Continue Discussion of Rental Housing Inspections Program License Fees

At the August 27, 2024 City Council work session, the Council discussed background checks and rental license fees. Staff recommends the continued discussion of the rental license fees.

Rental Housing Inspector Dana Verbeek has completed a great number of rental inspections. Typical inspection times are dependent on the size and are as follows:

Single-Family homes: 30–60 minutes
Townhomes: 20-30 minutes
Apartments: 10 - 15 minutes. A recent inspection of Greenway Terrace (54 units) took five (5) hours; an average of 6 minutes per unit.

Fees
There are options to reduce the annual license fees, depending on the City Council's discussion of requiring fees to cover the program or to provide assistance to the program. As stated in the work session report from August 27, 2024, if the annual fee is reduced to $300 per year, the total fees collected equate to $171,210 annually. If the licensee chooses to participate in the Crime-Free Housing Program, the fee could be reduced by 10% for phase II ($270 each year) or reduced by 25% for phase III participation ($225 each year). If each licensee chooses to participate in phase III, the total fees collected equate to approximately $132,135 annually.  At the August 27 work session, Councilmember Howell made a suggestion to change the license fees to $125 per unit. For example, Greenway Terrace Apartments (54 units) would be charged an annual fee of $6,750. This equates to a five (5) hour hourly inspection fee of $1,350. A single-family home would be charged an annual fee of $125; an hour of inspection equates to an hourly inspection fee of $125.

Attorney Knaak has legal concerns about the proposed significant increase of license fees for multi-tenant buildings. There are general legal perimeters that need to be followed to protect the City from potential lawsuits. The general rule that has been held up by the courts in Minnesota is that the amount of any license or administrative fee must relate to the actual cost of providing that service by the city. In setting license fees, the city should not view the licensing as a significant source of revenue.  The license fees must approximate the direct and indirect costs associated with issuing the license and policing the licensed activities, and license fees that significantly exceed these costs are considered unauthorized taxes. Therefore, from a legal standpoint, it is not advisable for a multi-tenant building license fee to produce a substantial revenue beyond the actual cost of issuing the license, inspection and administrative costs associated with the particular license. In the Greenway Terrace example above, an hourly inspection rate equates to $1,350, whereas a single family home hourly inspection rate equates to $125. Inspection times for an apartment unit are significantly lower than that of a single-family home.

If City Council wants to reduce the annual license fee while still fully funding the rental inspections program, staff suggests reducing the annual fee between $225 - $270 and continuing to collect $15 per apartment unit.

In addition, staff suggests the City Council begin to review the code for possible amendments at a future work session. Some staff suggestions to amend include the following: 
1. Eliminate the conversion fee;
2. Eliminate the requirement of mandatory attendance of 12 informational meetings per year;
3. After the initial inspection of the unit and property with which the property is brought into compliance, conduct inspections every other year;
4. Eliminate the Crime-Free Housing phasing plan;
5. Instead of renewal dates of January 1, split the renewals; half in January and half in June

Not applicable

Program is funded through rental license fees

Community Development Department - Planning Division

Discuss and provide direction to staff in terms of rental license fees. Staff also suggests discussing potential code amendments to the code at a future work session.

Based on discussion.