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Proposed new home sale tax angers Realtors and builders

By Lee Howard

Publication: The Day

Published June 06. 2011 4:00AM   Updated June 13. 2011 8:34AM

A bill that would allow municipalities to add a conveyance tax of up to 1 percent on most property transactions over $150,000 has created an outcry among real estate professionals and builders.

"It's crazy," said John Bolduc, chief executive of the Eastern Connecticut Association of Realtors.

Legislators who support the measure are "living in a dream and don't have access to the real world," he said. "... The housing market is going to lead us out of this recession, and it's not doing well at the moment."

Environmental groups, however, say the new tax - not originally proposed in Gov. Dannel P. Malloy's budget - would help create sustainable communities, thereby propping up property values. Builders and real estate agents who oppose the bill, they say, are shortsighted in failing to see the advantage in local governments having access to funds to buy up vacant land, implement energy-conservation programs, remediate brownfields and preserve historic sights, among other limited uses for the tax money.

"If you don't have a green community, property loses value over time," said David Bingham of Salem who, as co-chairman of the Connecticut League of Conservation Voters, pushed the legislation.

The bill, reported out of the Environment Committee on a 16-14 vote after a similarly numbered Commerce Committee bill was rewritten, would target buyers rather than sellers. Sellers already face conveyance taxes of either 0.5 percent or 1 percent on every transaction, depending on the sales price and type of property, plus a municipal tax of a quarter of a percent to a half of a percent. (Groton, New London and Norwich can charge in the upper range.)

For a $1 million home, Senate Bill 1019 could mean an extra $8,500 tax on buyers, since the first $150,000 is exempt.

But Bolduc said he is more concerned with less wealthy buyers, who often have a hard enough time coming up with a down payment for their first home. A tax on them, he said, would lead yet more young people to flee Connecticut, which leads the nation in out-migration among the 25-40 age group.

"First-time homebuyers, especially, don't have the cash," Bolduc said. "Five hundred dollars makes a difference if they can buy a home or not buy a home."

With new-home permits statewide cut in half this year compared with the same period in 2010, builders agree that the conveyance tax will hurt.

"They're just making it more difficult on us," said Chad Whitcomb, president of the Builders Association of Eastern Connecticut.

'One more challenge'

Bingham, the environmental activist, said he understands the angst that a new tax inspires among builders and Realtors in a severely depressed housing market. But he said that a tax on buyers means the future beneficiaries of greener towns will pay for the improvements, whether they involve more open space or fewer industrial eyesores. The move also makes sense in the current real estate environment, he said, when property values are depressed as much as 30 percent nationwide.

Allowing municipalities the option of imposing a new tax would give residents a chance to debate the benefits of greener communities. And, once they decide on a conveyance tax, municipalities can implement programs immediately, thanks to a flow of funding that will allow easy borrowing for bonding projects, Bingham said.

In addition, he said, the tax would make it easier to obtain matching grants from private, state and federal sources, which can triple or quadruple the total funding for a given project.

But not everyone is sold on the idea.

State Sen. Andrew Maynard, D-Stonington, said real estate agents and builders already view the conveyance tax on sellers, which was to be temporary but later became permanent, as a "breach of faith." Adding yet another tax, he said, feels like piling on.

"It's one more challenge to an industry in a bit of freefall," Maynard said.

He added that many of the funding alternatives promised by a new conveyance tax were included a few years ago in the Community Investment Act, which uses local building permit fees to pay for the acquisition of open space and other environmentally friendly programs. Maynard, who doubted that the conveyance measure would win approval in the General Assembly, said he didn't see why a new tax was required with a similar program in place.

State Rep. Ed Jutila, D-East Lyme, said he wouldn't expect any controversial measure to pass in the waning days of the General Assembly.

"A real estate tax increase will be a hard sell in a year like this," he said.

But state Rep. Kevin Ryan, D-Montville, who voted in committee to approve the measure, pointed out that the bill merely enables towns and cities to enact the tax; it doesn't force them to do so. The total tax liability, if all municipalities in the state approved the tax, would be about $96 million, according to a report from the state Office of Fiscal Analysis.

Bingham said rural communities such as Lyme and Essex have been particularly supportive of the measure and stand to reap some of the biggest benefits. These communities, compared with cities, have a higher percentage of their transactions - for land, residences and even commercial properties - in amounts exceeding the $150,000 level at which the proposed tax would kick in, he added.

Bingham noted that fiscal analyses of how much cities might accrue from the new conveyance tax understate the benefits because they are based on the average transaction amount, which tends to be lower in metropolitan areas than in the suburbs. But he said cities that have been putting off water and sewer repairs or cleanups of former industrial sites can certainly benefit from extra funding during tight budget years.

"It's hard to fund sustainable communities at a time when everything is being cut back," he said.

It's equally difficult for builders and real estate agents to contemplate yet another impediment to buyers.

"People will have less money to invest in a home," said Bolduc, the local Realtors association official.

"It holds up the process," added Whitcomb, the builders' association leader. "In our industry, it's all about starting when you can."

l.howard@theday.com

Projected 1 percent conveyance tax collections
Town Annual Revenue Estimate
Colchester $151,487

East Lyme

$417,776
Griswold
$51,352
Groton
$484,847
Lebanon
$45,477
Ledyard
$100,973
Lisbon
$57,630
Lyme
$106,797
Montville
$73,522
New London
$8,564
Norwich
$24,765
Old Lyme
$278,566
Old Saybrook
$443,239
Preston
$28,381
Salem
$50,129
Sprague
$18,304
Stonington
$614,788
Voluntown
$6,183
Waterford
$298,511
SOURCE: Connecticut Office of Fiscal Analysis

MORE

Conveyance tax allowable uses

1) Buying open space, farmland, forest land or waterfront property, or obtaining development rights to such property

2) Brownfield remediation

4) Clean air projects

5) Energy conservation

6) Alternative transportation infrastructure

7) Historic preservation

8) Green building retrofits

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