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work being done at the Greenway West development
In separate lawsuits filed this week in Hennepin County District Court, Housing First Minnesota claims that the cities of Dayton and Corcoran violated state law regarding fees charged to builders and developers. This May photo shows work being done at the Greenway West development by Pulte Homes in Plymouth. (File photo: Bill Klotz)

Homebuilders group files suits over two cities’ development fees

For the second time in two years, a Roseville-based homebuilder advocacy group is suing the city of Dayton over development fees — and this time the group is taking legal action against the city of Corcoran, as well.

In separate lawsuits filed last week in Hennepin County District Court, Housing First Minnesota claims that the cities violated state law by using millions of dollars’ worth fees collected from builders and developers as a slush fund of sorts for unrelated projects.

Dayton and Corcoran officials couldn’t be reached for comment on the lawsuits. Cities have argued in the past that development fees for things like off-site road improvements are appropriate alternatives to spreading those costs to all city residents.

But Housing First Minnesota, which has about 1,000 builder members, points to a state law that says building permit fees must be “fair, reasonable and proportionate to the actual cost of the service for which the fee is imposed,” such as inspections and plan reviews.

Housing First Minnesota says the cities of Corcoran and Dayton reported “a combined $5.5 million surplus in collected permit fees in recent years.” The association said it previously asked the cities refund the surpluses to homeowners.

The end game with the lawsuits is to “bring building permit fees in compliance with state law in order to protect housing affordability and homeownership,” Housing First Minnesota said in a statement.

“While excessive permit fees are not the largest barrier behind our region’s soaring housing costs, they are one of the most solvable issues to address in order to bring down the cost of housing in our state,” Housing First Minnesota Executive Director David Siegel said in a statement. “The lawsuits initiated by Housing First Minnesota are necessary as cities have continued to overcharge homebuyers in conflict with state law even after they have been directed to comply.”

In the Corcoran lawsuit, Housing First Minnesota said the city charged about $4,700 in fees on a typical new home in 2018. On average, the lawsuit states, about $1,700 covered the costs of building inspections and plan reviews and the city kept the remaining $3,000.

The “excess” money collected by the city is “placed in various unrelated city funds, including the city’s long-range planning fund,” the lawsuit claims.

Similarly, in the Dayton complaint, Housing First Minnesota said the city collects “millions in excess building permit fee revenue.” For example, in the years 2015, 2018, and 2019, the city reported “$1.35 million in net profit on building permit fees,” the lawsuit states.

This isn’t the first time cities and homebuilders have been at odds over development fees. In February, the two sides faced off at the state Legislature, taking opposite sides on a bill that would have authorized cities to charge developers “street impact fees.”

Cities supported the bill on the grounds that street improvements, such as turn lanes, may be necessary to absorb traffic generated by new homes.

Irene Kao, intergovernmental relations counsel at the League of Minnesota Cities, told lawmakers at the time that street improvements need to be paid one way or another when more residents come to a community.

“So who pays for that? Should it be those who are responsible for the development? Or should it be the existing tax base?” Kao said at a legislative hearing.

The House bill “had several heated hearings in the House” but was not included in any final bills, according to Housing First Minnesota.

Builders got a big win from the Minnesota Supreme Court in the 2018 Harstad v. Woodbury decision. In that case, the Minnesota Supreme Court said the city of Woodbury lacked authority to impose a nearly $1.4 million “major roadway assessment” on developer Martin Harstad.

Housing First Minnesota also claimed victory in a more recent legal tiff with the city of Dayton.

In 2019, Housing First Minnesota sued the city of Dayton over transportation fees on new residential developments. The fees were designed to help pay for off-site transportation improvements in the city.

The Hennepin County District Court ruled in favor of Housing First Minnesota. In her January 2020 ruling, Judge Susan M. Robiner found that the transportation fee was “illegal, null and void and unenforceable.”

Housing First v. Dayton

Housing First v. Corcoran

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