Legislature considers permitting ‘street impact fees’

Years of history sit behind HF 1402, a bill in the state Legislature that would allow cities the option to charge street impact fees on new development.

The bill pits two arguments against each other: Proponents of the bill say growth should pay for growth, while critics say costs are passed on to potential homebuyers who may not receive the benefits of those costs and that more fees on development will hinder housing production. Previous court cases have ruled in favor of developers, often because state law has not allowed the practice.

The bill’s chief author, Rep. Jessica Hanson, DFL-Burnsville, said at a transportation committee hearing last week that the bill does not mandate that cities charge the fees, but it gives them the authority to provide a “fair way” to charge for new transportation infrastructure that is needed when growth from development occurs. She said the bill will “ensure that development pays for itself and is not foisted on the back of cities’ existing property tax base.”

She noted in a call with Finance & Commerce that the absence of the fee does not equate to the absence of the cost, and somebody has to pay for the maintenance of roads impacted by developments. She said many of the homes built in a neighboring community cost at least $700,000 and aren’t affordable to a broad population, so taxpayers shouldn’t have to bear the burden of those costs.

An added $5,000 for the home is “not going to break the bank of people who can afford a $700,000 home or a mortgage company that’s issuing the loan,” she said.

Edina Mayor Jim Hovland, representing 19 suburbs with the Municipal Legislative Commission, said the bill ensures “the incremental costs of growth will equitably be attached to each new home and not to be subsidized or left to existing taxpayers to pay for this impact on the overall transportation system.”

Without the bill, the 19 MLC cities will be in “one of three untenable positions”: effectively disallowing developments because of “inefficiency” in existing roadways to handle the growth, allow growth to continue and add burden to existing residents as roads degrade or transferring the costs to the backs of existing taxpayers.

But detractors say cities have other options that wouldn’t hold up the development process. A city can do special assessments for street projects, which will be reflected in an adjacent property owner’s taxes if the city can prove they are getting that amount of value out of the increased taxes.

An amendment was denied that would have made sure the fees were spent within 10 years. Nick Erickson, senior director of housing policy with Housing First Minnesota, said the average person lives in a home for eight years — so those homebuyers may not see the benefits of the fees they would pay.

He noted that new developments bring in a larger tax base that will already help pay for streets without the fees, and that even people who wouldn’t pay street impact fees will be benefiting from streets.

“It really does get into fairness questions about use of the funds,” he said. The developers and homebuyers could be paying for streets that are on the other side of town.

Erickson pointed out that courts have struck down street impact fees since the 1990s.

In the 1997 case of Country Joe v. City of Eagan, the fees were attached to building permits. The court called the fees a “revenue measure.”

“In reaching this conclusion, we find it significant that revenues collected from the road unit connection charge are not earmarked in any way to fund projects necessitated by new development, but instead fund all major street construction, as well as repairs of existing streets,” the court opinion reads.

In the 2018 Harstad v. Woodbury case, the Minnesota Supreme Court said the city of Woodbury didn’t have statutory authority to impose a nearly $1.4 million “major roadway assessment” on developer Martin Harstad.

HF 1402 was pushed to the state and local government committee. The companion bill, SF 1146, has been referred to the Senate’s like committee. Hanson said in last week’s committee that the bill has had bipartisan support this session and in years past.

If the bill is signed into law, there may be avenues for a legal challenge, according to Finance & Commerce reporting two years ago when a similar bill came forward.

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