Minnesota’s cities are soaking homeowners and not complying with state law

I’ve written recently about how excessive fees and regulations, imposed by state and local policymakers, have created the very shortage of affordable housing which those same state and local policymakers now want tens of billions of your dollars to try and fix. A new report titled ‘Building Permit Fees: Boosting the Bottom Line for Minnesota Cities‘ from the Housing Affordability Institute, a nonprofit representing Minnesota home builders and remodelers, set out some of the facts.

Many Minnesota cities charge home builders more in building permit fees than they spend on related services. Those excess fees are driving up costs for home buyers, contributing to the state’s affordable housing shortage. As the Pioneer Press reports,

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.

City authorities are soaking homeowners

The Press article goes on

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. The Hennepin County city of Corcoran, for example, used the extra fees, amounting to more than $3,000 per new house, to finance a city hall renovation.

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.

City authorities are not complying with state law

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.

Blaming excessive fees and regulations for high house prices might seem vague. The Housing Affordability Institute’s work, along with that of others, lets us be more specific. It is here, reducing these fees and getting rid of these regulations, that we can start to make a difference on affordable housing.

John Phelan is an economist at the Center of the American Experiment.