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John Jermanis October 31, 2001 Page 2 of 2 An estimate of the revenue loss that will occur upon implementation of the tax exemption and rebate program is based on a number of assumptions. Up to 70% of the City's Real Property Transfer Tax is generated by residential sales. Staff has been in discussion with representatives of the real estate industry to develop an estimate of the probable revenue consequences of adopting the proposed amendments to the Real Property Transfer Tax. In Calendar Year 2000, approximately 46% of the Alameda County home sales were to first-time homebuyers. To date in 2001, the percentage has been reduced to 38%. First-time homebuyers will likely represent the largest group to benefit from an amendment to the Real Property Transfer Tax. In most instances, first-time homebuyers are purchasing homes at the lower end of the range of sales values. An estimate of the total revenue attributed to first- time homebuyers assumes the following: 1). purchase of a home at 90% of the median value of $350,000; 2). no limit on the value of the homes subject to the tax relief; 3). 100% of the transaction tax is exempt. Assuming the number of qualifying purchasers eligible for the tax rebate is between 35% and 50% of the single family home purchasers, the estimated revenue loss would be between $600,000 and $1 million per year. CONCLUSION The information summarized in Attachment 1 suggests that the elements of the proposed Real Property Transfer Tax amendment that are in question are limited to the following: 1. Whether the tax relief applies 100% of the transaction tax for qualifying properties, or to 50% of the tax which is the assumed amount paid by the purchaser. 2. Whether any value home purchased by a first time homebuyer should qualify for the rebate or whether the program should be limited to homes at or below 125% of the median value for the prior year. 3. Whether there should be a sunset provision, and if so, for how many years should the program run before the sunset is applied. Estimated cost of providing for certain exemptions to the Real Property Tax could be as high as $1,200,000 per year. The cost would be reduced if the tax is limited to 50% of the eligible transaction costs or if the value of homes eligible for the first-time rebate is limited. Once the City Council provides direction on the Real Property Tax amendments, an ordinance and administrative procedures for implementation will be brought back for Council consideration. 33z