As California legislators work out the details on the $10,000 homebuyer tax credit they approved Feb. 19, builders in the state are focusing on how to use the new incentive to lure buyers, and builders in the other 49 states are keeping a close eye on what the credit does for the California market.

"It came in at the eleventh hour for California," said Brookfield Homes Regional President Adrian Foley, of the bill that was added to the state's legislative budget just five days before approval. "This makes the situation [in California] a little more tolerable."

As the legislators try to construe a budget that will deal with the California's $49 billion shortfall, the state's builders are ecstatic the homebuyer tax credit was approved, especially after the proposed federal $15,000 homebuyer tax credit was slashed to $8,000 with stipulations on what buyers are eligible, an amount California homebuyers can also cash in on.

California's credit allows any primary-resident buyer of a new home--resales are not eligible--an amount equal to the lesser of 5% of the home purchase price or $10,000, with a total budget package of $100,000,000 enough available for approximately 10,000 to 12,000 new home sales. The credit begins March 1 and will last a year, or until the state appropriate runs out.

Robert Rivinius, president and CEO of the California Building Industry Association, told Big Builder that while there are more details that need to be worked out, he is definitely excited about the passage of the credit because it will get people off the fence, with the emphasis put on driving them to new homes as opposed to resale--giving a jump start to the building industry that is suffering from a 70% to 80% unemployment rate in the state.

"This is more targeted for construction," Rivinius said. "It will create a bottom by getting people out buying."

With talk of hitting a bottom, which analysts say could come by mid-2009, Rivinius said he is not worried this credit would create a false bottom: "If this works well, we will say 'put more money into it.'"

That may sound like an unlikely prospect given the state's perilous fiscal condition, but Rivinius aruged otherwise.

"Because building a new home generates some $16,000 in state tax revenues alone, this tax credit will more than pay for itself," Rivinius said. "And since the credit will be paid out over three years, it's expected to provide a significant revenue boost this year."

UBS Investment Research analyst David Goldberg believes there is a lot of good reason for the state to do this, especially since it will stimulate job creation, permitting fees, and tax revenues, but he does not believe the credit will by itself turn the market around.

"Given that this credit is only available for new construction, it should significantly ease pricing pressure should this be signed into law," Goldberg wrote in a research note. "That said, we believe the benefits from this plan won't be sufficient to overcome the negative impact on consumer confidence from rising job losses."

Builders in other states are watching California closely.

Edie Ousley, communications director at the Florida Home Builders Association, said while it would be difficult for Florida to implement such a plan because there is no state income tax to fund the credit, the association will continue to see what the credit does in the California market.

Builders in Georgia are also tracking California and hope to get a credit of their own in the near future.

The homebuyer tax credit, HB261, has yet to be voted on by the Georgia General Assembly, but it is proposing that homebuyers receive a one-time tax credit of 1.2% of the purchase price for the first six months of the one-year eligibility, dropping to 0.6% of the purchase price the second six months, for the purchase of a $40,000 to $300,000 single-family home.

The terms of the proposed tax credit are still in negotiations, and when Big Builder spoke with Ryland Homes Atlanta Division President Chuck Fuhr, he said it is "fabulous" that California passed such a credit, which has given him a template to pass on to Georgia legislators.

Back in California, Brookfield's Foley said he thinks the credit could shock the market sufficiently to turn it around. The weekend after passage of the credit, he said Brookfield Homes' sales offices saw an influx of buyers who came "armed with information on the credit."

His company is taking advantage of the credit by educating his staff on the plan, sending out information blasts to those on the company's prospect list, and running through numbers to see which assets are eligible for the credit. To that end, it is looking at buyers in escrow, backlog, and also taking a look at the company's construction program.

"I do believe the response from customers is good so far," Foley said. "It rolls into the general psychological change that now is the right time to buy ... If needed, we will underscore and print on our foreheads that now is the right time to buy."