Washington wrap-up: The 105th Congress in 1997.

• Jurisdiction: United States
• Author: Wallick, Ruth
• Date: 01 April 1998

The first session of the 105th Congress was notable primarily for the historic agreement by the Congress and the Clinton administration to achieve a balanced federal budget in five years and enactment of the Taxpayer Relief Act of 1997 (P.L. 105-34). Public Law 105-34 represented 1997's most important completed legislative activity as it affects the ongoing day-to-day work of state and local finance officials.

In other issue areas of significant consequence to state and local governments, a number of legislative proposals saw action; however, Congress went into a long recess in October, leaving further consideration of many issues for the second session of the Congress, convening in late January 1998. These include proposals affecting regulation of financial markets and services, and various sources of revenues for states and their local governments.

Taxpayer Relief Act (TRA) of 1997

State and local governments have learned that any major federal tax legislation will have a direct effect on their ability to finance capital projects and taxpayer services. The 1997 tax legislation was no exception. It contained some long-sought and much-needed changes to the rules governing the administration of state and local public pension funds. It also contained provisions relating to the use of tax-exempt financing by state and local governments that were in many respects disappointing to state and local government officials who have labored for years to mitigate some of the onerous tax-exempt bond provisions of the Tax Reform Act of 1986.

Public Pension and Benefit Plans. The nondiscrimination rules that govern private pension programs had for a number of years been applied to public pension plans by the Internal Revenue Service (IRS) which regulates public pension plans through the Internal Revenue Code (IRC). Because the rules were ill-fitted to state and local plan public employees, a moratorium had been in existence for some years while the IRS and state and local government administrators sought to find a workable set of rules. P.L. 105-34 makes the moratorium permanent and relieves state and local government plans from having to meet certain contribution and deferral percentage tests (Section 415 of the IRC). The moratorium is effective for taxable years beginning on or after August 5, 1997, and treats a governmental plan as satisfying the coverage and nondiscrimination tests for prior taxable years. The TRA also provides assistance in passing the Section 415 tests to plan participants who take advantage of state laws to purchase permissible service credits, applies certain special benefits to public safety personnel and their survivors, repeals excise and estate taxes on certain excess distribution and retirement accumulations, and extends to May 31, 2000, the federal tax exclusion for up to $5,250 for employer-provided educational assistance for undergraduate courses. These, together with other changes enacted...