Riverhead will not seek to establish half-percent transfer tax to fund affordable housing

There will be no ballot referendum this year in Riverhead to add a half-percent real estate transfer tax to  build revenue for town-sponsored affordable housing opportunities, as the Town Board has determined that the town has enough affordable housing and the state law allowing East End towns to create a “community housing fund” is not meant for Riverhead.

Town Board members agreed not to move forward with adopting a local law to create the fund and adopting the tax increase, which would have triggered a mandatory referendum on this November election’s ballot for voters to approve the tax. The deadline to file such a referendum with the Board of Election for the ballot this year is next week.

Towns were given the option to create the fund — which can be used to create government-sponsored affordable housing, make loans and grants to first-time homebuyers with lower-incomes who work or live in the town, subsidize housing related services, and more — after a bill sponsored by Assemblyman Fred Thiele and State Senator Anthony Palumbo was signed into law last October in response to what Thiele said was a lack of affordable housing in the region in “crisis proportions.”

But town officials did not share Thiele’s assessment of the situation when it came to housing in Riverhead. Community Development Director Dawn Thomas and Financial Administrator Bill Rothaar recommended the board not adopt the new law during the board’s work session on Thursday, and argued that Riverhead has an adequate amount of affordable housing already. Town Board members agreed. 

“As you may have read last week or the week before, Southampton Town has a number of their working people living in the woods because they cannot afford a place to live near enough to where they’re working and with the price of fuel and everything else,” Thomas said, apparently referring to a New York Post article published last month about the living situation of migrant workers on the South Fork. “They just became homeless and they’re in fact living in woods, which is completely unacceptable. And happily, that’s not our issue and Riverhead, but in Southampton it is.”

Other towns on the East End are preparing to adopt the law and have already launched advisory boards to create the mandatory housing plans required for implementation. Southold had a public hearing on the proposal on Tuesday, while East Hampton and Southampton both voted in favor to put the tax on the ballot. Riverhead would be the outlier.

“With their guidelines, the parameters for that aren’t all that great for Riverhead. That’s the way I’ve read it,” Councilman Tim Hubbard said.”I have piqued interest in this because my thought was you want to help first time homebuyers in the town, because we don’t want our children leaving because they can’t afford to live here. But the more I looked into it, the more it really doesn’t fit for Riverhead, it fits more for Southampton or out east,” he said, but didn’t elaborate on why it “doesn’t fit” for the town.

The community housing fund would allow the town to supply a first-time homebuyer — who is either a current resident, has been a resident within the last five years, or an employee working in the town — with financial assistance through a grant or low interest loan for up to half of a home’s purchase price. Households eligible for financial assistance need to have an income that does not exceed 100% of the limits established by the state of New York mortgage agency low interest rate loan program in Suffolk County, which lists the target limit as $112,560 for a one or two person household and $131,320 for a household with three or more people.

“And the half percent [tax] to me is just poking another hole at something that — the CPF wasn’t designed for all this,” Hubbard continued. “And we give more than our share on open space, which is what this really was designed for, Riverhead leads the pack.”

“Riverhead leads the pack on affordable housing for housing, the majority of the workers that are commuting out east every day, because they can’t afford to live out there,” Hubbard said. “So the way I read this is Southold, Southampton, East Hampton, step up your game, Riverhead’s done its share. You guys have to come to the table. And this is meant for you. Not necessarily for us.”

Town officials did not discuss the basis of their assessment that Riverhead has enough affordable housing during the discussion, nor did anybody bring up the town’s homeless population. Thomas said after the meeting that her assessment of the town’s affordable housing was based on an affordable housing demand analysis memo produced by former comprehensive plan update consultant AKRF in August 2021 and conversations with the town’s building and planning administrator.

According to the affordable housing memo, which is the most recent analysis of affordable housing in Riverhead, the town has an “adequate” amount of affordable housing. The analysis is based on affordability by the standards of the Long Island Workforce Housing Act, which defines affordable units based on individuals and families at and below 130% of the area median income of the Nassau-Suffolk primary statistical area. That number, which is set by the U.S. Department of Housing and Urban Development, was $164,970 in 2021. 

AKRF used $139,925, the area median income for a household of 2.5 people — the “average and projected household size for the town,” the memo states — for its assessment of what housing is “affordable” in its analysis. The memo determined that 100% of Riverhead’s rental housing was affordable on this basis. The analysis also factors in senior apartment rentals, mobile/manufactured home rentals and apartment developments proposed in the downtown DC-1 zoning use district for its analysis.

The memo also acknowledges that Riverhead town-wide area median income is about 72% of Suffolk County’s area median income, or $100,746, although the memo never uses Riverhead’s area median income to assess affordability. 

Although the analysis concludes that the town has adequate affordable housing based on the $139,925 area median income number, it also states that “the Town may wish to add up to 300-500 new designated affordable units over the planning period to meet the needs of the existing and future lower-income populations.”

During the discussion, the community housing fund was framed as an amendment to the Peconic Community Preservation Act, the 1998 law that permitted the five towns in Long Island’s Peconic Bay region to impose a 2% real estate transfer to fund a community preservation fund, or CPF, to protect farmland, natural areas and open space. This is despite the two laws only being similar in that they generate revenue from real estate transfer tax. Every East End town adopted the CPF tax in the years following the 1998 law’s adoption. The use of the CPF money was later expanded to include other projects, including water quality improvement projects, aquatic habitat restoration and pollution prevention.  

