FINANCIAL MANAGEMENT/Congress ’97: Devolution in the air

The 105th Congress will be dealing with a number of financial and budget issues this year with potentially major implications for cities and counties, including tax changes, a balanced federal budget, infrastructure and further devolution. Expectations are high on Capitol Hill that 1997 could be the “Year of the Great Tax-Cut Compromise” between President Clinton and Congress.

If it happens, the tax package would be part of a budget reconciliation bill that also includes cuts in entitlement programs and discretionary program changes. Substantial agreement appears to exist on several tax-cut proposals involving families and children, capital gains and expanded individual retirement accounts.

As part of the tax bill debate, local governments will be pushing for changes in several tax-exempt bond provisions on the books since 1986. At the top of their wish list is a rewrite of complex and costly arbitrage rebate rules to provide an exemption or safe harbor for certain traditional public-purpose bonds.

Another proposal would relax the private-activity state bond cap from the current maximum of $50 per resident to $75. Led primarily by housing advocates seeking to expand mortgage revenue bond programs, the change would represent an adjustment for inflation since 1986.

Increasing the limit on industrial development bonds from $10 million for each project to $20 million also will likely be considered. The problem will be finding sufficient off-setting revenues to pay for all these changes.

Regarding a balanced budget plan, it looks like a deal will be made despite wrangling over entitlement program changes. Time will tell whether the budget is actually balanced in 2002, but the steady drop in the deficit over the last four years has been impressive.

Although it is not clear if enough votes exist to pass a balanced budget constitutional amendment, a major effort will be made. Whether the amendment passes or not, the reality will be a shrinking slice of the pie for many discretionary programs important to local governments.

Congress will also consider reauthorization of a number of critical infrastructure programs in 1997, with ISTEA topping the list. Unless more funds are provided, a divisive struggle over distribution of transportation dollars will occur between the so-called “donor” and “donee” states.

The key will be either to take the highway trust fund off the regular federal budget or shift the 4.3-cent gasoline tax from general funds to the highway trust fund or do both.

Cities and counties are expected to push hard for more local control of public funds. Rural areas are particularly concerned about having more say in the selection of local projects.

Airport construction programs, the Clean Water Act, solid waste flow control and the community development block grant program are also up for reauthorization. As in the preceding Congress, all face renewal problems.

Finally, Congressional leaders will continue to push for fewer federal strings and more state and local control for Medicaid, housing, highways and environmental programs. But it is doubtful that many new block grant programs will be enacted, and further devolution is more likely to take place incrementally.

The big question mark concerning devolution will be the states’ implementation of welfare reform and whether Washington will really give up control. Both Congress and the Clinton Administration will be watching this effort closely, and the results will probably determine what might happen in other programs.

The author is associate legislative director for the National Association of Counties, Washington, D.C.