Minnesota law is increasing demolition costs for riot-burned buildings

According to a recent report by the Star Tribune, businesses that were affected by riots are being hit by high demolition costs.

One day after rioters destroyed the Sports Dome retail complex in St. Paul, a construction crew hired by the city knocked the building down because it was dangerously unstable.

Then the city presented the property owners with a $140,000 bill for what it would cost to haul away the debris.

“We were really upset about that,” said property owner Jay Kim, whose insurance policy covers a maximum of $25,000 in demolition costs. “We thought that was high. But we didn’t know how much demolition would cost at the time.”

Like dozens of other investors whose properties were severely damaged in the May riots, the Kim family was stunned to discover that the money it would collect from its insurance company for demolition won’t come close to the actual costs of doing the job. Most policies limit reimbursement to $25,000 to $50,000, but contractors have been submitting bids of $200,000 to $300,000. In many cases, the price of the work is not much lower than the actual value of the property, records show.

Worse still, this is due to an existing state law.

Contractors acknowledge that prices for riot-related work are far higher than usual, but they said that is because government regulations require them to treat all debris from a burned-out building as hazardous. Industry veteran Don Rachel said those rules can double demolition costs.

“We aren’t taking advantage of anybody,” said Rachel, CEO of Rachel Contracting, one of the largest demolition contractors in the state. “Some people might have sticker shock, but how do they know? Most of these folks have never had to wreck a building.”

This has stalled demolition as well as rebuilding efforts among some businesses and could spell trouble for the future of Minneapolis.

Demolition costs are so high that many rebuilding projects remain stuck in neutral, leaving large sections of Minneapolis and St. Paul with scorched buildings and piles of rubble that will linger for months.

“It’s been a big barrier to getting the street cleaned up,” said Allison Sharkey, executive director of the Lake Street Council. “I am becoming really concerned that people who want to reinvest won’t be able to.”

Unfortunately, this is just one of the many ways through which regulation is stalling rebuilding efforts. Up until about 2 weeks ago, for example,  businesses could not get permits to demolish burned-up buildings until they had paid their second installment of property taxes.

Regulations are costly

Regulations do not come at a zero cost, even during normal times. However, stringent regulations are especially harmful in times like these when businesses need flexibility.

Hopefully, this incident serves as an eye-opener to lawmakers on the harm that regulations cause.