Management Data

Waiving Fees

Dear Management Doctor:

I have a question for the Management Doctor and fellow professionals.

Periodically, my Board hears calls to waive or reduce all of our land use and building fees to stimulate economic growth and jobs in the community. I am skeptical, as the numbers show that fees are a tiny percentage of overall development costs. Also, I doubt that the economic factors that have led to the current recession will be influenced by local permit fee structures.

I want to provide my Board with a reasoned response. I have heard that other communities have tried this approach. Has it worked? Not worked? Is there any real data that I could use?

Thank you,
Wavering

Dear Wavering,

I am not aware of any data that supports waiving or reducing fees as an economic development strategy. I concur that the fees are a very small part of a projects costs. Developers are concerned with rapid and consistent service and are actually willing to pay more and higher fees if they can reduce timelines. Some of the fastest growing communities have high fees.

Most governments today have budget concerns and are cutting building and planning staff. To the extent that cutting fees in your case would also reduce your resources and impact services, you would be shooting yourself in the foot by reducing fees. I recently did a study for the City of Fort Worth. As part of this study I interviewed the economic development staff and asked them about fee concerns. They indicated that they never once have had this issue raised in their recruiting efforts.

I don’t have any hard evidence, but there could be one instance where at least delaying fees could be helpful. In the early part of the planning entitlement process, the developer may have to fund fees and studies out of direct cash rather than a bank loan. Waiving fees at this stage could provide some modest incentive. However, a better approach would be to simply move that fee to the building permit stage that is generally funded out of a bank loan. I am working with a major Canadian city that deliberately under charges for the planning fees and then over charges for the building permit fee.

I hope this helps. Maybe a few of our emailers can add to this story.

The Management Doctor

Reader Responses

Thank you for your response. I look forward to seeing what other professionals may have to say.

Robert H. Pederson
Coupeville, Washington

____________________________________________________________________________

Developers want to know that the fees they pay are being used only for building permit services (statutorily required in Florida to use permit fees only for permit services), and that they are going to receive prompt service. A guaranteed turn-around time is worth more than waiving fees.

Arrow M. Woodard
Morningstar Business Strategies

____________________________________________________________________________

This is a timely e-mail because our community is thinking about doing what is described in the article. Part of the argument is that there should be no fees because staff gets paid to do what many fees are supposed to cover. For example, why should there be a building permit fee because we already pay inspectors to do inspections and plan reviews. Also why should there be a processing fee for land use applications when we already pay staff to do what is required in the process.

Any insights?

Thank you.
Mark Ostgarden
Brainerd, MN

From the Management Doctor

This is really a very simple issue. The questions are:

Does the community want a full cost recovery system or not?
If they do, then the costs for all parts of the process need to be calculated.
Once the costs are known, a decision can be made as to when in the process they should be paid.
See Greg Hoch’s comments from Durango. I agree that trying to collect the fees at the C.O. stage is fraught with problems and I wouldn’t recommend it. The PR of keeping a person out of their home or keeping a business from opening because they haven’t yet paid their fee is a killer.

Our City (Paso Robles, CA) had a fee waiver incentive for new businesses more than a decade ago. However, we terminated the program, on the advice of our City Attorney, after a union challenged us that the construction would have to be subject to California Prevailing Wages. The cost increase for paying prevailing wages outweighed the savings from the fee waiver.

Ed Gallagher
City of Paso Robles, CA

____________________________________________________________________________

I recently helped the Woodstock, Connecticut Planning & Zoning Commission recently review their fee schedule since they had not updated their fees since they adopted zoning in 1992. The fees were incredibly low and every time a development application came in, the fees did not cover the review thus the tax payers’ money was paying to cover the cost of reviewing the applications. I studied the costs incurred for the review of each application and the fees we were charging and then we came up with a new revised fee schedule that was designed to cover the costs while not making money – the new fees went into effect in September of 2009. Since then we have heard many comments that the fees are now similar to other towns and they understand about how ridiculously low they were previously. The new fee schedule says none of the fees are refundable. There is no waiver provision. The fees can be appealed to the Commission.

I don’t see any benefit to the town for waiving the fees – that brings us back to having the tax payers’ covering the cost of reviewing development impact. The fees should be reviewed to make sure they are reasonable but I cannot see a reason for a waiver.

