The tax would have affected homeowners in Riverhead, Southold, Southampton,...

The tax would have affected homeowners in Riverhead, Southold, Southampton, East Hampton and Shelter Island. Credit: Kevin P. Coughlin

State lawmakers will likely try again next year to pass a bill Gov. Andrew M. Cuomo vetoed that would have allowed a new real estate sales tax to fund affordable housing initiatives in the Hamptons and on the North Fork.

The lack of affordable housing has long been a problem on the East End, where the high-end second-home market has priced out many in the middle class and low-income earners.

The Peconic Bay Regional Revolving Housing Fund bill, approved by the State Legislature in June, would have levied an additional half-percent tax on real estate transfers in the towns of Riverhead, Southold, Southampton, East Hampton and Shelter Island. The fund would have needed voter approval in each town.

“Although the intent of this bill is to help individuals purchase a home in a region they would otherwise be priced out of, which is laudable, the imposition of additional taxes on current residents should be considered in the context of the state budget,” Cuomo said in a memo following last Friday's veto. He added the bill could violate the Constitution by providing benefits to individuals through tax dollars.

Assemb. Fred W. Thiele Jr. (I-Sag Harbor), the bill’s sponsor, estimated the tax could have generated $15 million to $20 million annually for affordable housing. The funds would have been used to provide financial assistance to first-time homebuyers, to build new housing, to rehabilitate existing buildings, to enter into public/private partnerships to create housing, and to provide housing counseling.

The tax would have been in addition to the East End’s Community Preservation Fund 2% real estate transfer tax, which finances open space acquisition, historic preservation and water quality initiatives.

The proposal had called for some exemptions for transfer taxes on East Hampton, Shelter Island and Southampton sales of less than $1 million, and Riverhead and Southold sales of less than $800,000. Thiele said, if adopted, the law would have resulted in a tax reduction for 60% of East End property sales, because of those exemptions. 

“The new law would add only $15,000 to the purchase of a $2 million home,” Thiele said in a statement.

Michael Daly, a Sag Harbor-based real estate agent who founded the housing group East End YIMBY — which is an acronym for Yes In My Backyard — said he was disappointed by the veto.

"People look upon us in an envious way, like you're lucky enough to live on the East End, so you don’t need anything. But the fact of the matter is we have a high degree of poverty here," he said. "Government needs to play a role in caring for our local residents because the free market is not doing it."

Long Island Builders Institute chief executive Mitchell Pally said the bill would have burdened the real estate industry, which is already taxed through the preservation fund. Pally said his organization did not formally express that opinion to the governor's office.

"The question I don’t think was in any way what the bill wanted to do, but how it was being funded," Pally said.

Thiele noted former Gov. George Pataki vetoed the original Community Preservation Fund law in 1997, but lawmakers worked with the governor to pass the bill the following year and it has since raised $1.5 billion.

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