WASHINGTON -- The decision by the Treasury and Internal Revenue Service to force states to use last year's bond volume caps makes about as much sense as kicking your dog because your spouse made a mistake.

In this case, the Census Bureau made a mistake last December, and the Treasury and IRS have just now decided to make state and local governments pay for the error.

Under the law that created the private-activity bond volume caps, states are supposed to compute their volume limit by using the estimates of the resident population released by the Census before the beginning of the year.

The error developed when the bureau released a population report last Dec. 26 containing voting apportionment figures generally larger than resident population figures. The bureau corrected that mistake and issued the correct resident population tables last Jan. 6.

Because the correct numbers were issued after the first of the year, states were in a quandary. Could they use either the Dec. 26 or the Jan. 6 numbers, or would they have to compute their caps based on the last correct population numbers, issued in December 1989 and used to calculate the 1990 volume caps?

Most chose the Dec. 26 or Jan. 7 figures. But now, more than four months after the states asked for a clarification, the IRS and the Treasury have finally ruled that neither meet the letter of the law and states must revert back to their 1990 cap levels.

That decision unfairly penalizes some 16 states with rising populations by forcing them to cut back their cap allocation this year, while rewarding another 12 states that lost population by allowing them to retain the same volume limit they had in 1990, even though their limit should be reduced this year.

In effect, states and localities are being penalized on a technicality -- one committed by the Treasury's fellow bureaucrats at the Census.

But worse yet, Richard Chirls, the president of the National Association of Bond Lawyers, argues that the Treasury and IRS decision violates congressional intent because the Jan. 6 numbers were the ones Congress intended to be used, but they were not released on time only because of the Census Bureau's mistake.

Mr. Chirls has raised an excellent point and one that state and local officials should be driving home to Congress.

The volume cap was enacted to control what many in Congress felt was excessive use of private-activity bonds, but it also was designed to allow a reasonable expansion in the volume of those bonds based on increase in the nation's population.

Congress should not allow the Treasury and the IRS to use a technicality to subvert its intent.

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