In my practice representing developers and landowners, I routinely review dozens if not more, of development agreements over the course of a year. Without question, the most complained about aspect of virtually all such agreements, by a wide margin, is the extent of fees being imposed by a given city. Municipal fees are the runaway train of the development business; while this problem affects all businesses engaged in the development of land, it is crushing the housing industry, creating an artificial market condition that has all but eliminated new, more affordable, entry-level housing.
I sat through a public hearing this week involving a city’s consideration of a new tree replacement ordinance. One objecting landowner has calculated that the cost of complying with that city’s new ordinance, after adoption, will exceed the cost of his land. This is not marginal land, off the beaten path in the middle of nowhere; it is prime real estate in a fast-growing region of the metro area—the land commands a premium. While the land will sell, even with the fee imposed, the added cost of the fee will be reflected in the price of the new home.
I am working on another project in another city involving the redevelopment of an outdated commercial site. The site is located in a prosperous community with a highly-regarded school district with good freeway access. The land commands a premium for redevelopment. It is not a marginal site. However, in this situation, the municipal fees likely to be incurred, most significantly park fees, will also exceed the price of the land. Crazy.
Ever since the “Great Recession” put cities across the country on a serious diet, a growing number of them have resorted to collecting all manner of fees to backfill their budgets in hopes of avoiding general property tax increases. Guess what—it is working. To be fair, cities are allowed to impose fees in an amount that corresponds to a service being provided or a cost incurred. But Minnesota law very clearly bans cities from imposing fees that are disconnected from a service provided or a cost incurred by that city. A Minnesota housing industry group has documented the tens of millions of dollars collected by cities which arguably violate state law.
The response to this growing phenomenon is essentially a “yawn”. Various industry groups have tried for years, with Republicans and Democrats in charge, to address this problem, with little progress to show for it. In the end, state policy-makers are unwilling to limit the power of local elected officials to impose fees on anything. No wonder landowners and developers are forced to seek relief in court; nobody else with authority appears to be listening or care.