If there’s any better proof that safety in numbers can bring people together, then I don’t know where it is. Last year we learned that anywhere from hundreds to perhaps tens of thousands of homeowners — most of them in northern and eastern Connecticut — have the misfortune of owning homes whose foundations are crumbling.
As of almost a year ago, more than 500 homeowners had complained to the state Department of Consumer Protection, though the General Assembly’s nonpartisan Office of Fiscal Analysis thinks the number of homes at risk could be anywhere between 20,000 and 30,000. And the cost of replacing a foundation — involving as it does the lifting of the house and the demolition of the old foundation — can run $200,000 or more.
As you might expect, insurance companies are refusing to cover the damages (if nothing else, they are really good at doing that), arguing that the defective foundations do not qualify for coverage under the definition of “collapse,” which is the language in most applicable homeowners policies.
There are suspicions, most notably voiced by Sen. Richard Blumenthal at a Senate hearing in August, that insurers may have seen this problem coming and changed the policies to exclude coverage. That would be fraud and would likely result in substantial civil penalties, if not criminal charges.
There have been numerous lawsuits filed, including a class-action suit against more than 100 active Connecticut insurance companies. Yet another suit has been filed against Coldwell Banker, arguing — flimsily, I think — that the real estate giant failed to disclose foundation problems in advance of the sale of a South Windsor home.
The problem has caused alarm in both state and local government — and not only because constituents are suffering, though that alone would be good enough reason for urgent action.
If thousands of homes suffer catastrophic devaluation because of those crumbling foundations, towns will see their grand lists shrink to the point that they will have to dramatically increase mill rates on the remaining properties that are unaffected by this disaster.
The Office of Fiscal Analysis estimates that over the next 15 years the affected towns could lose about $40 million to $80 million in tax revenue because of the problem.
To make matters even worse, the National Association of Realtors forecasts that home prices in Connecticut could lose substantial value because a new Republican-backed tax bill, if passed in Washington, could mean changes in capital gains deductibility, ending or lessening the deductibility of state income taxes and local real estate taxes (state and local taxes or SALT). This change will hit high-tax states like Connecticut especially hard.
The association sees home values in the state falling between 12 percent and 19 percent, depending on which version of the bill is passed. Coupled with changes in the deductibility of home mortgage interest, the lowering of SALT deductibility could weaken the most compelling reasons for buying a home. That would be a shame when you consider that home sale prices in greater Hartford, for example, have been recovering nicely over last year.
So it’s not a stretch to imagine that some of the smaller towns could go bankrupt and that they would require state aid to pay their bills. And it’s obvious that the state has ample reason to get involved.
“Thankfully,” there has been some good news recently. On the day before Thanksgiving, the federal government announced that it would allow the affected homeowners to deduct the cost of the foundation repairs from their federal taxes. Reps. Joe Courtney and John Larson are to be commended for urging the Treasury Department to grant this relief. And I’m sure it didn’t hurt that Trump administration Treasury Secretary Steve Mnuchin owns a home in Litchfield County. Or that former IRS Commissioner John Koskinen, who reportedly also played a role in the tax break, used to be an aide to the late former Democratic governor and senator, Abe Ribicoff.
But that could also disappear if the U.S. Senate doesn’t repeal language in the tax package that would limit the deductions to areas under presidential emergency declarations.
If the deduction stands it will no doubt help some of the victims, but if you can’t afford the cost of the repairs or don’t have enough equity to borrow, the deductibility on your federal taxes won’t do you much good. However, the $40 million fund set aside in the recent bipartisan state budget will no doubt provide more immediate and tangible relief to victims of the contaminated aggregate in the concrete used in the foundations.
What this disaster shows us is that in a hyperpartisan world it’s still possible for the warring factions to come together. Even free-market conservatives see a role for government when insurance companies back off, the concrete manufacturer no longer exists, and homeowners are stuck with the crumbling foundations through no fault of their own.
Will Connecticut’s bipartisan streak rub off on Washington? I think we all know the answer to that question.
Contributing op-ed columnist Terry Cowgill lives in Lakeville, blogs at ctdevilsadvocate.com and is managing editor of The Berkshire Edge in Great Barrington, Mass. Follow him on Twitter @terrycowgill.
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