Dan's Papers - July 11, 2008

Good news for first-time homebuyers in the Hamptons. The New York State legislature has sent Governor Paterson a passed bill that will enable first-time buyers who meet certain criteria a chance to save up to $8,400 on homes priced at $660,000 or more. This applies to purchasers with combined maximum incomes of $97,100 for the household. The law also provides for financing up to $200,000 for the first-time buyers whose income is below that income ceiling. Amazingly the new law also puts a surcharge tax on all new homes over 3,000 square feet - in essence, a new tax. The fee could not exceed $8 per square foot.

Of course, the East End already has an aggressive home tax in place, called the Community Preservation Fund. On a $2 million purchase, a buyer is paying about $35,000 in tax earmarked for the CPF. Many in the community feel that in view of the success of the CPF in raising funds, (the 10-year goal was $100 million, but the tax has raised about a half-billion to date), some sort of relief and adjustments are needed to that tax. After all the CPF is 50 years ahead of its own rosy forecast on raising funds through the 2% tax.

One local real estate veteran said, "In an explosive upward market - which is what we had - while the tax was serious money, it was offset by the rapid growth in the value of the property. The tax could be recouped within the value of the property increasing in the first year. Now that is not the case. Something should be done. The tax should be adjusted to the new crisis the real estate market faces trying to maintain its historic rock solid reputation as the best investment one can make - that is, their home."

The agent suggested a reduction from a 2% CPF tax to 1%, applicable to the amount over $1 million rather than $250,000. "Our legislative leaders must realize they never intended to tax home buyers $40,000 and upwards on the purchase of their homes. When the law was written in 1998 the average tax was forecast to bring in around $4-5,000 per sale - not $25,000. After a half-billion dollars, this should be addressed. The prime lands have been purchased by the CPF over the last decade. Now it's time to scale back this fund before it becomes a political slush fund."

Recently, both Southampton Supervisor Kabot and East Hampton Supervisor McGintee have stated that the resources raised by the CPF should benefit their respective towns in ways beyond the stipulations of the original law - largely because there is less to preserve. But in East Hampton, many believe the fund's uses were above and beyond what is reasonable - that the CPF was never intended to remedy the town's overspending. This is where the slush fund theory enters: this budgetary strategy was an option only because of the excess monies available.

The steps assemblymen Alessi and Thiele and state senator LaValle have taken in addressing first-time buyers is an important step in addressing a greater problem - a tax fund that has been growing like The Blob. One wise old-timer said, "They must admit this, and in service to those they serve, they should not brag about how much they have raised, but admit to how much they have overtaxed." (A savvy political operative could use this issue alone to take an election.)

But in the meantime, everyone who buys a home on the East End in this market still feels the sting of the CPF tax. With a half-billion already raised, there is a more pressing issue: stimulating a depressed home real estate market. Money is still being raised by taxing people who dare to buy in this market - a bit nervy on the part of our lawmakers.

So while Assemblyman Fred Thiele thumps his chest about the new bill that helps first-time homeowners that he successfully shepherded into law, many feel it's just a first step to adjust the CPF tax in its second decade of existence. Times and circumstances change and, in fact, it's ironic if not pathetic to continue raising higher amounts of money when fewer tracts of land are actually available.

This issue has the potential to become a political bombshell should the housing market continue to be less than "robust." As the old-timer said, "If it isn't broken, don't fix it, but if it's making things worse - fix it."