Answer: It depends on what you mean by revenue. Municipal fees must be proportional to the cost of administering the program tied to the fees. First a little background:
At one point, the Department of Labor and Industry (DLI) published a schedule of what the building permit fees should be, but then they stopped. The League of Minnesota Cities briefly picked up where DLI left off, but we promptly stopped when cities were challenged for using these recommendations.
The underlying problem with the fee schedule was that any single entity setting rates for all cities cannot possibly account for the varying range of program costs from one city to another. This led to the perception that cities were using building fees as a revenue generator.
That was probably 10 years ago. Ideally, at this point, there’d be no cities relying on schedules from that time. You're not, right? Of course not.
Just thought I'd check.
These days, we direct folks to the language that was added to rule and statute in response to these discrepancies. Minn. Rule 1300.0160, subp. 2 says “Fees established by the municipality must be by legal means and must be fair, reasonable, and proportionate to the actual cost of the service for which the fee is imposed.” There’s similar language in statute under Minn. Stat. § 462.353, subd. 4.
The most important thing to remember when setting building permit fees is that it’s not allowed to be a money-maker. It’s there to cover costs only. However, if it’s not currently covering the city’s costs, then of course that should also be addressed. It is important to work with the city attorney and financial services provider because building fees continue to be very actively litigated by the building community. The fees must be defensible, and this is something which only the city attorney and financial services provider can help determine.
Written by Edward Cadman, special counsel with the League of Minnesota Cities. Contact: firstname.lastname@example.org or (651) 281-1229.
This blog post conveys general information. It’s not legal advice. Please check with your city attorney before acting on this information.