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Wednesday, July 20, 2011

Community Preservation Act – Will Pending Changes Save the Program?

In a recent news story in the Cape Cod Times, as reported by Mary Ann Bragg on June 6, 2011, certain Cape Cod towns are seeking state legislative support to authorize new taxes on private vacation rentals and real estate sales in a continuing effort to increase municipal income. Home-rule petitions from Brewster, Eastham, Provincetown and Yarmouth would expand room occupancy taxes to vacation rentals, and a home-rule petition from Provincetown proposes a new 0.5 percent real estate transfer fee.Under state law, hotels, motels, lodging houses and larger bed-and-breakfasts assess room occupancy taxes with proceeds split between the state and the town. For some Cape towns, the proceeds of the current tax are said to amount to more than $1 million annually. Reportedly, the town of Brewster could gain $500,000 annually in revenue with the broadened occupancy tax. Eastham projects a similar increase in tax receipts from the same change in the occupancy tax. Provincetown voters have sent the Legislature two home-rule petitions: one to broaden the room occupancy tax, and the other to impose a real estate transfer fee on most buyers. The town says that the real estate transfer fee alone could bring at least $400,000 annually in new revenue.

It is no wonder that cities and towns want new revenue sources during difficult fiscal times. Balancing the state budget is the paramount issue on the agenda in the current term of the Massachusetts General Court. No one believes that even “level funding” of local aid will be enough to meet shortfalls that threaten municipal budgets across the state. Even if the aforementioned measures advocated by Cape Cod towns are approved – which remains in doubt, these types of proposals offer little or no hope for most other communities.

New Legislation

To support certain unmet municipal needs, a coalition of cities and towns and allied nonprofits has proposed amendments to the state’s Community Preservation Act, i.e.  Mass. G. L. c.44B, which was enacted by Chapter 267 of the Acts of 2000. (CPA)  The central purpose of the CPA was to provide dedicated funding for local historic preservation and the acquisition of open space and affordable housing.  Under current law participating cities and towns have to approve a surcharge on real property of not more than 3 per cent of the real estate tax levy against real property in a town, with certain exceptions.  Once adopted at the local level, a community can then access matching funds from the state through the CPA trust fund.  The money in this trust fund comes from all CPA recording fee surcharges – generally $20 per instrument – that are collected at all registries of deeds. 

When the CPA was first adopted in 2000, the state match was 100%.  With 147 cities and towns now participating, and the severe decline in real estate transactions – and recording fees, the projected state match for October 2011 has been projected to be only 25%.  The coalition’s current legislation (S.1841, H.765) proposes two solutions to increase CPA funding: an annual adjustment by the Commissioner of Revenue to the CPA recording fee surcharge from $20 per instrument to a maximum of $50; and local options to include other revenue in the local CPA fund, i.e. hotel/motel excise taxes, local meals tax, linkage fees, tax title revenue, and other such funds. With the increase in recording fees, the coalition says that this new revenue would underwrite a guaranteed 75% state match of funds for participating communities.

REBA has not favored the dedication of recording fees, i.e. user fees, to non-registry purposes.  When the CPA was passed in 2000, the seed money for CPA purposes through a small recording fee surcharge represented the best among several bad options.  Perhaps the legislature felt that Registry consumers might not complain about such charges on a HUD-1.  However, when only a few towns adopted the CPA, the result was that the state matching money was benefiting only those few communities.  As we suspected, the dramatic downturn in real estate transactions highlighted a somewhat dubious policy of relying on an unpredictable, indeed unstable, funding source for community preservation.  Undaunted, for several years the Coalition for Community Preservation filed legislation to authorize a CPA surcharge of up to $70 per instrument, even while the voters in many towns were voting down local adoption of the CPA.    

The tide started to turn, when municipal revenues were further strained by other priorities and CPA proponents organized more effectively.  In addition, the legislature passed amendments to the CPA to make it easier to use local revenue for popular local projects like preserving town archives or funding affordable housing trusts. Although 147 cities and towns have now adopted the CPA, it has been less popular in cities, in part because they don't have open space to preserve, and because mayors have been reluctant to raise real estate taxes.  A decision by the Supreme Judicial Court in Seidman v. City of Newton, 452 Mass 472 (2008) meant that communities could not use CPA funds to restore deteriorated parks and recreational fields, unless they were first acquired with CPA money.  The coalition bill would address this limitation and allow the use of CPA funds for recreational uses on existing fields and parks.  To make the CPA more attractive to cities, the new bill would permit local option on other funding sources, authorize the adoption of a commercial property tax exemption (similar to the residential one already in the statute), and allow broader use of funds to support community housing through homeowner assistance programs and the like.

 Lead sponsors of the coalition legislation (S.1841, H.765) are Senator Cynthia Stone Creem (D-Newton) and Representative Stephen Kulik (D-Worthington).  Co-sponsors include 114 other legislators, representing 58% of the combined memberships of the House and Senate – an impressive total.  The legislation has been recommended by the Joint Committee on Community Development and Small Business and is now before House Ways and Means. 

-Edward J Smith, REBA legislative counsel

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