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Building Permit Fees Present Challenges

That new kitchen or updated dining room could cost St. Paul food service businesses more in 2020. The St. Paul City Council is considering a 2 percent fee increase in construction-related permits next year, as well as an across-the-board business license fee increase of 2 percent.

But the city is touting savings with an added staff member who helps businesses, especially restaurants, with a regional sewer fee. That fee had generated high costs for some restaurants and in some cases, delayed opening dates.

City councils and county boards all over the state are considering permit and license fee increases of their own, as they prepare to adopt 2020 budgets by year’s end. For cities and counties, building and food service-related business licenses have fee schedules that are intended to support the staff that do the inspection work. That is done in lieu of using property tax or state aid dollars.

In the Twin Cities, many communities have struggled to keep up with demand for building permits. Waits can be long, as a strong economy has driven more asks for permits. St. Paul in 2019 approved a 3 percent permit building and plan review fee, and added two construction trades inspectors to keep up with demand. But there still are waits for weeks at a time in some cases.

The city also added staff in 2019 for a sewer availability charge or SAC examiner. St. Paul Department of Safety and Inspections Director Ricardo Cervantes said the examiner has helped many property owners save money.

The Metropolitan Council charges the SAC fee directly to local governments, which then collect the fee when a residential, commercial, industrial or institutional property first connects to the regional wastewater (sewer) system. The fee is also charged if a property change or business expansion creates more demand on the wastewater system.

SAC fees in the past have been an issue the Minnesota Restaurant Association and local hospitality groups were involved in, especially when the challenge of documenting past costs was raised. MRA was involved in the quest to make charges at the regional level in 2018.

Some restaurants, including Town Talk Diner in Minneapolis and the Lexington in St. Paul, have been stunned by high fees or in the case of Lexington, encountered delays in opening while trying to clear up issues related to past fees. The Lexington owners found themselves dealing with more than $67,000 in past sewer access charges.

While charges made in 2018 at the Metropolitan Council level were meant to address some complaints, Cervantes said the city got involved due to inequities in the SAC system. Overt the past year the city has helped property owners save about $360,000 in navigating SAC connection and costs.

“We had some businesses that were more savvy about navigating the system than others,” Cervantes said. Adding staff to help businesses levels the playing field.

As for the 2 percent business license fee increase in St. Paul, that would only affect certain hospitality-related license such as liquor, beer and wine in St. Paul. The city lost its authority over foodservice, lodging and swimming pool licenses several years ago, so the state handles those.

Minnesota law states that fees need to be proportionate to the cost of delivering services. The building permit fee discussions occur against a backdrop of statewide controversy over building permit fees. In August Housing First Minnesota released a report contending that some cities use additional fee money to support general fund spending in other areas of local government. The City of Corcoran is accused of using building permit fees to help build its new city hall.

Housing First Minnesota is part of the Builders Association of the Twin Cities. The group’s review of figures submitted to the Minnesota Department of Labor showed that in 2018, cities collected $24 million more from building permits than actual reported costs. That increased to $78 million over a five-year period.

Minneapolis and St. Paul weren’t included in the review because those cities haven’t submitted figures as required. Officials from both cities have indicated they are preparing the reports for submission. State lawmakers have called for change and for better compliance statewide in reporting. 

While much in the Housing First report centers on housing costs and affordability, building permit fees cut across the board for anyone seeking to build or remodel. State lawmakers held a hearing on fees in August and have promised action during the 2020 legislative session. 

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