Review Building Permit Rates and Fees

As part of the 2012 Strategic Planning Session, the City Council identified a review of required Building Permits. Specifically, a review of siding, windows, and roofing permits was requested and whether or not the City could eliminate these permit. The following is an analysis of Building Permits and other related permits that are required by the City. This topic report is intended to provide a general overview of the process and fee schedule for Building Permits and identify specific areas for additional review.

No notification required.

Assumptions:

The City is required to administer the Minnesota State Building Code (the "Code"). Generally speaking, many of the fees were originally based off the 1997 Uniform Building Code (UBC), then refreshed in approximately 2003 with the League of Minnesota Cities recommended Fee Schedule. It is important to note that the League of Minnesota Cities (LMC) recommends that cities do not simply rely on boilerplate fee schedules, and that a regular analysis of expenses related to the administration of the Code. In fact, it appears that the League of Minnesota Cities no longer publishes a sample fee chart. The City establishes the Rates and Fees annually by ordinance after an expense review.

Generally speaking, the current hourly rate factored for rates and fees is $47 per hour. In comparison, the City is charged $50 per hour by Inspectron, Inc. for plan review, inspection, and Building Official Services. In addition, the City also incurs several other costs associated with the administering the Code. These associated costs include information technology (IT), human resources, insurance, vehicle maintenance, fuel costs, utilities, etc. These costs often require the review of the cost on a pro-rated basis. The Building Permit Rates and Fees have generally remained flat, with no increase since 2008. The last major revisions were approved in 2003 and 2004.

Windows, Siding, and Roofing

The question was raised as to whether the City is required to require a Building Permit for windows, siding, and roofing. The short answer, according to the Building Official, is Building Permits are required for this type of work. According to the Code, permits are required for the following activities:

• Construct, enlarge, alter, repair, move, demolish or change occupancy
• Erect, install, enlarge, alter, repair, remove, convert, or replace any gas, mechanical, electrical, plumbing system, or other equipment
• Installation of which required by Code 

Chapter 1300 of the Code lists activities that are allowed to be exempt from permit requirements:

• 1 story detached accessory structures that do not exceed 120 sq. ft.
• Fences not over six (6) feet
• Oil derricks
• Retaining walls that are not over four (4) feet
• Water tanks supported directly upon grade
• Sidewalks and driveways that are not part of an accessible route
• Decks and platforms not more than 30 inches above adjacent grade
• Painting, papering, tiling, carpeting, cabinets, countertops, and similar finish work
• Temporary motion picture, television, and theater stage sets and scenery
• Prefabricated swimming pools installed entirely above ground accessory to dwelling units […] not exceeding 5,000 gallons in capacity and 24 inches in depth
• Window awnings supported by an exterior wall that do not project more than 54 inches […]
• Movable cases, counters, and partitions not over five (5) feet, nine (9) inches in height
• Agricultural buildings (defined in MS 16B.60)
• Swings and other playground equipment
• For any potential gas, plumbing, and electrical exemptions, see MSB Chapter 1300

Establishing Fees

The Code states that the City shall adopt a fee schedule through the proper legal means. In addition, the Code states that the City must include a Plan Review Fee. The Base Fee is related to the administration and inspection of the permit. The Plan Review Fee is specific the the review of plans submitted with the permit. The maximum Plan Review Fee the City can charge is 65% of the Base Fee. The City should regularly review so that they are fair, reasonable, and proportionate to the actual cost of the service for which the fee is imposed. Finally, the Code states that the permit fee shall be based on valuation of the project, with certain exceptions. Although the City must base its fees on valuation, the City does have flexibility to adjust how much it charges based on valuation.

The Code states that minor work is exempt from fees. The Code also states that the following may be charged a fixed-fee:

• 1 and 2 family dwelling maintenance permits for roofing, siding, windows, doors, or other minor projects
• Plumbing, mechanical, electrical, or other building service equipment systems
• Replacement of a residential fixture or appliance cannot exceed the permit fee limitation

The City charges fixed-rates on several types of permits, which are listed in the attached Rates and Fee Schedule. These fixed-rate fees are based on the required number of trips to inspect the project. The fixed-rate is intended to cover the City's expense to receive the permit, enter the permit into the software system, schedule inspections, perform inspections, and record inspection results. Staff would not recommend reducing the fixed-rate fees at this time. In fact, the City should explore further if the fees cover the entire expense related to the administration of these fixed-rate permits or look for ways to reduce the expense by streamlining the process, discussed later. Additionally, the City was audited within the past 3-4 years in regards to fees collected. Based on the number of fixed-rate fees that the City was charging, the State Building Official's office responded that they would not support additional fixed-rate fees beyond what the City was already collecting.

Staff will present a sample single-family construction to illustrate the costs associated with processing a new construction permit at the Work Session. It appears that the City is generally charging fees commensurate with expenses. A typical single-family dwelling will require approximately 15 inspections related to the Code, with another 4-5 related to other requirements. A majority of these inspections are performed by Building Division Staff; however, inspections such as topsoil, landscaping, erosion control, and water meter are performed by other Staff members. Also, the industry standard is to factor an approved inspection rate of 90%-95%. Other improvements such as basement finishes and deck construction do add to the valuation of the project, and do have a correlation to the number of required inspections. Expenses related to the inspection include not only inspection time itself, but the general overhead to support the inspection.
   
