Updated: August 20, 2019 06:21 PM
A report released Tuesday by the Housing Affordability Institute says many municipalities in the state have been using building permit fees as a big source of revenue, which goes against state law.
Minnesota law mandates that building permit fees established by municipalities must be "legal means as a fee for service and must be fair, reasonable, and proportionate to the actual cost of the service for which the fee is imposed."
The report found many instances where the permit income far exceeded the cost for service. In fact, the analysis found that only about 108 municipalities filed annual reports from 2014-2017, as required by law, but of those that did file reports, $78 million was reported in excess revenue from 2014-2018.
Data supplied by the municipalities also suggests building permitting and inspections are a significant source of revenue for some cities, and some are allocating the funds to general funds, contrary to state guidelines. For example, the report says Corcoran earmarked its excess building permit revenue as the primary funding source for its City Hall capital improvement project.
The city administrator in Corcoran disputes the reports findings calling them a "mischaracterization" of the city hall project and includes "false and misleading" statements.
"The remodel (of city hall) is in concept only," City Administrator Brad Martens said in a statement e-mailed to 5 Eyewitness News. "No design has been approved and no finance plan has been formally approved. We’ve had conversations about options and are approaching the end of design development."
The report does state that many municipalities set building permit fees that are proportional and appropriate. However, it states that others, especially many high-growth cities, appear to be disproportionate and used to generate revenue.
"As a former mayor of a city that worked hard to make permitting transparent and new development cost-efficient for new homeowners, the findings of this report are deeply troubling," Rep. Jim Nash (R-Waconia), a member of the newly created Legislative Commission on Housing Affordability, said in a release. "In the backdrop of a housing affordability crisis, this is unacceptable. Building permits are supposed to be a fee-for-service, a pass-through if you will, not a way to fill city coffers. At a time when housing costs are increasing faster than wages, we need to find ways to make homes more affordable. For cities to knowingly be making the problem worse is appalling."
"I make my decisions as a legislator based on facts, and we clearly have facts pointing to a problem," added Rep. Barb Haley (R-Red Wing). "I consider $78 million in overcharges to be an illegal tax on housing. This is something we have to address, in addition to many more, in order to bring down the cost of housing."
"I have spoken with an anonymous whistleblower that has received immense pressure to turn building permits into an additional revenue source," Rep. Shane Mekeland (R-Clear Lake), said in the release. "This individual said building officials are under immense pressure from senior city staff to make money for the city. He also spoke of how it is common for senior staff to raid building department budgets for unrelated purchases – rent and overhead for unrelated functions, snow plows, mosquito control, the fire department, etc. We need to know how the money that was collected was spent. The audits we are calling for will get to the bottom of that."
The report urged policymakers to rethink permitting and inspections, require municipalities to refund homeowners for over-collected permit and inspection fees, and further examine building permit revenue. It also urged stronger reporting requirements and revised report guidelines to show more detailed information.
You can see the full report here.
Updated: August 20, 2019 06:21 PM
Published: August 20, 2019 12:00 AM
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