Skip to main content

A legal challenge by a trade group representing builders has targeted two small towns in Hennepin County, alleging they overcharged building permits by $5.5 million over five years.

Housing First Minnesota sent letters to Dayton and Corcoran officials asking them to bring their fees into compliance with state law and to reimburse landlords whose builders were overcharged. The group also asked the state Department of Labor and Industry to review the practices of the two cities.

State law requires fees to be “fair, reasonable, and proportionate” to the actual cost of the construction services provided. The law does not specify how fees are to be determined or how excess money can be spent. The state also receives required annual reports from municipalities on fees charged and related expenses, but there is no agency to investigate irregularities.

“It’s expected that you can’t overcharge,” said David Siegel, executive director of Housing First Minnesota. “These cities are taking a lot of money and spending it on unrelated projects. We basically can’t tolerate that.”

Dayton and Corcoran officials did not respond to interview requests. Attorney Katherine Swenson, who represents both cities, said she would not comment on ongoing litigation.

Housing First Minnesota, which also says it champions affordable housing, represents more than 1,000 builders, renovators, developers and industry suppliers statewide. The organization was known as the Builders Association of the Twin Cities until four years ago.

Corcoran did not respond to Housing First’s letter, which was sent in December. Dayton responded that it would reduce a separate fee – for plan review – to a flat fee. Officials later scrapped the change because the city determined the fee structure was not legal.

In March, Housing First filed an appeal against the permit fees with the Department of Labor and Industry. The agency ruled the matter was outside its jurisdiction but made no comment on the merits of the case.

Siegel did not say if they would pursue further action against the cities.

Expense reports required

Although there is no set guideline for permit fees, they are generally determined by the cost of the project, including materials and labor plus expenses for electricity, gas , mechanics, plumbing equipment and permanent systems. Costs could range from a few hundred dollars for a simple renovation job to thousands of dollars for a new home.

About 20 years ago, the Legislative Assembly passed a bill requiring annual reporting of license fees to improve price transparency. The report should include information on expenses regarding salary, travel expenses and administrative costs. Municipalities that collect more than $5,000 in fees per year and that employ a certified building inspector must file a report.

The Department of Labor and Industry has the power to enforce compliance and impose a penalty for failure to file a report. Only a hundred municipalities filed each year from 2014 to 2017.

In recent years, the Department has prioritized training and awareness of the reporting requirement. Last year, all 507 cities, counties and townships that had to report fees were in compliance, said Scott McLellan, director of building codes and licensing for the Department of Labor and Industry.

“The intent of the building permit fee is not to pay for other expenses,” he said. “In any given year, fees and revenues are never going to line up because you can’t control construction activity. But any extra dollars should be set aside for future expenses.”

McLellan said his department is not the watchdog of how cities allocate their fees, but the reports have been used to challenge how fees are spent. It would be impractical for the department to verify each city’s report, he said.

“It would be a huge undertaking to prove the accuracy of each report and you would need to hire auditors,” he said. “I simply don’t know of a better process for reporting and tracking building permit fees and expenses.”

In a recent study by the Housing Affordability Institute, an advocacy organization for public developers, municipalities reported raising $73 million more in fee revenue than was spent on related services from 2014 to 2018. Woodbury and Plymouth was the city with the highest surplus income.

Uses of Cities for Fees

Woodbury had collected more than $13 million in fees, revenue that city administrator Clint Gridley said would be typical of a growing city with new homes, apartment complexes and businesses growing. construction. The money is placed in a capital improvement fund for one-time projects ranging from the purchase of a police car to the renovation of municipal buildings.

The report was incomplete and misleading, he said.

The majority of the fees described in the report are necessary for a city to recover its development costs, and some are held in escrow and later returned to the developer, he said.

The calculations included in the report did not take into account “money in and money out” that was returned to developers or credits that would reduce the total net fees charged to them.

“We have worked hard to collaborate with [Housing First Minnesota]including regularly submitting requested data for their reports,” he said.

“Taking a combative – rather than collaborative – approach to building fees can have a negative impact on both parties, as cities may have to delay projects to re-examine fee systems. This is not a desirable outcome for construction. ‘one or other of the parties.’

Woodbury Mayor Anne Burt criticized Housing First’s efforts in the Legislative Assembly to introduce what she called a set of “pre-emption legislation”.

Every bill, including one to collect royalties from developers, erodes or eliminates the local control given to cities to oversee the growth and development of their community, she said.

“These legislative proposals are being promoted on the basis that they will improve the affordability of new housing,” she said.

“From what I’ve seen, there is no independent data documenting that the legislative change will actually reduce the net selling price of a new home,” she said.

Corcoran earmarked nearly $1 million in permit fees, earned between 2014 and 2018, to pay for the renovation of its city hall, Siegel said. In recent years, the city averaged about 70 new homes a year, he said.

“Our legal challenge is not a trap. It’s really just another way to help increase affordable housing, and there’s no room for inefficiency,” Siegel said. . “If you want a new town hall, you can’t do it on the backs of the owners.”

David Chanen • 612-673-4465