A fight is brewing between Twin Cities home builders and some local cities.
Here’s a link to an article in the Pioneer Press on an emerging battle between some local cities and home builders: Twin Cities Home Builders Challenge City Fees
Apparently a few cities have concluded that items directly related to the permit approval process also include new libraries and police stations, and have increased their permit fees to create a kind of "slush fund" to finance these ventures.
The article brings to mind a few interesting questions. At root, the fight is over what cities charge builders for building permits, and whether or not, as the law states, these fees are used to pay for things directly related to the permit approval/building process. Typically these items include reviewing permits, inspections, approving plans, and other related services that cities perform to ensure certain standards are met.
From the article:
"Shakopee has acknowledged that it used fees for other uses and argued that it was necessary to keep up with rapid growth. In a letter dated March 31, 2003, submitted with Shakopee’s report to the state, Mayor William Mars said the city’s true cost of handling rapid growth is greater than the simple expenses itemized in the report. Shakopee "segregated most of the recently generated excess undesignated development fees into a ‘Building Fund’ " for building a library and police station, he wrote."
Of course, these increased fees are not simply absorbed by the builder. They eventually wind up hitting the homebuyer directly in the pocketbook, by way of increased prices for new homes, as these fees are passed along.
Now, without question, many metro cities are struggling with the costs of rapid growth. Shakopee’s Mayor says as much in the excerpt above. As populations increase, particularly in the "exurbs" (outer ring suburbs) these cities have an undeniable need to add municipal infrastructure like police stations, libraries, roads, etc. The question becomes "How do we pay for it?" And it seems that at least a few cities have decided to run a sneaky sort of end-around on state law to answer it.
It should be pretty interesting watching the whole thing unfold, and it will certainly impact those thinking about new construction and where to build. As the writer of the article, Jennifer Bjorhus, points out, the fact that the builders association is taking on the cities is a pretty bold move, considering the amount of regulatory power cities hold over builders. But, it would seem that the builders have a point here, in that state law is pretty clear on where and how the permit fees should be applied.
What’s less clear is the answer to this question: Is it fair to impose a greater chunk of the costs of "exurban" growth on those that are fueling it (new home buyers) or should these costs be spread across the tax base of the entire city, which does benefit from the growth as well?
How might this affect you?
In many cases, the permits cost (click for itemized list) is more than the annual tax on the home, which is a pretty hefty "entry fee." On the other hand, the costs of expansion won’t simply go away, so the money at some point will likely come from increased taxes. If the builders are successful, and the cities are forced to better account for permit costs, the costs to build should come down accordingly. This is a good thing, if for no other reason than to police the cities and how they are collecting fees. Of course there’s another side to that coin, which is this: Growth does cost money, and the cities will likely try to raise taxes to cover those costs. Here’s the rub however: Increased taxes may last a lot longer, and ultimately wind up costing you more than the one-time permit fees.
I’ll update you on any new developments as we watch this issue progress. In the meantime:
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