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At issue is whether cities are allowed to charge residential developers for general citywide transportation improvements to absorb additional traffic generated by the new homes. Builders say “no,” and recent court rulings have gone their way. (File photo: Bill Klotz/Special to Finance & Commerce)

Bill would let cities charge developers for streets

This article appeared originally in Minnesota Lawyer’s sister publication, Finance & Commerce.

Advocates for Minnesota cities are asking state lawmakers to weigh in on an issue that has long pitted builders and developers against local communities: the question of who pays for street improvements related to new home construction.

At issue is whether cities are allowed to charge residential developers for general citywide transportation improvements to absorb additional traffic generated by the new homes. Builders say “no,” and recent court rulings have gone their way.

In response, cities are getting behind a pair of bills that would allow them to collect such fees. The bills, authored by Rep. Brad Tabke, DFL-Shakopee, and Sen. Eric Pratt, R-Prior Lake, will be reintroduced this session after failing to get a hearing last year.

Irene Kao, a lobbyist for the League of Minnesota Cities, said the legislation is needed to provide more clarity going forward — for the benefit of cities, counties and townships, as well as builders and developers.

According to the League, cities plan street work “years in advance and new development creates additional demand. However, legal interpretation of current law does not allow for cities to collect fees from developers to help pay for these future investments.”

Just last month, for example, a Hennepin County District Court judge rejected a city of Dayton ordinance requiring homebuilders to help pay an “off-site” transportation fee as a condition of approval for new housing developments.

Judge Susan M. Robiner of the Hennepin County District Court ruled that the ordinance is “illegal, null, void and unenforceable” under state law as interpreted by a 2018 Minnesota Supreme Court decision.

David Siegel, executive director of Housing First Minnesota, said Tuesday that the court decision is a victory for housing affordability because street improvement fees drive up costs that are then passed on to buyers.

Given that the courts have already spoken, Housing First Minnesota opposes the legislation and sees no need for the Legislature to intervene.

“This has been in front of the courts four times and the courts have … struck down these fees,” Siegel said.

“It’s really absurd to be talking about adding costs to housing at a time when we face an affordability crisis, and we have literally the lowest available inventory for sale, new and resale, in the country.”

Tina Goodroad, Dayton’s city administrator, said the city doesn’t plan to appeal the court’s decision. But in response to the ruling, the city is getting behind the legislative fix and will consider a moratorium on residential development.

Cities do have statutory authority to charge fees for sewer and water improvements and parks, but for some reason there’s a “gap” in the law that doesn’t address street improvements, Goodroad said.

“Cities like Dayton are looking for a legislative fix that allows us to ensure that the cost of development is borne by the new development,” she said.

Prior Lake Mayor Kirt Briggs concurs.

In a typical year, the city of Prior Lake took in roughly $225,000 in fees from residential developers to cover street improvements, he said. Those fees were placed in a “cost bucket” for specific improvements, he said.

Once Prior Lake is fully developed, total infrastructure costs tied to new development would be “on the order of $25 million,” Briggs said. That assumes the city is built out over time as laid out in its comprehensive plan.

“I think it’s important to understand that cities levy fees only when a cost exists. Absent a cost, there would be no need to levy a fee,” Briggs said.

Pratt, the sponsor of the Senate bill, doesn’t dispute that development fees are passed along to the buyer. But the alternative, he said, is to force existing taxpayers in a city to absorb the costs.

Each new home in a community adds 10 car trips per day to the city’s transportation system, Pratt said. That puts a lot of pressure on the system, he said, when hundreds of new dwellings come to town.

“We all need to get to the store, the post office, the bank, the schools. So what the bill does is recognize that growth necessitates expansion of our road system,” he said.

The city-backed bills are House File 2296/Senate File 2442 and House File 2297/Senate File 2443.

Under House File 2296, a municipality “may impose a fee as set by ordinance on an applicant based on the net buildable acreage of the subdivision, the subdivision’s impact on the municipality’s transportation system, or the municipality’s transportation plan.”

Under House File 2297, a municipality “may condition approval of a subdivision on the construction and installation of streets, require a reasonable portion of the buildable land to be dedicated to the public or preserved for public use as streets, and impose a cash fee by ordinance for the construction and installation of streets.”

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