Homebuilders have been drawn in recent years to Loudon County by relatively low-cost land and a laissez faire regulatory attitude by local government.

Now with the county becoming the first in East Tennessee to adopt a tax on new residential construction, some homebuilders say the welcome mat has been pulled out from under them.

Loudon County has taken advantage of a state law passed last year and has enacted a tax of $1 per square foot of new housing. The "County Powers Relief Act" authorizes counties with rapid population growth - at least 20 percent between 1990 and 2000 or at least 9 percent between 2000 and 2004 - to enact the tax to fund school capital improvement plans.

Previously, the Legislature authorized by private act specific counties and municipalities - 14 counties and 84 cities - to institute adequate facilities taxes and/or impact fees.

Homebuilders argue that such fees slow, if not stop, growth and make housing unaffordable for many potential buyers. The Tennessee Association of Realtors was also on record opposing the legislation.

Mike Stevens, president of the Home Builders Association of Greater Knoxville and chairman of governmental affairs for the state organization, noted that much of Loudon County's growth has resulted from retirees moving to lakeside communities such as Tellico Village. Those developments provide increased tax revenue to the county, without adding greatly to the burden on municipal services such as schools, he said.

"Most of what I build is for empty nesters. Why should they pay impact fees?" Stevens asked. "It's a very selfish tax."

Stevens believes some of these "empty nesters" encouraged the new tax to slow growth in the county.

County Commissioner Don Miller, a Tellico Village resident, sponsored the resolution.

"We see it as an alternative to raising the property tax in the coming years," Miller said. "We will probably have to raise property taxes, but maybe we won't have to raise them as much."

Miller insisted that the County Commission is not trying to slow growth. A few thousand dollars is not going to stop a new homebuyer who wants to enjoy the advantages of living in Loudon County, he countered.

"The most important thing is interest rates and how comfortable they feel about their jobs," Miller said.

Bedford County in Middle Tennessee was the first county in the state to pass such a tax under the new law. County commissioners approved the measure last June and expect to begin collections in the next 30 to 45 days, said Mayor Eugene Ray.

"There is a mixed reaction," said Sam Riddle, director of building inspections for Bedford County. "Contractors are not complaining, and we don't see any impact on the 7,000-square-foot houses. It's the homes at the lower end that I think will be affected. For a young couple buying their first house, it could be a deal-breaker."

Bob Mohney, president of Knoxville builder Saddlebrook Inc., is concerned buyers will be priced out of Loudon County.

Saddlebrook is building high-end homes at Tennessee National Golf Community in Loudon County, but the company also has substantial investments in starter homes at Sweetwater Creek.

"Loudon County needs growth," Mohney said. "They need to promote growth without deterring people from investing."

Promoting growth increases property tax revenue, which provides more funding for schools, he argues.

Although already committed to the Sweetwater Creek project, Saddlebrook may decide to cancel plans to build new homes on a 47-site piece of land on Highway 11 in Loudon County, he said.

Some disagreement exists about how much revenue the new impact fee can generate. Proponents of the new tax believe that it will raise $1 million. Loudon County Mayor Doyle Arp cautioned during a recent commission meeting that the revenue might only be half as much.

Stevens predicted that the tax will result in a loss of revenue for Loudon County because it will slow development of new homes, which will result in lower property tax revenues.

"What we are doing right now is taking unused agricultural land and turning it into property tax generating land. Why would you want to stop that process just to add on this new tax?"

Stevens acknowledged that impact fees and similar taxes in communities surrounding Nashville have not slowed growth. But he said Loudon County doesn't have the draw of a metro area like Nashville, and that personal incomes - particularly in Williamson County's Brentwood and Franklin - are considerably higher there.

Stevens said the homebuilders lobby will monitor the capital improvement plan to make sure it complies with the state mandate that all revenue from the new tax is directed to education.

According to critics of the new tax, Loudon has not been experiencing the kind of growth in new students that would require such an infusion of cash.

But Edward Headlee, the county's director of schools, said the urgent need for school improvements is related to more than just the increasing number of students.

Loudon had been experiencing a normal new-student growth rate of about 2 percent to 2.5 percent annually. That rate doubled to 5 percent this year, he said. Out of nine schools in the county, five are at or over capacity.

"Last year we had to add portable buildings, and we have put in some this year, too," Headlee said. "We have to expand these schools, and there are also schools badly in need of repair."

Headlee said federal guidelines lowering teacher-student ratios and the influx of Hispanic pupils have required the hiring of additional teachers and the construction of new classrooms.