ST. PAUL — Cities, counties and townships that charge building fees on new homes banked $75 million more than what they needed for inspection costs over the last five years, a study released Tuesday, Aug. 20, showed.
The fees are supposed to offset the cost of the inspection expenses at the municipal level. But affordable housing advocates and state lawmakers worry that gap could be a key factor in why the cost of a new home has become out of reach for many Minnesotans.
Under state law, municipalities are allowed to collect building and plan review fees that are "fair, reasonable, and proportionate to the actual cost of the service for which the fee is imposed."
But several communities appeared to run afoul of that, the Roseville-based Housing Affordability Institute found, tacking on thousands of dollars of additional fees that go beyond offsetting the cost to the city of conducting building inspections. And in several cases, those excess fees funded general fund expenses, including the construction of a new City Hall in Corcoran, a northwest suburb of Minneapolis.
Those communities, along with others that might be charging more than the bare minimum to cover inspections and staff time, should be on notice, Republican lawmakers and housing industry officials said.
“I certainly think courts become an option here," said David Siegel, executive director of BATC-Housing First Minnesota. "We would hope that cities would take very seriously the statutory obligation to have permit fees matched by the service delivered and that they would make investments in accordance with it. But obviously, courts become an option if they’re necessary.”
Rep. Jim Nash, R-Waconia, said city officials should take it upon themselves to drop the fees if they exceed the cost of executing inspections or else face a "reckoning."
"These homeowners in the various communities we were able to articulate, they were overcharged and they deserve a refund today," Nash said. "So cities around the Metro, cities around the state, if they have overcharged, a refund is in order."
Homebuilders and cities should come together to find compromises that could fuel greater access to affordable housing, Rep. Steve Elkins, D-Bloomington, said.
"Cities have a reasonable expectation that new development should 'pay its own way.' and homebuilders have a reasonable expectation that development fees imposed by cities will be no more than necessary to cover the direct costs occasioned by their development," Elkins said. "We ought to be able to work through these issues to find a compromise solution that both sides can live with."
The biggest discrepancies between fees levied and building inspection expenses incurred took place in some of the fastest-growing Twin Cities-Metro area suburbs, according to the report. Though those that compiled the report said the trend could be present in greater Minnesota as many municipalities failed to submit their annual reports to the state. Municipalities that collect more than $5,000 in construction and development related fees are required by law to file them.
Minneapolis and St. Paul hadn't submitted the reports before Tuesday, nor had hundreds of other cities or counties that affordable housing officials believed met the $5,000 threshold.
Rep. Barb Haley, R-Red Wing, touted the strong economy and manufacturing sector in Red Wing but noted that growth has stalled, and thousands of people commute into the city for work.
“Affordable housing is an economic development issue, not only for Red Wing,” Haley said. “That picture that I painted for you, that could be Willmar, Worthington, Winona, Thief River Falls or Grand Rapids. This is all over out-state Minnesota.”
Nash and Haley are both set to serve on a legislative commission reviewing the cost of housing in Minnesota and said they'd push for additional protections for whistleblowers that bring forward similar concerns and for additional teeth for the Department of Labor and Industry in requiring municipalities to turn in their annual reports.