In addition to the expenses above, the City should calculate additional costs for general City management attributed to providing the Building Division. These expenses include, but are not limited to, IT services, human resources, financial services, fuel and maintenance costs, general City Management, management of inspection contracts, supervision of Staff, and availability of Building Division Staff to be available for general questions. For this analysis, it is helpful to arrive at an overall annual cost and compare that to the number of permits issued and inspections performed on an average year. Staff will provide a more detailed analysis of these costs attributed to the Building Division at the Work Session.

Staff also recommends factoring a contingency into the expense analysis. It has been Staff's observation that it is not always possible to schedule in sequential order, thus creating time in between inspections that the City is still has a financial obligation. In addition, the Building Official is often called to discuss future projects and provide assistance on projects prior to a Building Permit Application being submitted. Finally, there is support generally provided by the Building Division that is not always quantified directly with a Building Permit or standard/average inspection and inspection time.

Sureties and Escrows

The City does require certain sureties that are linked to various requirements of the City and other agencies. These sureties may not be required by the Code, but do provide a mechanism to ensure the City remains in compliance with various regulation. For example, the City requires a surety in the amount of $1,500 to ensure that erosion control measures are properly installed and remain installed throughout the duration of construction. This escrow is refunded upon completion of the project, which includes turf establishment. This escrow ensures that the City remains compliant with State's Stormwater Permit and continues to be able to issue Building Permits. The escrow has been an effective tool in compliance with this requirement by allowing for a funding mechanism to clean streets of soil in the event of non-compliance.

Staff would like to explore alternative ideas such as collecting an escrow per builder, versus per permit. The City could also look at taking a stronger stance on Stop Work Orders if the project falls out of compliance. Finally, the City could also explore tying enforcement to the City's Administrative Enforcement of Code Violations program. That being, the City could explore abating the issue, then assessing the costs of the abatement to the benefitted property. This would result in some financial liability to the City, as there may be a delay in the payment of such work.

In addition, the City does on occasion collect an escrow for uncompleted improvements at such time a builder requests a Certificate of Occupancy. These improvements typically include topsoil, sod, trees, and driveway. The escrow for a single-family home is $5,000 and is returned upon successful completion. This is common during winter months when final completion of these improvements is not possible.

Zoning Permits

In approximately 2005, the City initiated a Zoning Permit requirement for certain activities that were subject to Zoning Code requirements, but did not require a permit under MSB. These activities include fences (under six [6] feet), accessory structures, docks, driveways, and smaller swimming pools. Staff has identified potential streamlining of this process, which would result in the reduction in the required fee for these types of permits. The Zoning Permit was instituted in order to be proactive in assisting residents with smaller projects such as this, based on issues Staff was having in enforcement of these types of projects. All projects, with the exception of fences, could be administered through an 'e-Permit', or over the counter, without the need for additional Staff review. The Applicant would receive a handout of applicable regulations, ensuring that the Applicant has designed the project in a way consistent with City Code requirements.

Fence construction warrants an additional review to ensure that the proposed location does not interfere with required improvements and utilities. Due to the fact that there is not a required setback in most areas of a Property, fences are often times located within drainage and utility easements. The City needs to ensure that proper access is maintained for certain improvements, such as trunk lines and meters. Additionally, the City needs to ensure that the construction of fences does not damage improvements. A simple review of the location of the fence has been proven to be successful in avoiding negative impacts to the City's, and other utilities' infrastructure. With that in mind, Staff would recommend a separate Fence Permit, and maintaining a fee of $25. The fee of $25 likely does not capture all the City's expenses in administering the permit, but does encourage Applicants to submit the required permit.

International City/County Managers Association (ICMA) Center for Performance Management (CPM) Program

The City recently participated in a performance management analysis through the ICMA. Results appear to be favorable to the City as it relates to the operation of the Building Division compared to many other communities. It appears that the City is operating efficiently, that being a measure of relatively low expense per permit. One item that the City may want to explore further is the analysis of valuation compared to total number of permits issued. The CPM responded that the City's total valuation appears to be low compared to the number of permits issued. The results may signal that the City is not factoring the correct valuation for projects. If an adjustment to the City's calculation on valuation is necessary, the City would also need to re-address the fee per valuation calculation to ensure that the fee is commensurate with the service provided.

General Analysis

Also included as an attachment is a matrix of all Building Permit Rates and Fees collected since 2001. Please note that although the list of fees has expanded, the net result was an attempt to ensure that the fee was commensurate with the service. In other words, a separate charge was created for both residential and commercial, versus the same calculation for both. The expanded list also introduced fixed-rate fees for many smaller projects, consistent with the Code, to ensure that the fee better reflected the service being provided.

The overall expenses related to the Building Division have reduced over the past several years. However, much of this expense reduction can be attributed to a reduction in demand for services, and thus a reduction in Staff resources required to administer the Code. The per permit costs have not reduced at the same percentage as overall costs, and in most cases have remained flat or increased.

Staff has made every attempt maximize the time utilized through the contract with Inspectron, while still maintaining a 5-10 day review window and a 24-48 hour scheduling window. Staff would recommend experiencing an entire fiscal year under the current contract for building official, plan review, and inspection services prior to making any major changes to the fee schedule.

Finally, the attached PowerPoint presentation includes recommendations that will help Staff work more effectively to maximize the resources currently available. These recommendations may include an up-front capital cost and on-going maintenance, but will hopefully reduce costs over time and maximize efficiency.

Based on discussion.

Review of Building Permit Rates and Fees is being handled as part of regular Staff duties.

Based on discussion. Provide feedback on potential adjustments to 2013 Rates and Fees.