The Home Mortgage Revenue Bonds Controversy

Abstract

In the summer of 1978, the City of Chicago issued $100 million in tax-exempt revenue bonds to finance low-cost mortgages for middleincome families. Within a few months, this attractive new way of providing affordable single-family housing for middle-income families had been adopted by several other local governments. By the end of 1978, some 20 localities in seven states had issued approximately $550 million in mortgage revenue bonds. Volume continued to increase during the first quarter of 1979 with another 30 local governments in 12 states issuing bonds amounting to roughly $1.1 billion in additional outstanding debt.' Had the activity continued at the same rate throughout 1979, local issuances for 1979 could have been expected to total as much as $4 billion.2 However, the picture changed abruptly in late April when Representative Al Ullman introduced legislation eliminating the tax exemption for almost all issuances after April 23, 1979.3 Although transition rules have allowed the marketing of those bonds on which work was under way prior to April 23, 1979, the Ullman bill has had the effect of stopping further issues not qualified under transition provisions. Meanwhile, a protracted debate on the desirability of limiting the practice has gone on in the House Ways and Means Committee. At the end of 1979, proposed legislation on mortgage revenue bonds had progressed no further than clearance by the House Rules Committee. The Rules Committee had cleared for House action a package containing two alternatives, each aimed at increasing the availability of mortgage funds: (1) continuation for two years of the issuance of tax-