Bill Would Require Building Permit Fees to Be Based on Cost Per Square Foot

March 22, 2021

The bill as amended would require building permit fees to be based on cost per square foot for new single- and two-family dwellings.

Committees in both the House and Senate considered bills that would require cities to base building permit fees on the cost per square foot rather than on valuation.

SF 801 (Sen. Mark Koran, R-North Branch) and HF 1085 (Rep. Zach Stephenson, DFL-Coon Rapids) would eliminate the current valuation-based permitting methodology for new single- and two-family dwellings, and require cities to set fees based solely on cost per square foot.

This could pose challenges to cities, as valuation-based permitting has been a longstanding standard as the best proxy to most accurately estimate the scope of inspection work needed on a particular project.

The Senate Housing Finance and Policy Committee heard SF 801 on March 18 and laid it over as amended for possible inclusion in the Senate omnibus housing bill. The House Labor, Industry, Veterans and Military Affairs Finance and Policy Committee heard HF 1085 on March 19 and laid over the bill as amended for possible inclusion in an omnibus bill.

Cities oppose the bill

The League provided written testimony to the House and Senate committees, expressing opposition to the bill in a co-authored letter with Metro Cities, Coalition of Greater Minnesota Cities, Minnesota Association of Small Cities, and the Municipal Legislative Commission.

Read the city letter opposing the bill (pdf)

An author’s amendment that was added to both the Senate and House bills reduced the scope of the bill to only address new single- and two-family homes. But the League also provided testimony in both committees on concerns that basing permit fees on cost per square foot treats all dwellings of the same square footage the same regardless of complexity.

Testimony in both committees also included an overview of how valuation is set. St. Louis Park Director of Building and Energy Brian Hoffman explained how basing building permits on cost per square foot would hurt housing affordability and make building permit fees regressive.

Valuation-based permitting factors in building complexity and is self-adjusting based on the project, Hoffman said. However, basing permit fees solely on a cost per square foot would force cities to set fees at a median level to capture the costs for permitting and inspections for more complex homes. This means that homebuyers purchasing more basic affordable homes would pay a higher building permit fee.

Proponents of the bill include Housing First Minnesota. The Twin Cities builder trade association claimed that there should not be variation in valuation determinations. However, it was pointed out to committee members in both the House and Senate that labor costs vary widely across the state and are a factor in valuation determinations.

Cities asked to contact legislators

Cities are encouraged to review the above legislative proposals and provide comment to their legislators regarding the importance of preserving valuation-based building permit fees that are self-adjusting based on project and account for building complexity. Comments and concerns on the proposals are crucial as we continue our advocacy efforts to preserve local control.

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