Lew Sichelman
Cash-strapped state and local jurisdictions on the prowl for new sources of revenue may have their eyes on commissions earned by residential and commercial loan brokers, a Washington lobbyist warned here earlier this week. Michigan and Ohio already have made unsuccessful runs at taxing fees earned by real estate agents and brokers. But Ellen Marshall of Patuxent Partners, Washington, expects these and other states to keep trying.
And she thinks the origination fees and other commissions paid to loan officers could also be on the table.
"Real estate is an attractive target," Ms. Marshall said at the Urban Land Institute's annual fall meeting here earlier this month. "We will see increased pressure over the next 12 to 18 months" by local lawmakers to tax real estate in one way or another.
Though California's budget woes may be best known, it is far from the only state with less money coming in than going out. According to Stan Rosscolor>, a special consultant to Ernst & Young, Los Angeles, 45 states have run up deficits.
And according to Ms. Marshall, all but Rhode Island are required by law to balance their books on an annual basis.
After cutting spending to the bone, the consultant says the targets for higher taxes are narrowing. But real estate is still in the cross hairs, and property taxes, she believes, "are front and center."
Many legislators see the property tax as a "sitting duck," she said.
But property owners don't always agree. In Alabama, which has one of the lowest real estate taxes in the country, voters re-soundly defeated a rather modest increase in the property tax, and the message may not have been lost on other states that were considering similar increases.
An attractive alternative could be a tax on such services as sales commissions, according to Ms. Marshall. Or, following New Jersey's lead, a boost in transfer fees.
Former ULI president Ronald Terwilliger, national managing partner of Trammel Crow Residential, Atlanta, also expects jurisdictions to become more creative in the hunt for additional cash. And he thinks the worst has yet to come.
"We're only in the second inning of a nine-inning game in terms of finding creative solutions to state budget problems," he said at the meeting.
But Mr. Terwilliger's biggest fear is that the multifamily housing sector will continue to be asked to bear a disproportionate share of the burden, acerbating an already critical shortage of affordable rental units. Trammel Crow builds and manages apartments in 16 major markets.
In California, which has one of the worst affordable housing shortages in the country, "impact fees already are enormous," easily doubling the cost of a $30,000 lot, the builder said.
Mr. Terwilliger and Nicholas Pappas, president of the K. Hovnanian Cos. of California, said local agencies can take money from builders for anything from regional parks to drainage to habitat mitigation.
Construction is "a catchall way for local agencies to increase their revenues," Mr. Pappas said. "And because these fees are buried in the one-time cost of the house, they never hit consumers' radar screens as a tax."
It would be one thing if the fees were a one-time exaction, the homebuilder added. But they never seem to go away, even when they are no longer needed. "They're never eliminated, and they're rarely spent for what they were intended," he lamented.
Worse, exactions are collected on a per-unit basis without regard to the cost of the house or its impact. "The fees on a $200,000 condo are the same as they are on a $1 million house," Mr. Pappas said, adding that at the very least they should be applied more fairly.
But unless the various industry groups band together, there is little hope that this will change, Jeffrey DeBoer, president of the Real Estate Roundtable, a coalition of real estate-related trade groups, told the meeting.
"You can't win on your own. There are no superstars," he said. "We need coalitions."
Mr. DeBoer also suggested that real estate interests use the right language when speaking with lawmakers.
"Words very much matter," he advised, noting that the housing lobby didn't get anywhere when it sought changes in the taxation of leasehold improvements until it mentioned smart growth and creative reuse of derelict properties.
"Talk in terms they understand," Mr. DeBoer said. "Talk about jobs, because jobs matter."