WASHINGTON -- Buried in the Senate's version of the urban aid bill is a provision that would benefit a tax-exempt bond issue sold for a Charleston, S.C., waterfront project in 1986.
The recently offered provision appears to be the only so-called rifle shot, or project-specific tax break, that Senate lawmakers added to the urban aid measure. After loading down the Tax Reform Act of 1986 with dozens of rifle shots, Congress in recent years has shied away from approving provisions that benefit specific projects.
Meanwhile, House and Senate tax leaders on Friday slogged through a second day of negotiations to reconcile the two versions of the urban aid legislation. House Ways and Means Committee Chairman Dan Rostenkowski, D-Ill., and Senate Finance Committee Chairman Lloyd Bentsen, D-Tex., met behind closed doors for several hours and were expected to continue working through the weekend in an effort to finalize the measure.
The rifle shot provision in the Senate bill was offered as an amendment by Sen. Ernest F. Hollings, D-S.C., during the final hours of debate on the bill Sept. 26, according to an examination of the Congressional Record for that date.
The amendment would designate a 1986 issue sold for the Charleston waterfront as bank-eligible, clearing up confusion over whether the issue had been grandfathered in under the tax reform act.
An aide to Sen. Hollings acknowledged that the amendment benefits a specific issuer, but said he did not know the size of the issue or the identity of the issuer.
Under the 1986 tax act, banks are allowed to deduct carrying costs for tax-exempt bonds purchased only from issuers who expect to sell no more than $10 million annually. The act, however, contained transition rules designed to grandfather more than a dozen projects for which issuers wanted the bank-eligible designation but were too large to comply with the act's $10 million limit.
One of the items on the transition-rule list was identified simply as "Charleston waterfront project." Congress clarified that description further in 1988, when it passed technical corrections legislation that specified two projects on the Charleston waterfront eligible for the transition rule.
The issue for which Sen. Hollings offered his amendment was not included in the 1988 clarification, but had been sold in 1986 on the good-faith assumption that the project was eligible for the transition rule.
"This was a genuine technical mistake between 1986 and 1988," Sen. Bob Packwood, R-Ore., said during the brief floor discussion that occurred on the amendment. Sen. Packwood is the ranking Republican on the Finance Committee and led floor debate on the urban aid bill along with Sen. Bentsen.
Sen. Hollings said the issuer of the bonds discovered the tax law problem while preparing to refund the bonds earlier this year.
The only other tax rifle shot approved by the Senate this year was attached to comprehensive energy legislation. The provision, proposed by Sen. Packwood, would create a category of exempt-facility bond that would be used for environmental improvements of hydroelectric facilities.
Sen. Packwood has said he offered the amendment to make it easier for the Mid-Columbia River Power Project in Washington State to comply with federal environmental laws.