East Hampton Town officials are seeking residents’ input on plans to extend the Community Preservation Fund’s 2 percent real estate transfer tax and use some of the money for water quality protection projects.

A public hearing Thursday also will seek input on whether a referendum should be held in November on the proposed changes that would extend the existing tax by 20 years to 2050 and allow 20 percent of it to be used in addressing problems that have led to ponds being declared unsafe and bays closed to shell fishing.

“This is probably the biggest piece of legislation the town has ever seen,” East Hampton Town Attorney Michael Sendlenski said Wednesday.

The fund, approved by voters in 1998, taxes real estate transfers in the five East End towns — East Hampton, Riverhead, Shelter Island, Southampton and Southold. It excludes sales of small homes usually bought by first-time buyers. The money collected in each town stays in that town with 90 percent of it used for land preservation and the rest for administrative costs.

If a change in the funding distribution is approved to tap 20 percent for water improvement, about $25 million could be raised for water projects annually, East Hampton Town Supervisor Larry Cantwell said. Those would include improvements to wastewater treatment and pollution control, abatement and prevention.

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Some of the CPF funding would also be used to help property owners repair or replace their septic systems, and incentives would be given to farmers who minimize or prevent the addition of nitrogen into the environment, officials said.

“Everybody here has their own cesspool and it’s been clearly demonstrated by studies that the principal cause of high nitrogen in bodies of water is from septic systems,” Cantwell said. Excess nitrogen allows harmful algae to develop. It’s already affecting quality in freshwater ponds including Georgica Pond in East Hampton and Fort Pond in Montauk, and marine waters such as Lake Montauk.

“We know that nitrogen is seeping into the groundwater and our drinking water comes from groundwater ... and some of that migrates into the harbor,” Cantwell said, adding that the town’s “antiquated” septic systems were designed to remove bacteria but not nitrogen.

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The town board hearing will be held at 6:30 p.m. in town hall.