Delia P Fey
Town of Woodstock, CT

____________________________________________________________________________

We are gearing up for a major debate about the City's fees, precipitated by members of the development community calling on the City to totally waive, or reduce, or postpone the payment of fees that range from water and sewer plant investment fees, major street impact fees, to a number of other fees like park and school fees.

The City's sense is that simple resistance to these demands will likely not go far given the recent change in attitude of our City Council to favoring economic development, and therefore making it easier, and less costly, for builders to develop within the City limits. The City Manager's initial inclination is consider reducing the fees for the next few years. If this doesn't fly, then the next consideration would be postponing the fees.

One advocate touts the idea of pushing the payment of fees from the time of final development plan approval, or even building permit issuance, to the issuance of Certificates of Occupancy, right before the buildings become occupied. Your suggestion about "simply moving that fee to the building permit stage [as payment of that fee] is generally funded out of a bank loan" makes sense, in part because that is pretty much what we do right now.

But to postpone the fee collection to the C.O. stage seems to us fraught with problems, not the least of which would require altering long established procedures for fee collection and processing by the Planning and Building Department and by the Finance Department. Granted nothing should ever be incapable of being changed, but it seems to us that there are too many problems associated with shifting those fee collections to C.O.'s.

That's my take on this debate to date. But I am going to be checking in on your website to see if you have received any other insights on this topic.

All the best,
Greg Hoch
City of Durango, CO

____________________________________________________________________________

The City of Gaithersburg, Maryland has done this for a few years on a case by case basis. It is part of the City’s Economic Development Tool Box. Contact Cindy Hines or Tony Tomasello for more information. Maryland does it in some way for property in designated Enterprise Zones.

Trudy M. Walton Schwarz
City of Gaithersburg, Maryland

____________________________________________________________________________

We periodically reduce or waive some fees when workforce housing development is proposed.

Cameron Walker
Midland, Texas

____________________________________________________________________________

A fee waiver may be considered a gift of public funds, which could kick in prevailing wages requirements for the applicant and other restrictions that apply to publicly funded projects.

Elise Semonian
Town of Ross, CA

____________________________________________________________________________

I think it was TischlerBise that had created a great one-page list of ten reasons not to waive impact fees. I don’t have it handy but they may have it on their website.

I absolutely agree with Wavering. I don’t believe that fee waivers would ever be substantial enough to overcome the economic factors that have created the current recessionary problems.

Before considering any waivers, I would want to think carefully about the following questions:

Is the builder getting the same level of cost reductions or price waivers from all of his subcontractors, suppliers, the lumberyard, the concrete supplier, etc?
Will the builder guarantee to reduce the price of the finished product by at least the same amount as the fees waived?
Will the builder guarantee that s/he will actually have the product sold and occupied faster?
Will the builder guarantee that whomever buys/occupies the completed product will not add any impact to the schools, parks, roads, etc. and therefore the impact fee is not needed ?

I have fewer objections to waiving service fees (plan review, permit or inspection fees) than I do to waiving impact fees, but I am still concerned. If you think it through, I believe you’ll find that any fee waivers simply add to the builder’s bottom line, at the expense of the other taxpayers in the community.

Russell Farnum
Village of Algonquin, IL

Click here for the link to the TischlerBise article

Bottom line for the argument that you are already paying the building official, etc. is where the money comes from to pay these folks and if it is current expense/general fund, where else could that revenue be used that benefits the taxpayers that provide it. Also, of what general benefit is the project that the fees are being waived for? Our policy is that the developer pays their own way to profit.

While each state is different, I was interested in the comment from Elise Semonian, Town of Ross who was concerned about gifting of public funds as this is something I’ve been concerned about as developers have been encouraging us to allow water and sewer system development fees to be paid as each lot in a subdivision is sold. Like gifting, I wonder if this is lending the publics/states credit. I had never considered the issue of public funds kicking in prevailing wage requirements - any case law on this? What state is Ross in?

I agree with avoiding fee collection at C.O. for a number of reasons. We have a couple of projects that weren’t completed and a C.O. wasn’t issued until one of the creditors stepped up and finished the project a few years later.

Chris Branch
City of Oroville