Avon council questions real estate transfer tax exemptions for home buyers

With so many questions raised, discussion moved to Aug. 13

An illustration of an 81-unit development currently under construction on Highway 6 in Avon.
Special to the Daily | Colorado World Resorts

AVON — The first $160,000 of a primary resident’s home purchase is currently exempted from the town’s 2 percent real estate transfer tax, and that number could soon triple.

On Tuesday, the Avon Town Council examined an ordinance to increase the exemption to $500,000, raising a variety of questions, many involving the larger issues of development, capital improvement projects, short-term rentals and affordable housing.

With so many questions raised, the discussion was put on hold, and town manager Eric Heil offered to provide some enlightenment on the issue, along with a list of ideas, options and suggestions, on August 13. The first reading of the ordinance was continued until then.

The first question from the council was the most salient, and was raised by Mayor Sarah Smith Hymes. 

“What are we trying to accomplish?” Hymes asked.

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To get to the answer, Council Member Scott Prince asked another question:

“What started this conversation?” Prince asked. “It speaks to our top tier goal of working on the attainable housing issue — and how can we make homes more affordable in Avon?”

This prompted a question from Council Member Jennie Fancher.

“Who are we designing this exemption for?”

It’s something Hymes said she had been thinking about, which had raised a few questions in her mind.

“Do we want to use this to encourage long-term, stable, primary residents who live here full time? … Could we possibly give a (tax) exemption to somebody buying a house in Mountain Star?” Hymes asked. “That just seems so counter-intuitive. But then you think about — what are we trying to do here? What’s our goal? It this an affordable housing tool, or is it more of a community-building kind of tool?”

How much?

As a practical matter, questions were raised about how much this will affect the town’s capital improvement projects fund, which the transfer tax supplements every year.

“How much of our (capital improvements projects fund) are we willing to anticipate we’re gonna have to find different revenue for, in order to increase this exemption?” asked Amy Phillips. “Do we want to do that at all, and if so, how much are we comfortable with?”

Of the approximately $2.5 million in annual funds the tax generates ($2.5 million is a conservative estimate, Heil said), just over one million is used for debt obligations, including the Avon Police Station, the regional transit facility in town, and others. Another $250,000 is transferred to the general fund, and the remaining $1.2 million or so is used as discretionary funds. That discretionary fund budget would be reduced by roughly 14 percent if the council were to raise the exemption to $500,000, Heil told the council.

Finance director Scott Wright warned the council to think of that number in five-year increments, as that’s how the projects the funds will pay for are planned.

“We’re saving up to pay for those projects if they’re more than a couple hundred thousand dollars,” Wright said. “So you’re only looking at $200,000 of additional exemptions — revenue that might be lost — but I think you really need to look at that on a five-year basis, it’s really $1 million in that five-year plan”

‘Why? Is the biggest part’

Fancher asked if development projects that are currently underway or have been approved, of which there are several, will generate enough real estate transfer tax to make up for the losses that could occur from increasing the exemption.

Multi-unit developments are currently being constructed in Avon on the parcel of land known as the Folsom Property on Highway 6, and the parcel known as the Riverfront Village west of The Westin Riverfront Resort & Spa.

As the exemption would likely apply to primary residences only, Wright said it’s difficult to determine if the purchasers of those new units would be subject to the exemption.

“Whether those are primary residences or not, I can’t say,” Wright said. “It’s hard to say how much any change in the exemptions would be felt with those.”

Fancher and Phillips also asked if there would be protections to ensure a property transfer that reaps the benefits of the exemption isn’t put to short-term rental use.

Heil said in recent years the town has become more adept at identifying properties being used for short-term rentals.

“If you buy a three-bedroom, and you have a bedroom to rent, that’s fine, but the (exemption) definition says that bedroom’s gotta be the primary residence for the person you’re renting it to, also,” Heil said. “You can’t get the primary residence exemption, buy a three-bedroom house, and then Airbnb two of the bedrooms.”

Chico Thuon, who campaigned on the issue of lowering the real estate transfer tax in the 2018 election, said in educating the public about the tax, there is a single question that needs to be answered.

“Why is the biggest part,” Thuon said. “I think that we need to address a common verbiage amongst us — what that ‘why?’ is — so we can explain it, and educate people … Concise, different things, exactly what we’ve done with (the real estate transfer tax) over the last five years. Explaining to people what it’s there for.”

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