The first session of the 104th Congress, beginning in January 1995, started out on a very positive and busy note for the Government Finance Officers Association (GFOA) and other state and local government public interest groups. The fourth piece of legislation from the new Congress that was signed by President Clinton was the Unfunded Mandates Reform Act of 1995 (P.L. 104-4). In addition, the December 1994 default and subsequent bankruptcy of Orange County, California, prompted several hearings in the 104th Congress on the municipal securities market. These hearings, at which GFOA testified, focused on state and local government activities and practices related to investments, use of derivative products, disclosure, and debt administration. They were intended as oversight hearings to provide information to members of Congress and led to no subsequent legislative activity.
As 1995 moved along, other legislative proposals supported by GFOA progressed more slowly, with some included in the highly controversial Seven-year Balanced Budget Reconciliation Act of 1995 (H.R. 2491), which Congress passed and the President immediately vetoed. In particular, that legislation contained several important pension law changes that had been priority issues of GFOA for several years. The association remains optimistic that these pension provisions will be included in whatever compromise balanced budget plan is finally approved, but their fate depends on the results of negotiations between the Congress and the administration.
GFOA also had given priority attention during 1995 to legislation that it views as harmful to state and local governments, such as securities litigation reform and capital markets deregulation bills. In general, the legislative issues that have received the major attention of GFOA fall into three categories: tax code changes, investor protection, and environmental programs.
Tax Code Changes
In the spring and summer of 1995, GFOA and a number of other organizations representing state and local governments sought to persuade members of the tax-writing committees of Congress to [TABULAR DATA OMITTED] include in upcoming tax legislation certain provisions that would ease some of the restrictions on tax-exempt financing and would simplify public pension plan administration, which had been advocated for a number of years. In fact, some of the provisions the groups supported were included as tax simplification measures in the 1992 tax bill that was vetoed by then-President Bush on other grounds. Among the public pension plan and tax-exempt bond provisions sought by the groups were the following:
* simplification of section 415 compliance,
* indexation of contribution limits and other tax enhancements to section 457 plans,
* protection of section 457 plan assets,
* increase in the small-issuer arbitrage rebate exemption,
* increase in the small-issuer bank interest deduction limit,
* repeal of the 5 percent unrelated and disproportionate use bond rule,
* repeal of the $15 million private-use restriction on "output" facilities, and
* modification of the six-month arbitrage rebate exemption.
As the congressional committees began consideration of a tax bill, GFOA urged inclusion of additional tax-exempt-bond-related provisions that appeared to have garnered support among members of the committees, particularly in the House Committee on Ways and Means. These additional provisions included repealing the application of the corporate alternative minimum tax (AMT) to tax-exempt bond interest, providing capital gains tax treatment to gains realized on the sale of market discount municipal bonds, and expansion of the arbitrage rebate exception for construction bonds.
Along with other public pension tax modifications, three key pension provisions made it into H.R. 2491. They included amendments to Section 415 that remedy existing conflicts between the federal tax code and state and local government pension funding requirements. …