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Beshear likes new-house tax credit

FRANKFORT — Gov. Steve Beshear said Tuesday he generally supports a proposal by the state Senate to give a $5,000 tax credit to those who purchase newly built houses.

Beshear said his staff is reviewing that proposal and several other new programs the Senate added Friday to House Bill 229, a Beshear-backed overhaul of the state's economic incentive programs.

"In principle, I can certainly support some type of tax credit for new homeowners simply to encourage the market to come back again," Beshear said.

HB 229, which the House passed earlier this month, contained Beshear's plan to retool Kentucky's programs to lure and keep jobs. The Senate late Friday added several new incentive programs, including the $5,000 tax credit for people who purchase new homes, incentives to lure the Breeders' Cup Championship to Kentucky and additional tax credits for small businesses.

The House did not pass the Senate's version of the bill before it adjourned Friday. It will take up the measure again when the General Assembly returns March 26 for the final two days of the 2009 legislative session.

Some key House members said they had concerns about the potential cost of the additional incentive programs, given that the state most likely faces another budget shortfall in the next fiscal year.

Rep. Rick Rand, D-Bedford, chairman of the House Appropriations and Revenue Committee, said the House had no time to examine the additions to HB 229 on Friday. House budget committee staffers were still trying to determine Monday what the costs for the state would be in coming years, Rand said.

"I think there are going to be some discussions," Rand said of the new program's costs. "We want to take a look at it and see exactly what that program does. All of us want to see the house market kick-started in Kentucky, but we want to look at the costs."

The tax break for newly built houses would be capped at $25 million. It would apply only to homes purchased from May 15, 2009, to May 15, 2010.

State economists have said previously that Beshear's initial proposal could cost the state as much as $32 million in lost revenue in its first year and as much as $44 million the next year. However, the analysis said the program's ultimate cost cannot be determined because it's impossible to know what businesses will locate in Kentucky or remain open because of the programs.

Several of the incentive programs added by the Senate were parts of other economic incentive legislation that had been debated or approved by the House in the past — including a measure that would lure a NASCAR Sprint Cup race to the Kentucky Speedway and tax credit for small businesses that add at least one employee and invest at least $5,000 in new technology or equipment.

But the $5,000 tax credit for people who buy new houses was new.

Bob Weiss of the Home Builders Association of Kentucky said the group asked the Senate to consider the tax break to boost the industry. He said the program would not overlap with a new federal tax credit.

The federal tax credit, worth up to $8,000, is only for first-time home buyers and is good for both existing and newly constructed homes.

Someone who qualifies for the federal tax credit can't get the state tax credit, Weiss said.

The tax credit is also limited to those who use the home as their primary residence. Homeowners must also pledge to live in the house for two years to prevent speculation, or "flipping."

"We wanted to start the pipeline to build new homes again," Weiss said.

He said industry economists have estimated that $90 million in revenue could be generated from the 5,000 houses that could be built if all $25 million of the tax credit were used.

"If it does work, it should pay for itself and more," Weiss said.