Slumping real estate sales mean 31% drop in transfer-tax revenue for Riverhead

Riverhead has seen a 31.4% drop in Community Preservation Fund revenues in the first three quarters this year compared to 2018, according to data released last week by Assemblyman Fred Thiele.

CPF revenues are “substantially lower” in all five East End towns this year than they were in 2018, Thiele said. Overall, CPF revenues fell 20.2% compared to the first three quarters of 2018.

Riverhead Town saw the steepest decline of the five towns, with its CPF revenues falling from $3.63 million collected from Jan. 1 to Sept. 30, 2018 to $2.49 million in the same period of 2019.

The CPF is funded by a 2% tax on real estate transfers. The state legislature authorized the tax for the Peconic Bay region — the five East End towns — in the late 1990s and since its inception in 1999 has generated $1.44 billion for land preservation on the East End.

In the booming real estate market of the early-to mid-2000s, Riverhead Town borrowed about $70 million against anticipated CPF revenues in order to purchase open space and farmland under development pressure. But after the economy and the real estate market crashed in 2008, CPF revenues plunged. Since then, the town has been using a combination of CPF revenues and CPF reserves to pay its CPF debt service.

Early in this decade, former supervisor Sean Walter sounded alarms about the prospect of the CPF reserve being fully depleted and current CPF program income not being adequate to meet the program’s debt service. If that had happened, the town’s general fund would have been tapped to plug the gap, increasing property taxes. The town avoided that situation thanks to an uptick in the real estate market — generating higher 2% tax revenues — the past few years.

Riverhead’s CPF debt, which accounted for about half of the town’s outstanding general obligation debt, and the risk that the town would not be able to pay its CPF debt service without a general fund tax increase, was a factor in Moody’s Investor Service downgrading the town’s bond rating from
Aa3 from Aa2 in 2015.

The Riverhead Town 2019 adopted budget projects $3.5 million in CPF revenues for the year. The budget also calls for using just under $1.9 million in the CPF reserves to cover CPF appropriations of $5.4 million in the current year, most of which is to cover CPF debt service.

With actual CPF revenues of $2.49 million in the first nine months of 2019 and projected CPF revenues of $3.5 million for the year, real estate sales in the Town of Riverhead will need to generate another million dollars in the fourth quarter for the town to meet its budget projection. Fourth-quarter CPF revenues have exceeded $1 million in the past two years, so unless the market slows significantly in the final quarter of 2019, the town should meet its budget projection.