[Congressional Record Volume 145, Number 108 (Wednesday, July 28, 1999)]
[Extensions of Remarks]
[Pages E1669-E1670]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                         PRIVATE ACTIVITY BONDS

                                 ______
                                 

                          HON. JOHN J. LaFALCE

                              of new york

                    in the house of representatives

                         Tuesday, July 27, 1999

  Mr. LaFALCE. Mr. Speaker, today, I am announcing my intention to co-
sponsor H.R. 864, the ``State and Local Investment Opportunity Act of 
1999.'' This legislation would accelerate the increase in the private 
activity bond cap so that it would take effect at the beginning of next 
year, and index that cap in subsequent years for inflation.
  I take this step in recognition of the value of expanding low 
interest rate financing for projects which include affordable housing, 
single family mortgages, student loans, environmental cleanup, and 
manufacturing job creation, and in recognition that politically, at 
least for the present, this may be the only way to accomplish these 
desired results.
  However, I also feel compelled to express my reservations about 
expanding this and other tax-oriented mechanisms without a more 
extensive Congressional review of the merits of using the tax code for 
these purposes. Specifically, the issues of efficiency and 
accountability need to be addressed much more fully.
  Every dollar of foregone tax revenue impacts the federal surplus or 
deficit in the exact same way as does an increased dollar of spending. 
Yet, the combination of tight discretionary spending caps and the 
popularity of tax cuts seems to have convinced lawmakers that the 
easiest route to increase resources for important priorities is through 
a tax credit or tax expenditure.
  The serious drawback to this approach is that it is a very 
inefficient and costly way to achieve the desired purpose. For every 
dollar of foregone federal revenue, only a portion of that amount goes 
for the benefit of the project. A significant portion goes to the 
benefit of the taxpayer or entity through which the tax benefit is 
funneled. For example, a 1988 GAO report concluded that for every 
dollar of revenue foregone by the federal government through the 
issuance of mortgage revenue bonds, only between 12 and 45 cents of 
such subsidy are received by the homeowner.
  A more direct, and clearly more efficient, less costly approach, 
would be to provide the benefit directly in the form of spending. Of 
course, this approach can easily be demagogued as ``tax and spend 
liberalism.'' Yet, direct program spending and tax expenditures are 
essentially indistinguishable--except that the tax expenditure is 
almost always less efficient, and therefore much more costly.
  A second issue is that of accountability. The principle that the 
governmental unit that spends tax dollars should be the same entity

[[Page E1670]]

that taxes its citizens to raise such dollars is a good one.
  However, there are a growing number of federal tax expenditures and 
programs that transfer complete authority to states and localities to 
spend the funds as they see fit, subject only to broad general 
parameters. This is, in effect, ``free money'' to the states and 
localities. This is not to conclude that they make bad spending and 
allocation decisions, but just that such decisions are not grounded in 
the principle of accountability--i.e., of having the tax raisers answer 
directly to the taxpayers.
  As Congress gets wrapped up in the day to day battles over how much 
to tax and how much to spend, it would do well to take a longer term, 
more comprehensive review of the best way to use federal resources to 
achieve the important policy objectives that we all share.

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