[Congressional Record Volume 140, Number 17 (Thursday, February 24, 1994)]
[Extensions of Remarks]
[Page E]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: February 24, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                       TAX-EXEMPT MUNICIPAL BONDS

                                 ______


                       HON. WILLIAM J. JEFFERSON

                              of louisiana

                    in the house of representatives

                      Thursday, February 24, 1994

  Mr. JEFFERSON. Mr. Speaker, I am introducing today a bill in the form 
of a technical amendment to the rules governing the private use 
exception found in the provisions of the Code relating to tax-exempt 
municipal bonds. More specifically, this bill deals with these 
provisions as applied to the contracting out of the operations and 
maintenance [O&M] of water and wastewater facilities owned by the 
municipalities that issue these bonds.
  Municipalities today face ever increasing costs of labor and 
compliance with Federal and State regulations governing the treatment 
of water and wastewater. Many modern cities contract with private 
businesses to provide cost-efficient O&M services. These contracts 
serve several desirable purposes. First, these contracts enable the 
municipalities to deliver the same or, in most cases, improved services 
to their citizens while at the same time being able to maintain the 
cost of providing those services at a reasonable level, that is, 
without the need to increase taxes or fees, furthermore, contract O&M 
also helps municipalities to avoid employee layoffs and, when 
necessary, to provide the municipality with a means of funding the 
alternate employment of laid-off workers.
  These cost-savings techniques can be achieved only with a long-term 
contract for the O&M of the water and wasterwater facility, because a 
longer term enables the private firm to recover its initial investment 
in the facilities. Congress has provided a means of assisting 
municipalities in funding the capital cost of public facilities through 
the use of tax-exempt bonds. However, Congress did not intend these 
benefits to inure to private businesses through exclusive use of 
essentially public facilities. In order to qualify for tax-exempt 
financing, the municipality must therefore own and use the facility. 
The rules provided by the Congress, however, to prevent such private 
uses impose a requirement upon the municipality to: First, limit the 
term of any O&M contract to 5 years, and second, to provide in the 
contract that the municipality may terminate the contract, without 
penalty, at the end of the third contract year.
  The bill I introduce today revises the first requirement by 
lengthening the allowable term of the O&M contract to 15 years and 
eliminates the second requirement. The lengthening of the contract term 
is meant to comport more closely to usual and customary business 
practice, and also works to cause a corresponding reduction in the 
contract price for O&M.
  The application of these requirements to water and wastewater O&M 
contracts serves no discernible public purpose, since it is not 
possible to privately use a publicly owned water or wastewater 
facility. Therefore, I invite my colleagues to cosponsor this bill.

                          ____________________