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r- <br />FEDERAL LEGISLATION PROPOSED POLICIES <br />FL -I, GENERAL REVENUE SHARING <br />Congress and the administration should resist the temptation to use GRS as <br />a lever to obtain other governmental reforms at the local level. Revenue <br />sharing should be a flexible, decentralized program free of bureaucratic <br />entanglements. <br />The League is not encouraged by the direction thus far of the U.S. <br />Treasury's study of the program, which, to date, has focused on the cost to the <br />Treasury of deductibility of state and local taxes.The League opposes any effort <br />to further restrict or eliminate tax- exempt bonding authority for cities or the <br />removal of deductibility of state and local taxes on federal income tax returns <br />in order to obtain continued adequate levels of funding for General Revenue <br />Sharing for cities. <br />Neither does the League favor the creation of a Taxable Bond Option as a <br />substitute for the continued authority of cities to use tax-exempt municipal <br />bonds. <br />The League understands that the federal government is considering budget <br />revisions that cut programs of interest to cities. The League is quite clear, <br />however, that the General Revenue Sharing Program is of vital importance to all <br />Minnesota cities. These cities utilize GRS to account for a significant portion <br />of their budgets. Since, in most instances, those funds are a part of the <br />city's operating budget, reductions in GRS leave cities no choice but to raise <br />taxes or reduce city services and personnel. Neither alternative is an <br />acceptable method of dealing with the increasing needs of city residents for <br />those services given the loss of other urban assistance programs. <br />FL-2. MUNICIPAL BONDS <br />The exemption from federal income taxes of the interest on municipal bonds <br />has been and continues to be the key factor in maintaining a healthy market for <br />municipal bonds. This tax-exempt status of state and local issues not only <br />maintains a separate market for them but also recognizes the right of state and <br />local government to independently manage their fiscal affairs. In recent years, <br />however, some have become concerned that the traditional market for state and <br />local bonds will not be able to satisfy the rapidly growing need for capital for <br />public purposes. Concerns have also been raised about existing methods of tax <br />-50- <br />