have their storm sewers in yet, but are massive developmental areas. A lot of that is not within a point source discharge area so that silt and the top soil and all that goes with it flows right down into the rivers and the oceans. That's a very divisive issue right now. Everyone will agree there needs to be controls, but the fact is that the states could have been controlling non-point source for the last 20 years and they haven't.
The wetlands permits issue may be so divisive there may be no way to work it out. Some want to see a very substantial change in the law. The environmentalists are adamant that there not be those changes, and in fact they'd like to see the bill strengthened. That is such a divisive issue that [House Public Works Committee Chairman Norman Mineta, D-Calif.] virtually does not have control over his committee. Usually it tends to be a fairly bipartisan committee that plays along. I've never seen a revolt against the chairman in there and that's really what's happening now.
Q: Do you think that's enough to sink the water sewage treatment bill for the year?
A: Yes. Mineta's made it clear he's not going to take a bill that has any real significant reduction in terms of assurance of wetlands protection.
Q: Why is the issue of government seizure of private land more important to the water sewage bill than it is to the safe drinking water bill?
A: It's associated with the wetlands permit issue. It's basically saying that if you, the federal government, want to protect these wetlands from further development and encroachment, reimburse us as landowners. That's an argument that deserves some consideration, but it also could be financially prohibitive. The extension of that though, the one that gets a little crazy, is when you get into allegations that in this particular wetland, me, the owner, I have a plan to develop this into a marina. And the marina is going to cost X million dollars and is going to earn income for me for the next 20 years at $1 million a year or so. You [the federal government] therefore are robbing me of the ability to make that kind of income from the investment. You owe me.
Q: What is going on with the water sewage treatment bill in the Senate?
A: I don't know the answer to that exactly. I know that [Senate Environment and Public Works Committee Chairman Max Baucus, D-Mont.] has some problems -- a little education and political compromise -- that have to be worked out with a number of senators who represent large agrarian agricultural interests. On the other hand, as I understand it, the majority leader [Sen. George J. Mitchell, D-Maine] has said the legislation must move soon. If it doesn't move by July, I think it's dead. Major movements have to be made in the House this month or the bill is dead for this year. Now the danger is that one could say, well so what, the law's still in place and people still have to comply, permits still have to be written. But there's no money. There's a lot of demand for that money out there. People aren't just going to sit there and say, "Oh, that's for clean water and we can't touch it." Give me a break. But once you lose it, if that money is taken out of there, it's gonna be hell to get it back in. Both [Budget Director Leon E.] Panetta and Baucus have made it very clear they will not entertain a separate financing bill.
Q: Why not? Is the current law so bad? Or is it just for political leverage?
A: It's leverage. It's also a concern on their part that if they wanted to make some real substantive changes in the bill to both modify some of the regulatory provisions and also to increase some of them, that you couldn't do that in the next Congress unless you have the financing part in there too. The only people who would be pushing it would be the environmental community and they probably don't have as much sway.
Q: The numbers in the reauthorization bills are much higher than what the administration has requested. Why is that, and what does it mean for the funding levels?
A: The authorization levels, although they're nice, are not that meaningful. It's nice to have $3 billion building up to $5 billion, but the realities are an extremely tight budget situation. Unless the administration in its budget request next year comes up with some more money, which is debatable, I would be surprised to see the appropriating committees come up with an additional $1.5 million. The money is not there. But $2.5 billion, in that neighborhood, directed toward the state revolving loan funds can provide a lot of money because of leveraging.
Q: The Environmental Protection Agency has said about $137 billion of work needs to be done. Are the administration's requested funding levels enough?
A: The $130 billion are the needs over 20 years. The more immediate need is about $60 billion. So if you put it in that kind of projection, you can take the existing loan fund, on the assumption that you would add in the neighborhood of $2 billion to $3 billion to it with federal capitalization, add the 20% state match, and leveraged at around 2 to 1, which is not real aggressive. You can come up with a huge capital reservoir of around $120 billion to $130 billion of lending capability over that period of time. You're going to have a hell of a lot of money available for low-cost financing that would get very close to meeting that target.
Q: What about the unfunded mandates issue? Is it real or just a ploy by states to get off cheaply?
A: You can argue about how much of it you pass on to the localities. Those are legitimate arguments. But I've never seen, until recently, this assertion that communities don't have to meet a uniform level of treatment. This was an argument that was around in the 1960s and was effectively overcome by the 1972 clean water act, and the reason was that some communities or some states were saying, "Hey, come on down here, we're not too keen on pollution control. You're going to love to put your plant down here," or "It's not going to cost you much to live here because we don't have any clean water requirements."
I don't think the [National League of Cities] is saying let's go back to that. There's also a delicate balance on just what is their responsibility. They've got some legitimate beefs, too. I've noticed over the last several years that what Congress seems to do very well is pass on requirements to other levels of government. But the states are playing kind of a coy game, particularly in the pollution control area. The states have not traditionally put up much money in this area themselves. The burden of compliance has always been on the local level. Until the revolving fund program was created in 1987, which required the states to put up 20% matching money, most states didn't put up a damn cent. So they've got to be a little careful about how they play this.