[Congressional Record Volume 145, Number 141 (Monday, October 18, 1999)]
[Extensions of Remarks]
[Pages E2117-E2118]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




               PRIVATE ENTERPRISE PROTECTION ACT OF 1999

                                 ______
                                 

                     HON. MARSHALL ``MARK'' SANFORD

                           of south carolina

                    in the house of representatives

                        Monday, October 18, 1999

  Mr. SANFORD. Mr. Speaker, should tax-exempt bonds, subsidized by our 
constitutents--be used by local authorities to enter into direct 
competition with private enterprise, outside the traditional functions 
of government? I don't believe so, and I would imagine most Americans 
would agree.
  But that, Mr. Speaker, is the question addressed by the legislation I 
am introducing today, the Private Enterprise Protection Act of 1999. 
This legislation will help protect taxpayers from having the U.S. 
Treasury subsidize local government efforts to engage in unfair 
competition with private businesses.
  As my colleagues are aware, tax-exempt bonds enable State and local 
governments to borrow at below market interest rates in order to 
finance public projects. This is generally a good program allowing 
State and local governments to reduce borrowing costs and enabling them 
to build public facilities for fewer tax dollars.
  However, while the program has all good intentions, I would imagine 
that a vast majority of the American people would agree that tax-exempt 
bonds should be limited to use for projects which directly benefit the 
public good, but not to help the government engage in competition with 
private enterprise.
  I was pleased to see my colleague from Texas, Mr. Hall, introduce 
H.R. 2756 this summer. His bill also aims to fix the problem I raise. 
In fact, the bill I introduce today is very similar to the Hall bill, 
but it incorporates several changes to reflect comments received on 
H.R. 2756.

[[Page E2118]]

  It is important to keep in mind that while tax-exempt bonds are 
generally used for worthwhile purposes, the program does entail a 
sizable commitment on the part of the American taxpayer. According to 
the Wall Street Journal in 1997, tax-exempt interest income was 
reported on about 4.9 million individual returns, and total tax-exempt 
interest amounted to $48.5 billion.
  Because there is a sizable commitment here, Congress and the Treasury 
have developed complex and carefully crafted rules to assure that these 
bonds are used for bona fide pubic purposes and not for private use of 
the Federal subsidy in tax-exempt bonds. These rules are intended to 
protect the taxpayers' interest and preserve a level playing field for 
concerned businesses.
  A couple of instances have come to my attention in the last few 
months which suggest that there may be some misunderstanding of the 
very complex rules governing tax-exempt bonds and the intent behind 
these rules which have led local authorities to consider use these 
bonds to enter into direct competition with the private sector. The 
instances to which I refer include one in Las Vegas, where a local 
authority reportedly wishes to build a large addition to its convention 
center, and another in San Diego, where a local authority is reportedly 
looking at building a large hotel.
  In cases like these, the taxpayer-subsidized facility can offer 
customers prices well below those that could be offered by a private 
facility financed at higher market rates. This strikes me as blatantly 
unfair, particularly in those cases where a taxpayer-subsidized 
facility is not a new enterprise, but instead siphons off business from 
already existing private business. Closing this loophole is the 
principal goal of my bill.
  Obviously, my concern is with situations where the government is 
acting as a business and attracting customers. This legislation will 
have no effect on bonds used to build, maintain, or repair schools, 
hospitals, roads, or other facilities performing functions which 
private enterprise cannot or will not perform.
  Mr. Speaker, it is bad enough that the government can impose 
unnecessary and costly regulatory burdens on the private sector. But, 
when that same government uses tax-exempt bonds to engage in 
competition with business, it raises a question of basic fairness.
  It also blurs the lines of the role of government. Is it a wise use 
of taxpayer dollars to subsidize local government competition with 
business? I would again argue that my constituents would not support 
this notion or many other taxpayers.
  Mr. Speaker, these are serious, national policy issues which need to 
be addressed on a bipartisan basis so that we can protect both private 
enterprises from subsidized government competition and the taxpayer 
interests.
  It should be made clear at this point that the idea that federal tax 
subsidies and tax exemptions should not be used to create such an 
unfair competitive advantage is already in the current tax code. To 
prevent unfair competition, for nearly 50 years, there have been laws 
that have taxed businesses conducted by charities if the activity of 
that business is the type normally conducted by private taxable 
enterprises.
  Keeping in line with this precedence, the legislation I introduce 
today closely tracks H.R. 2756 by denying tax-exempt financing for 
certain facilities that compete directly with existing private sector 
facilities in the same community. Specifically, it accomplishes this by 
deeming as nonexempt any ``private activities bond'' within the meaning 
of Section 141 of the Internal Revenue Code, any bond issuance, a 
significant amount of which is used to finance the construction, 
expansion, or substantial reconstruction of a facility which would be 
rented to businesses which could otherwise be served by an existing 
competing private facility.
  As a clarification, Mr. Speaker, let me say again that the bill does 
not affect bonds issued for traditional functions of government: roads, 
bridges, schools, etc. To make this perfectly clear, it specifically 
exempts from its provisions educational institutions, hospitals, or 
similar facilities which provide educational services or medical care 
to members of the general public.
  With one minor exception, the bill will not apply to ``qualified 
bonds'' that Congress has previously exempted from restrictions on 
``private activity'' bonds. This includes bonds used for so-called 
``exempt facilities'' under Section 142 of the Code, which includes 
such projects as airports, water treatment plants, dockets and wharves, 
local power plants, etc. An exception is made for certain lodging 
facilities located in markets which could be served by private owned 
facilities, and these would generally be covered by my bill.

  Furthermore, the bill include language to assure that projects, where 
physical construction has both already commenced in a material fashion 
(other than site testing, site preparation or similar activities) and 
is substantially underway, are not impacted. In fairness to those who 
may be planning transactions which fit within the parameters of this 
legislation, and to assure those local authorities, in an attempt to 
``beat the clock,'' do not rush through bond offerings before this bill 
is enacted, the bill include a clear effective date for all provisions 
with the exception of those addressing lodging facilities, which carry 
a date of enactment effective date.
  Mr. Speaker, the legislation will protect businesses from having the 
Federal Government grant local government facilities an unfair 
advantage over them in the marketplace. Further, it will protect all 
taxpayers from having their tax dollars used to subsidize local 
government efforts to enter into, or expand its presence in, non-
traditional business functions already being performed by private 
enterprise.

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