Builders hope city fee hikes will improve service

Homebuilders who were not paying attention during September’s city budget deliberations might have been surprised to learn that the “volume builder submittal fee” for construction of a single-family home or duplex, which has cost $29 per home since 2007, shot up to $190 on Oct. 1.

That particular fee applies whenever a builder sets out to construct 10 or more homes at one time. In addition, the city’s Development Services Department is charging $90 per hour for overtime when required. That was just one of many fees that increased this month.

Mayor Pro Tem Kathie Tovo proposed the fee increases for the Development Services Department to cover the full cost of those services, resulting in an anticipated increase in the department’s revenue of $1,386,186.

Tovo told the Austin Monitor this week, “Development in Austin has been subsidized by the city’s General Fund, to the detriment of other city services such as libraries, parks and social services. Over the last several years, Council has taken action to recover the full costs of Austin Energy line extensions, Austin Water utility connection fees and now Development Services fees.

“The increases in permit fees have been planned for several years, and the Council’s recent budget action just implemented a portion of those changes slightly ahead of schedule – and it’s important to note that these fees will only cover the costs as they were assessed several years ago before the city invested heavily in hiring additional staff to reduce the permitting backlog,” Tovo concluded.

During this year’s budget process, Mayor Steve Adler told Rodney Gonzales, acting director of the Development Services Department, that he was explaining the fee increases to the public as a way of “fixing the challenges that we’ve had in that department, and I’m telling folks that they need to be willing to pay more … (to fund the department’s services) in order to be able to help achieve those things.”

Adler added, “I also am cognizant of the fact that we’re about to adopt … the metrics for success on how we achieve those things, and I want to make sure that you have all the tools you need in order to be able to do that.”

Many of the changes the department is looking at are a direct result of the Zucker Report, which outlined in scathing detail the many ways in which the department was failing its customers as well as city staff. The report contained 462 recommendations and “opportunities for improvement” and recommended that the city immediately fund $3.5 million in improvements for the department.

A city action plan notes that “of the 462 recommendations, 55 require financial resources to implement.” The Zucker Report called for one-time expenses totaling $2.7 million and a commitment to annual ongoing expenses totaling $2.6 million.

Because the city of Austin had not raised the fees it charges builders for various permits and inspections since 2007, it should come as no surprise that new fees – enacted as part of the 2016 budget – are considerably higher than the old ones.

In order to understand the new fee structure, the Monitor sat down with Demetrise Hubbard of the Development Services Department for an explanation.

Hubbard explained that fees were increased based on the cost of service and not on the number of homes in each category. So, “even though we may do (an increasing number of) larger square-foot homes, we’re not going to charge more just because there are more of them,” Hubbard said.

Fees for the larger homes were not adjusted because they were already high enough to cover the cost of service, Hubbard said. Therefore, the residential review fee for a home that is between 1,751 and 2,000 square feet is $238, just as it was in September. However, the same fee for a home of 500 square feet or less was $64, and the charge for a home of 501 to 1,000 square feet was $145. The new charge for homes up to 1,750 square feet has now increased to $220.

Many of the fees were on a sliding scale on the old fee schedule, so smaller units and lower-cost work in the electrical, mechanical and plumbing areas meant lower fees. The schedules have now been compressed. For example, the review fee for electrical work on new residential construction is now $130 for every unit up to 1,751 square feet. Previously, the fee was on a sliding scale from $66 to $128.

Electrical review fees for work involving remodeling, repairing and altering one- and two-family dwellings that costs up to $10,000 is now a flat $170, as compared to the previous sliding scale, which started at $45 and went up to $120. There were similar changes for mechanical and plumbing fees.

Walt Elias, president of the Home Builders Association of Greater Austin and senior construction manager of Brookfield Residential, said that he is concerned about how the increased fees will impact affordability. “If these measures are a positive step in that direction, then we support them. But if we’re going to do business the way we’ve been doing for the last 10 years,” he said, then homebuilders would be unhappy. He said he thought builders should see some improvements within three months.

The proposed electronic submittal system would be “a big advantage,” Elias said. “As long as the city is accountable for the end result of the fee increase – that’s the important thing. … The current code and the system we have is not working effectively.”

Elias added, “The association supports the budget increase as long as those things are done effectively. … We support (the fees) going to an enterprise fund instead of the General Fund.” It is not clear whether the city will make that change in the future, but the department has released an aspirational document indicating that its leadership would like to see that change.

Elias also said he was hopeful that the city would hire an ombudsman to help people get through the process. He had thought that a proposed public information slot could be converted to the ombudsman position. However, Council cut that position during the budget process.

Another homebuilder, Taylor Steed of Four T Realty, also said, “I support the change in fees if it results in a better permitting process.”

Steed said she currently is working on a 53-unit town home project but has heard from developers working on apartment complexes. She said, “The multifamily permitting fees actually increased threefold. … I know one multifamily developer on South Lamar, and their purchase permitting fees went from about $85,000 to about $250,000. … That’s one of the reasons why multifamily costs so much.”

Steed added, “Right now it takes nine to 10 months to get a development permit, but I’m hopeful it would go down to three to five months.” She said that she and other members of the real estate community are hoping that the time they save will offset the increase in fees, and they are excited about the possibility of change.

“I do know that the city is working on changes, and I’m really optimistic about technical changes and increased personnel,” Steed concluded.

Photo by Great Valley Center made available through a Creative Commons license.