ST. PAUL — In a report released today, the Housing Affordability Institute found a number of concerning issues with the municipal building permit structure and required reporting.
State law mandates that building permit fees established by municipalities must be by "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."
Researchers first discovered a persistent lack of compliance with the state law that requires municipalities to submit annual reports on construction and development finances. Secondly, the report by the Housing Affordability Institute, found far too many instances where building permit income far exceeded the municipalities' cost for service.
“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," said Rep. Jim Nash, R-Waconia, a member of the newly created Legislative Commission on Housing Affordability. “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.”
From 2014 to 2017, no more than 108 municipalities filed the statutorily mandated annual report. A review of data that was filed with the Minnesota Department of Labor and Industry over the past five years, 2014-2018, shows municipalities in Minnesota reported at least $78 million in net building permit revenue. This figure only accounts for the cities that have reported.
Considering that more and more Minnesota families are being priced out of the housing market, the findings in this report are a deep concern for our state. This is one of dozens of regulatory issues impacting the high cost of housing and the future of homeownership in our state.
“I make my decisions as a legislator based on facts, and we clearly have facts pointing to a problem,” said 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.”
Based on the data supplied by Minnesota municipalities, building permitting and inspection may be a significant source of revenue for select growing cities, which appears to run counter to state law. More troubling, contrary to guidance from the state of Minnesota, cities with high building permit revenue have allocated these funds to the general fund. For example, the city of Corcoran has earmarked its excess building permit revenue as the primary funding source for its City Hall capital improvement project.
“I have spoken with an anonymous whistleblower that has received immense pressure to turn building permits into an additional revenue source,” said Rep. Shane Mekeland, R-Clear Lake. “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.”
In addition to an in-depth review of building permit reporting and revenue, the report includes case studies and suggestions to solve this concerning issue. The full report can be viewed here.