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Updated: August 1, 2008, 5:57 pm	Share    Print    Email

Certain first-time homebuyers in the towns of Southampton and East Hampton will now be exempt from paying the two percent transfer tax at closing, a move town officials say is to encourage more affordable housing opportunities in the East End. Photos by Kelly Carroll

Southampton - In an effort to ease the financial burden of first-time home buying on the East End, New York State Governor David Paterson approved legislation that will exempt first-time homebuyers from the current 2 percent real estate transfer tax (Peconic Tax) benefiting the Peconic Bay region's Community Preservation Fund (CPF).

"This legislation represents one piece of the puzzle in effectively addressing the affordable housing crisis that we face," commented Southampton Town Councilman Christopher Nuzzi. For years, Nuzzi has been an advocate for creating opportunities for more affordable housing in Southampton, and the bill, introduced by Assemblyman Fred Theile and co-authored by State Senator Ken LaValle, was prompted at the request of Nuzzi to the state officials.

The legislation, which became effective immediately upon the governor's signature July 23, covers the towns of Southampton, East Hampton and Shelter Island, and carries with it eligibility requirements purchasers must meet.

Town Councilman Chris Nuzzi called this legislation a step in the right direction, and stressed that the transfer tax is not the only hurdle first-time homebuyers have to maneuver.

Originally the Peconic Tax, passed by referendum in the towns of Southampton, East Hampton, Southold, Riverhead and Shelter Island, imposed a two percent tax on the transfer of all residential property within each town as a means of gathering resources to purchase open-space. In Southampton and East Hampton, the first $100,000 dollars on unimproved land and the first $250,000 on improved land were exempt from the tax, and homebuyers were obligated to pay the two percent transfer tax on any amounts above these levels.

A first-time homebuyer, as defined under the exemption legislation, is someone who has not owned a primary residential property and is not married to a person who has owned a residential property during the three-year period prior to purchasing a home for which they are seeking the exemption. In addition, the purchasers cannot own a vacation or investment home. Other requirements state that these homebuyers must not have a household income exceeding $97,100, and that the purchase price of the home must not exceed $660,000. These limits were established by the State of New York Mortgage Agency's (SONYMA) low interest mortgage program. According to Patrick McLaughlin, manager of Prudential Douglas Elliman Real Estate in Sag Harbor, the general median home price in the Hamptons is approximately $970,000, a number he said is up 10 percent from the previous quarter.


"The goal of this legislation is to provide a mechanism for these homebuyers that would make buying a home more affordable for the younger families in our districts," explained Assemblyman Thiele, who introduced the legislation approximately one year ago. "This bill has been wholeheartedly supported by the three towns and many local community organizations looking to provide additional housing opportunities on the East End."

In addition to the exemption for first-time homebuyers, the bill also allows for an exemption for not-for-profit housing corporations looking to buy land for affordable housing units.

"I commend the State in taking this action," Southampton Town Supervisor Linda Kabot commented. "This has lifted a burden on home ownership in Southampton. Anything that we can do - we should be doing."

Town Supervisor Linda Kabot said the town will be able to handle the new restrictions placed on the management of the Community Preservation Fund.

Administrative Lag
The fact that the legislation took effect immediately, however, has caused a small administrative hiccup. Kabot estimated that it will take the town of Southampton at least 45 days to amend its town code to allow for the exemption. This process will include a drafting of the new law, the circulation of the law among lawyers and officials, and a public hearing before it can be instituted. In the interim, Kabot suggested drafting an affidavit that first-time homebuyers can sign at the closing table, stating their eligibility for exemption. She sees an affidavit as a viable tool to ascertain validity for the exemption since penalty of lying in a sworn statement could lead to great legal ramifications, therefore most likely preventing applicants from taking advantage of the period before the change in town code is officially adopted.

However, this is still only a suggestion, and in the meantime the town will have to dole out refunds to homebuyers on or after July 23 who are found eligible for the exemption.

A concern raised over the loss of revenue to the CPF fund due to the exemption is seen as relatively insignificant to the overall success of the program. Councilman Nuzzi said the restrictions placed on those who can qualify for the exemption made everyone working on the program comfortable that the loss of this revenue would not be detrimental to the fund as a whole. Kabot agreed. According to the supervisor, the CPF depends on a "robust" real estate market. With real estate, and the economy in general, in a state of decline, revenues across the map are down, not just because of a tax exemption.

"That has more to do with the economy," Nuzzi offered. He went on to cite other problems homebuyers have to struggle with in this down fiscal climate - property taxes, income taxes and simply retaining their employment.

"It's that cash-at-closing that people don't have," Nuzzi added. "This was an important step forward."

Assemblyman Fred Thiele introduced the tax exemption legislation to the State government and said he is pleased with the outcome.

Other Additions To The CPF Law
Also on July 23, Governor Patterson signed into law a bill reforming many CPF administrative practices. This legislation, like the tax exemption, was effective immediately.

The general purpose of the legislation is to provide more control over how the CPF is implemented, particularly in the fiscal sense. In the wake of controversial borrowing from the CPF fund by the McGintee administration in the town of East Hampton and growing alternate uses adopted by town vote in Southampton to augment school tax burdens, a task force spearheaded by Assemblyman Thiele and Senator LaValle has prompted changes to the CPF law calling for more stringent rules on how the fund can be governed and monitored.

Under the new law, the town supervisor must certify that there will be sufficient revenue in the fund to repay any indebtedness accrued from land acquisition and prepare a financial report showing such before fund money is used. In addition, each town may form a plan for management and stewardship of lands acquired by the fund. Each town must also perform an independent audit of the fund, which must be submitted to the state and be made available to the public.

The legislation also states what costs may be charged to the fund, which projects are eligible for funding, and that salaries may only be taken out for employees and contractors directly related to the fund. Most notably, the bill expressly states that in no event shall monies deposited in the fund be transferred to any other account.

Supervisor Kabot said that she is satisfied with these changes made to CPF law and called the new requirements "manageable."

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