OFFICE OF FISCAL ANALYSIS

Legislative Office Building, Room 5200

Hartford, CT 06106 (860) 240-0200

http://www.cga.ct.gov/ofa

sSB-806

AN ACT ESTABLISHING THE CRUMBLING FOUNDATION ASSISTANCE PROGRAM AND ASSISTING HOMEOWNERS WITH CRUMBLING FOUNDATIONS.


OFA Fiscal Note

State Impact:

Agency Affected

Fund-Effect

FY 18 $

FY 19 $

Insurance Dept.

GF – Restricted Account

11,800,000

11,800,000

Treasurer

GF - Potential Cost

See Below

See Below

Department of Housing

GF - Cost

100,000

100,000

Note: GF=General Fund

Municipal Impact: See below

Explanation

This bill establishes the Crumbling Foundation Assistance Program to assist homeowners with crumbling foundations. To the extent that the bill provides homeowners with a variety of funding sources to repair concrete foundations damaged by pyrrhotite, municipalities may/will avoid a significant loss in property tax revenue that may otherwise result from reduced property values related to damaged foundations. It is anticipated that a loss in property tax revenue would result in increased mill rates.

It is estimated that the potential revenue loss to all affected municipalities, over the course of 15 years as the problem develops, could range from $40 million to $80 million ($2.7 million to $5.3 million annually). This is based on a $2,000 to $4,000 loss in property tax revenue per home that several municipalities have already experienced. It is estimated that 20,000 homes could be affected. The specifics of the bill are below.

Section 1 and 2 of this bill will result in an annual revenue gain of $11.8 million from the $12 surcharge on each homeowner's insurance policy, renter's insurance policy or a master policy that is required to be purchased by a condominium association. This funding will be deposited into the Crumbling Foundations Assistance Fund created by the bill.

The bill requires the Capital Regional Council of Governments (CROG) to administer the fund. There is no fiscal impact to administer the Fund.

To the extent that the Fund is used to make grants or loans to homeowners, there would be a cost to the fund that would vary based on the terms established by CROG.

Section 3 of the bill establishes a Crumbling Foundation Oversight Committee to assess the development and implementation of programs to assist owners of buildings with concrete foundations deteriorating due to the presence of pyrrhotite. This has no fiscal impact as the bill states that the members of the committee shall serve without compensation.

Sections 4-9 and 13 allow municipalities that opt-in to the program to obtain loans through the Connecticut Health and Educational Facilities Authority (CHEFA). Any cost to participating municipalities would vary based on the terms of the loans they enter into with CHEFA.

Under the provisions of the bill, these loans would be backed by the state's special capital reserve fund (SCRF). These bonds are ultimately backed by the General Fund, but can only be issued if it is demonstrated that the borrower has sufficient revenue to repay the loan. The state has previously allowed CHEFA to issue SCRF-backed bonds in order to assist the authority, and thus participant municipalities, in obtaining lower interest loans than it would otherwise.

The bill is unclear as to which entity or entities will hold primary liability for debt repayment on any CHEFA-issued loans to municipalities, but does specify all potential municipal agreements must be approved by OPM prior to being issued by CHEFA. To the extent that OPM approves agreements in which there is a direct liability to the state, there is potential for the cost of debt service on that liability. If all primary liability for debt service is held by municipalities, the SCRF-backing creates a potential cost to the state if those municipalities are unable to pay their portion of the debt service.

Section 10 has no fiscal impact to the state or municipalities.

Sections 11-12 allow municipalities and the State Building Inspector to waive building permit fees to repair crumbling foundations. This could result in a revenue loss of up to $100,000 annually to each municipality, depending on the number of homes that are repaired under the program. The revenue loss to the state is expected to be minimal.

Section 14 results in a cost of approximately $100,000 annually to the Department of Housing (DOH) to establish and administer a collapsing foundations interest rate reduction program. It is anticipated that DOH would require a third party consultant to develop the parameters and administer the program.1

It is presumed that the cost would be incurred beginning in FY 18 however, the bill does not specify the date by which the program must be developed.

The bill establishes a “collapsing foundations interest rate reduction account” to provide interest rate subsidies for the program. However, the bill does specifically appropriate any funds for the program.

It should be noted that HB 7027, the Governor's FY 18-19 biennial budget, includes an appropriation of $2.7 million in FY 18 and FY 19 from the Banking Fund to DOH for a new program to subsidize interest rates paid by impacted homeowners on loans that support the remediation of crumbling foundation issues.

The bill results in no fiscal impact to the Department of Banking, as the department posts a news bulletin on its website as a normal course of operations.

The Out Years

The annualized ongoing fiscal impact in section 1 will continue for the upcoming five years. For all other sections, the annualized ongoing fiscal impact identified above would continue subject to municipal grand lists and loans and grants provided under the various programs established by the bill.

1 The Department's two consumer loan programs, the Energy Conservation Loan Fund and Shore Up CT, are both administered by third party administrators.