The Potluck

Home builders sue two Minnesota cities alleging exorbitant fees

By: - July 27, 2021 10:42 am
construction workers

Work continues on a luxury apartment building in the North Loop neighborhood of Minneapolis. Photo by Max Nesterak/Minnesota Reformer.

A trade group representing Minnesota home builders filed lawsuits against two Twin Cities suburbs — Dayton and Corcoran — alleging they charged builders permitting fees in excess of $5.5 million beyond what state law allows.

Builders often point to fees charged by cities as a significant driver of rising home prices — among dozens of other costs — and complain cities increasingly charge high fees as a politically palatable way to raise money for unrelated city projects. They say this serves as a hidden tax on people who don’t yet live there.

But state law requires that building permit fees must be “fair, reasonable and proportionate to the actual cost of the service for which the fee is imposed,” such as plan reviews and building inspections. In the case of Dayton and Corcoran, Housing First Minnesota claims the cities knowingly charged high fees to fund other services and is asking the court to order the cities return money to developers.

“There is no dispute regarding the need for inspections to ensure safety and durability in homes. However, that process cannot become a profit center for local governments. We must remember that any city engaging in this practice of gouging new residents through building permits, is adding to the state’s housing problems,” said Housing First Minnesota’s Executive Director David Siegel in a statement announcing the lawsuits.

Housing First Minnesota, which represents more than 1,000 builders and remodelers, filed the complaints against Corcoran and Dayton in Hennepin County District Court on Monday after a state building code board of appeals assembled by the Department of Labor and Industry declined to take up the issue, saying they didn’t have jurisdiction.

In its complaint against the city of Dayton, Housing First Minnesota alleges the city collected $2.7 million in excess of what it cost them to provide permitting and inspection services over a five year period from 2015-2019. And, the non-profit trade group says Dayton reported inspection expenses beyond what their internal budget documents show to the state Department of Labor and Industry.

In their complaint against the city of Corcoran, Housing First Minnesota says the city paid out just 35% of what it charged builders to a third party for building inspections and plan reviews. Corcoran kept the remaining 65% and directed it toward what Housing First calls “unrelated city funds,” like the city’s “Long Range Planning Fund.”

Housing First cites public records, including a 2018 email from the Corcoran city administrator stating, “The remainder [of the permit revenue] has been used to build up reserves and other funds that are not sufficient . . . For reference, each new home permit is averaging about $3,000 in net revenue.”

A city attorney for Corcoran declined to comment. Calls to the city of Dayton were not returned.

The Housing Affordability Institute, which advocates for lowering development costs, reviewed building permit finances from across the state and found Minnesota cities took in more than $42.5 million in excess revenue. The report also showed how fees can vary widely from city to city.

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Max Nesterak
Max Nesterak

Max Nesterak is the deputy editor of the Reformer and reports on labor and housing. Most recently he was an associate producer for Minnesota Public Radio after a stint at NPR. He also co-founded the Behavioral Scientist and was a Fulbright Scholar to Berlin, Germany.