State and local economic development commissions mounted a broad and sometimes heated defense of tax-exempt industrial revenue bonds yesterday, but they received a blunt congressional warning that reform is inevitable.
The warning was delivered by Rep. Charles B. Rangel (D-N.Y.), chairman of the House Ways and Means oversight subcommittee, who interrupted testimony before his panel to say:
"Clearly we're going to have to do something in this area. . . . Some of these bond issues have just been blatantly unfair from a competitive point of view."
Rangel's comments came as he conducted the second day of hearings on industrial revenue bonds, which because of their low interest rates have become an increasingly popular form of financing business as conventional rates have gone through the roof.
But critics charge that the bonds have been flagrantly abused. They have financed a topless go-go night-spot, racquetball courts and adult bookstores as well as authentic industrial enterprises. In addition, the Congressional Budget Office said that because the bonds permit lenders to collect interest tax-free, they are costing the Treasury $1 billion annually in lost income taxes. That loss could rise to more than $4 billion in 1986, the CBO says in a new report on industrial revenue bonds (IRBs).
Despite the mounting bad publicity the bonds are getting, their supporters were out in force during yesterday's day-long hearing.
"You are discussing the single-most important urban revitilization effort in the federal government," said Lynchburg, Va., City Councilman Curtis M. Coward. "Industrial revenue bonds are far more important than community block grants; they are for more important than UDAG [HUD's Urban Development Action Grant program].".
Coward said that by issuing $2.5 million in tax-exempt bonds, Lynchburg has been able to reverse the rapid deterioration of a main commercial district.
Showing increasing irritation -- perhaps because he was delivering his testimony to a row of empty chairs (often only the chairman's was occupied) -- Coward snapped:
"It's almost appalling to me that we are agonizing over abuses that I think are a typical. . . I think it is a waste of our time."
Nearly all the speakers -- who generally represented the local commissions that grant the IRBs -- spoke in favor of the bonds.