WASHINGTON - The Clinton administration does not object to bills pending in Congress that would increase the supply of bank-qualified bonds and ease limits on the issuance of 501(c)(3) and public power bonds, a Treasury official said yesterday.
But, the administration does oppose proposals to ease the 10% private-use test, make the private-activity volume cap more flexible, and increase issuance of tax-exempt bonds in conjunction with the low-income housing tax credit, said Leslie Samuels, Treasury assistant secretary for tax Policy.
Samuels, testifying yesterday before the House Ways.and Means Committee's subcommittee on select revenue measures, offered the first detailed administration positions on a variety Of measures related to tax-exempt bonds since President Clinton took office in January.
Samuels also left open the possibility that Clinton himself would make proposals to ease tax-exempt bond curbs at some point in the future. For months, administration officials have been saying that bond proposals could be part of a comprehensive infrastructure finance measure. Samuels said yesterday that the matter is still under consideration at the White House.
"At the present time the administration is in the process of reviewing the nation's infrastructure needs, including the extent to which tax-exempt bonds should be used to finance those needs," Samuels said.
"On completion of this review, it is possible that the administration may offer proposals to amend the tax-exempt bond provisions of the code to facilitate infrastructure financing." he said, though he did not say when the review would be completed.
Samuels had been asked to appear before the subcommittee to offer the administration's views on more than 100 tax-related items proposed by Ways and Means panel members. The proposals include nearly two dozen related to tax-exempt financing, and could form the basis for a second tax bill later this year.
The administration does not oppose a proposal by Rep. Robert T. Matsui, D-Calif., that would eliminate the $150 million limit on the amount of tax-exempt bonds that a 501(c)(3) organization may have outstanding at one time, Samuels said.
The proposal has merit because it .would simplify the tax-exempt bond financing rules applicable to tax-exempt universities, charities, hospitals, and other 50 1 (c)(3) organizations," Samuels said.
The administration also does not object to a bill by Rep. Richard E. Neal, D-Mass., to repeal a requirement that effectively limits the private-use portion of most public power bonds to $15 million. That is stricter than the 10% limit that applies to all other types of public-purpose bonds.
"There does not appear to be any reason to treat output facilities more harshly than other facilities," Samuels said in his testimony. "As a practical matter, the $15 million output limit of current law may have little effect other than to create an incentive for public power issuers to operate inefficiently."
Another bill the administration does not oppose is sponsored by Rep. John Lewis, D-Ga., and would ease limits on bank deductibility. Under current law, a bank may deduct 80% of the cost of purchasing and carrying tax-exempt bonds only if they are bought from an issuer who expects to sell no more than $10 million annually. Lewis' bill would increase the amount to $20 million.
"The justification for a small issuer exception to the bank deductibility rules is legitimate, and a reasonable case can be made that [the] $10 million limit should be adjusted upward," Samuels said.
The administration is also amenable to a proposal by Rep. Andrew Jacobs, D-Ind., to permit volunteer fire departments to use tax-exempt financing to buy ambulances and other emergency response equipment. The proposal "is a reasonable expansion of their limited ability to issue tax-exempt bonds under current law," Samuels said.
The administration does, however, object to four proposals by committee members that would benefit specific bond-financed projects in Kenosha, Wisc.; Memphis; Stanford, Calif.; and Connecticut. Samuels noted that one of the Treasury's guiding principles in evaluating items was "opposing rifle-shot measures that provide special tax benefits to a targeted group of taxpayers."
Aside from rifle shots, the administration also opposes a proposal by Rep. Charles B. Rangel, D-N.Y., that would end a rule restricting the use of tax-exempt bonds in conjunction with the low-income housing tax credit. Normally, developers are permitted to take a credit equal to 70% of the low-income portion of their housing project, but the rule permits only a 30% credit if the project also involves tax-exempt financing.
Rangel's proposal to eliminate the rule "could increase the federal benefits to developers of these projects beyond the amount necessary as a subsidy," Samuels said.
Another proposal actively opposed by the administration is sponsored by Rep. Ben Cardin, D-Md., and would ease the so-called private-use test.
Under current law, a municipal bond issue is deemed taxable if more than 10% of the proceeds benefit private business. In making his proposal, Cardin did not stipulate a new level, but an aide has said a return to the pre-1986 threshold of 25% is under consideration.
In his testimony, Samuels said such a proposal would reverse one of the major changes made to bond rules by the Tax Reform Act of 1986. The proposal would also cost the federal government a significant amount of revenue because it "would result in a significant increase in the volume of tax-exempt bonds, with this increase being attributable to increased private benefitt."
The administration is also against a method proposed by Rep. Fred Grandy, R-Iowa, of easing the private-activity volume cap. Grandy's plan would permit the transfer of unused volume cap authority to states that had used up their entire cap in a given year.
This provision would have a significant revenue cost because the reallocation of unused volume caps to states in need of volume cap is certain to result in the immediate issuance of additional tax-exempt bonds," Samuels said.
"Further, this change would eliminate a major rationale for the ability of states to carry,.over unused volume cap, which is the abilitty to save up cap for large projects," he said. "In addition, the administration of this program would result in a significant burden for the Intenal Revenue Service."