Management Data

Permit Fees

Dear Management Doctor:

I am currently working on my budget. I am asking to slightly reduce my budget while adding a position. My jurisdiction is opposed to adding staff even though the proposed budget is less than last year. I put together a chart indicating our permit revenues (both planning and building permits) and compared that to the budget over the past four years. The permit fees generate more money than the department is budgeted for operations.

Do you have any case law or information that I can use to explain that permit fees must be based on the service provided and cannot be used to fund other department budgets. A tax is used to fund department budgets but a fee from a public agency must be directly tied to the service provided and the cost of that service. The bottom line is that if the position is not funded, we will not be able to provide the service for which we are charging a fee.

Do you have suggestions or information that would be useful?

Thanks,

Rebecca Horner, AICP
Sarpy County

Dear Rebecca,

The laws on planning and building permit fees vary from state to state. I suggest you ask your County attorney to review the laws in your state.

In California and a number of other states it is illegal to charge in excess of actual costs for planning and building permit fees without a vote of the people. To my knowledge, there has never been such a vote in California.

The California Attorney General has issued an opinion on this. Also several attorneys have challenged fees in a number of California communities and the judges have declared the fees to exceed the expenses and to offer refunds to applicants. The court cases have been for large jurisdictions with many building permits. In our California experience, many of the smaller communities continue to over-charge for building permits and the excess money goes into the General Fund. We worked with one medium-sized community with an annual excess of several million dollars.

Generally, we see planning fees that are less than actually cost, often 50 or 60 percent. It is the building permit fees that often exceed cost. Many building permit fees are based on valuation which has also a suspect approach. A good fee system establishes an actual nexus for each fee.

Also, keep in mind what may seem like an excess fee may actually be legal. For example, you can charge external overhead (personnel costs, IT, City Manager, etc.). This typically runs at least 30% over the cost of the fee. Additionally, it is legal to build a rainy day reserve fund for downturns in development activity. For example, we are helping Columbus, Ohio build a new department and have recommended adding a million dollars a year to the reserve account until it reaches the equivalent of nine months of budget.

Finally, if other departments are involved in review of the permits such as fire or engineering, their costs may also be recovered from the fees.

The Management Doctor

Reader Response

In Nebraska, fees generated by general fund departments, such as planning, go back into the general fund. Many states do not allow the general fund departments to have a specific revenue line item. My departments in two counties generate about 40% of the total operating budget. There is no line item showing what the Planning Department revenues are. On the positive side, I don't have to budget revenues. Unless I show specifics to the County Board members, they have no idea what my revenues are. Planning is one of the few general fund county departments in Nebraska that collect fees that are not sent on to the state. The clerk, treasurer, and register of deeds all collect fees, but those fees are usually set by state statute.

Because you are planning to reduce your budget, but still add a position, you may be at a disadvantage with your elected officials. They probably count on your department to supplement revenues and therefore lessen the property tax levy even if it's a minuscule amount. Now you are even adding to your department's revenue generated for the general fund. Also, if you use the, "our funds are suppose to pay for the department," reason to justify a new employee, the county board may just cut your fees to match your departmental budget.

One thing the county board may be thinking is, even though your current fees can cover an additional employee, if there is a drop in your fees, that may no longer be the case. That would leave them stuck with the full-time employee and their benefits package without the funding source relied on at the time of hiring. Lay-offs are a last resort for governments. A part-time person or persons or even paid interns could fill your personnel needs while easing the fears of the county board. After a time of using part-time help, the county board may see your revenues are stable or even increasing with the addition of the additional employee or employees and may then be willing to make the position full time.

I would lessen your arguing about the revenues covering your department's budget and rely more on justifying your need for the additional employee through more satisfaction of your department's customers through better and faster customer service. I would concentrate on customer service and highlight any customer service complaints that could be addressed through better service provided by the additional employee. If your customers are very upset at the customer service, have them address the county board directly. These people are voters and most elected officials will not want to upset voters. The additional employee defense should center on speeding up and improving customer service adding or expanding a much needed service or severely reducing comp time or overtime. Using a reason like reducing department stress, employees are overworking, etc. can be made by any county department. Bottom line, when dealing with elected officials always stress the positive political collateral any major change would have.

John A. Johnson
Madison/Pierce County Planning