WASHINGTON - The Senate yesterday voted 61 to 37 to approve its $838 billion economic stimulus legislation, setting the stage for House and Senate conferees to begin to resolve the differences between their two bills, including six differing bond-related provisions.

Click here to compare the House and Senate bills

The conferees plan to meet over the next several days and hope to send final legislation to President Obama before the President's Day recess begins.

Several bond provisions included in the Senate bill are more limited than those found in the House legislation.

Lawmakers will have to decide how long they want to allow tax-exempt issuers to issue taxable debt in exchange for a direct cash subsidy or a tax credit to investors under the taxable bond option program.

Under the Senate bill, issuers could sell taxable governmental bonds in 2009 and 2010 in exchange for either a cash subsidy or a tax credit for investors that would equal 35% of the interest paid on the bonds in most cases. Small issuers - those who issue less than $30 million of debt per year - would be eligible for a 40% credit or subsidy under the Senate plan.

The House bill's taxable bond option provision contains a flat 35% credit or subsidy for taxable bonds issued in 2009 and 2010, but for bonds issued after that, the tax credit would be permanent.

The Senate also cut back on the amount of bonds state and local governments could issue under a recovery zone bond program to be created to help areas hit hard by unemployment.

Under the Senate bill, governments could only issue up to $10 billion in private-activity exempt facility bonds and $5 billion of taxable tax-credit bonds for economic development. That compared to the earlier proposed amounts of $15 billion and $10 billion, respectively, that were approved by the House.

The Senate also would authorize a smaller amount of qualified school construction bonds than the House. The Senate bill would authorize $10 billion of the taxable tax-credit bonds over 2009 and 2010, while the House version would authorize up to $22 billion over the same period.

The House also would go further in completely repealing a 2005 law that would require state and local governments, beginning in 2010, to withhold 3% of any payments made for property or services for tax purposes. Government groups have strongly opposed the law, calling it an unfunded mandate. The Senate bill, in contrast, would only delay the implementation of the law by one year.

One provision in the Senate bill that is not in the House measure would allow small-issue industrial development bonds to be issued over the next two years to finance facilities that create or manufacture intangible facilities or projects, including certain physical components.

The Senate bill also contains a provision that is not in the House legislation that would expand what facilities could qualify as high-speed rail facilities for purposes of exempt facility private-activity bond financing. Further, the Senate bill would raise the federal debt limit by $825 billion to $12.14 trillion, and there is no such provision in the House bill.

The provision that may cause the most controversy is the one-year "patch" to the alternative minimum tax, which was included in the Senate legislation at the request of some Republicans, but is not in the House version. The provision comes with a price tag of more than $70 billion. However, both bills contain provisions that would exempt all tax-exempt bonds from the corporate and individual AMT for 2009 and 2010.

Prior to the Senate vote, Finance Committee chairman Max Baucus, D-Mont., unsuccessfully tried to add an amendment that would have provided an exemption to the alternative minimum tax for all refundings of private-activity bonds issued between Dec. 31, 2003, and Jan. 1, 2009.

The Securities Industry and Financial Markets Association yesterday said the amendment could have provided vital assistance to struggling issuers, and that it plans to continue advocating for its inclusion in the package.

"This crucial amendment would have greatly benefited many state and local governments who are having difficulty refinancing their variable rate issues under more affordable fixed-rate terms. The change would particularly help issues for student loans, affordable housing, and airports," said Scott DeFife, SIFMA's senior managing director of government affairs.

As with taxes, the House-approved stimulus package is more generous in its spending provisions, but it also would impose tighter deadlines on states to use some of the outlays.

The House version would give highway construction projects $3 billion more than the Senate bill; airport improvement grants would receive $1.7 billion more; clean water state revolving funds would receive $2 billion more; and community development block grants would be funded at $1 billion. The Senate bill would provide no CDBG funding.

But the House bill would require states to obligate at least 50% of their stimulus funds for highway construction within 90 days, while the Senate measure would set a 180 day deadline. In both versions, states failing to meet those deadlines would risk losing the money.

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