Thomas and Rothaar also said the amendment would damage the revenue the town receives from the 2% real estate transfer tax it already has to build revenue for the community preservation fund, since the amendment would allow the town to increase exemptions on the consideration of the conveyance of improved real property from $150,000 to $200,000 in Riverhead. However, Rothaar shared incorrect numbers with the board during the presentation on how the community preservation fund’s revenue would be affected, giving them calculations based on if the exemption was increased to $400,000. Rothaar and Thomas acknowledged the mistake after being contacted by a reporter about the discrepancy. 

“It does not help the CPF fund, we still have debt on the CPF fund that we’re paying off. And even if that gets paid off in the next five years, whatever is left in the pot, we alway have to maintain the property.” Rothaar said. The town has a yearly debt service of approximately $3 million through 2027 and a total debt service of almost $25,000,000 on the current debt, Rothaar said in an email.

Using the correct exemption amount, a home with the purchase price of $400,000 would generate $4,000 in revenue for the community preservation fund under the new $200,000 exemption, rather than $5,000 under the previous $150,000 exemption, according to Rothaar. If the exemption were in place during last year, the revenue of the community benefit fund, which reached a record of approximately $6.9 million, would have been approximately $192,000 less.

Community Preservation Fund revenues have been breaking previous records in the last two years, as real estate prices skyrocket and an influx of people move to the East End. Riverhead has received the amount of revenue for its community preservation fund out of all five East End Towns, besides Shelter Island, since its adoption.

“And also since Riverhead is the largest agricultural town on the East End, I think in Suffolk County, and probably maybe in your state, even the preservation of our open space and farmland is critical. And so to tap that fund for something we already have an adequate amount of doesn’t really make a lot of logical sense.” Thomas said.

However, the Town Board need not adopt the increased exemptions on the real estate transfer tax if they implement the half-percent housing tax, Thiele told RiverheadLOCAL in an interview. “Could they do one and not the other? Sure. I mean, they’re not inextricably linked,” he said.

Thomas and Rothaar did not present the Town Board with the option of adopting the local law creating the housing fund and not raising the exemption for the transfer tax. When asked in an interview Tuesday why the option was not given to the board during its work session, Thomas did not answer directly. She said the exemptions are increased to offset the cost of the new transfer tax and adding the tax without increasing the exemption would make homes more expensive for buyers. 

“Even if we don’t increase the exemption we’re just adding another half a percent tax to the cost of housing in Riverhead. Again, why do we want to make it more expensive?,” she said. “We already have a very nice, affordable base. Our median home price is reasonable. There are things that a reasonably young working person can buy.”

Thiele said in an interview that increasing the real estate transfer tax by one-half percent would not negatively affect the real estate market in Riverhead, as evidenced by the fact that the 2% tax for the community preservation fund has not had an adverse impact since its adoption 24 years ago. 

“This tax has had no little to no effect on what happens with the market,” Thiele said. “So, I think the idea that somehow by doing this program it’s going to adversely impact their CPF revenues… there’s just nothing to support that.”

Thiele said the tax exemptions have also not been increased in 24 years and will have only a small negative impact on the community preservation fund’s revenue. “If you’re going to account for inflation, actually, we’re not even getting close to making that exemption as valuable as it was 25 years ago by the increase we’re doing,” he said.

A draft plan for the community housing fund shared with RiverheadLOCAL by Thomas, which she said was developed for drafting the community housing fund law, indicates the fund could be used to offer low-interest loans for about 200 homes located in the town’s historic district downtown, near the Long Island Rail Road Station, and along Roanoke Avenue to Route 58, with the goal of incentivizing the “historically sensitive restoration” of these homes by young families and retirees. 

A plan for implementing the community housing fund would need to be adopted before any of the revenue can be spent by the town. The plan would be created by an advisory board made up of at least one representative from the construction, real estate and banking industries, and three representatives of local housing advocacy or human services organizations. No member  of the Town Board would be able to serve on the advisory board.

“Our push now is not so much for rentals, but to have houses where people can afford to buy,” Hubbard said during the work session. “And we don’t want apartments for rent, we want condos for sale. We want townhouses for sale, where homeownership is pride, that somebody’s going to take care of their property, as opposed to if they’re renting it out again next month [and] they really don’t care.” Hubbard said.

“I agree 100% with the analysis and what Dawn said, especially regarding the fund being originally intended for Agricultural Preservation, Open Space Preservation, water quality, those were the mandates when it first went into effect,” Councilman Frank Beyrodt said.

“I agree with you. I know we explored the possibility of first time home ownership,” Supervisor Yvette Aguiar responded. “Thank you for your research, and it doesn’t seem like it’s going to be — Southampton it would work. But like Frank said it wasn’t the intended purpose. Now it’s in a different direction. And if it’s gonna help us financially, and it’s not going to help the young professionals — cause that’s what we want now in Riverhead, we have a lack of interest from young professionals. And hopefully, through development, we are working towards that. I’m also going to agree that we shouldn’t go forward,” the supervisor said.

“And I think we were happy in our office to share any of our ideas on how other communities can create affordable housing in their communities, as they should and need to do, and so we’re open to any of those conversations,” Thomas said.

Thiele said the legislation, titled the Peconic Bay Community Housing Fund Act, was created with input by all the East End town’s, including Riverhead and Thomas as community development director. 

“The philosophy of this was to give the town’s as broad authority as we possibly could for them to decide how to use the fund,” Thiele said. “I mean, there’s basically not anything that a town could think of to do, to promote affordable housing, whether it be accessory apartments, financial assistance to first time homebuyers, homeownership, rental housing, public private partnerships, employer employee housing, working with employers, which why the Farm Bureau supports this legislation.”

Thiele said if the Town Board does not adopt the housing fund this year, they can do it next year or the year after if board members see it works well in other towns.