Many Minnesota cities charge home builders more in building permit fees than they spend on related services, and those excess fees drive up costs for home buyers and contribute to the state’s growing housing shortage.
Those are among the findings in a report released Tuesday by the nonprofit Housing Affordability Institute, an organization representing Minnesota home builders and remodelers.
The report’s author, Nick Erickson, estimated nearly 200 Minnesota cities have failed to report how much they collect in building permit fees, as required by state law. Municipalities that filed reports collected $78 million more than they spent on related services over the last five years.
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At a Capitol news conference, Rep. Barb Haley, R-Red Wing, called those overcharges “an illegal tax on housing.”
State Rep. Jim Nash, R-Waconia, a member of a new legislative housing affordability commission, said the excess fees were an “outrage” and that homeowners who paid them “deserve a refund.”
CHARGING MORE THAN THEY NEED?
A state rule governing building permits says the fees must be “proportionate to the actual cost of the service for which the fee is imposed.”
Some fast-growing cities used excess building permit revenue to pad the general funds they use for streets, water systems, municipal buildings and other projects.
Over the last five years, Woodbury, one of Minnesota’s highest growth cities, collected the most extra building permit revenue, $13.7 million, the report said. Woodbury spokesman Jason Egerstrom said the city received the report Tuesday and needs more time to “gather information about the data and what it means.”
Lakeville ($3.9 million) and Lake Elmo ($3.2 million) were among the top 10 cities in excess building permit revenue since 2014.
REPORT REQUIREMENTS GO IGNORED
State law requires cities, counties and townships that collect more than $5,000 a year in construction-related fees to submit an annual report to the Minnesota Department of Labor and Industry.
But local officials routinely ignore that rule. From 2014 to 2017, the report said, no more than 108 of the state’s approximately 700 municipalities filed the legally required annual report. After Labor and Industry officials encouraged more compliance, 262 local governments submitted reports for 2018.
Growing cities and townships that failed to file reports last year included St. Paul, Minneapolis, Apple Valley, Lake Elmo and White Bear Township.
St. Paul just learned it was supposed to file annual reports, according to Ricardo Cervantes, director of the city’s Department of Safety and inspections. “The City was recently made aware of its obligation to fill out the construction and development revenue and expenses form at a Dept. of Labor and Industry seminar recently,” he said in an email to the Pioneer Press.
The city is still working on the report, which should be completed “within the next few weeks,” Cervantes said, adding that he hadn’t yet had a chance to read the Housing Affordability Institute’s report released Tuesday.
‘ROADBLOCKS TO AFFORDABILITY’
Building permit fees are just “one of dozens of roadblocks to affordability,” said David Siegel, Housing Affordability Institute executive director. But it’s one that should be relatively easy to fix.
The report recommended that local officials consider alternatives to current permitting practices to ensure that fees reflect the costs of service provided.
The report also called for passing a state law requiring municipalities to refund over-collected fees to homeowners, and it urged the Department of Labor and Industry to conduct more detailed examinations of city building permit and inspection finances.
Dave Orrick contributed to this report.
CORRECTION: An earlier version of this story erroneously reported the city of Corcoran used revenue from those fees to finance a city hall renovation. Corcoran City Administrator Brad Martens said the city is in “the concept phase for a proposed renovation” and has not used the fees to pay for it.