Costs of growth come into slow focus

The city spends more than $2.8 million on building and development services each year, and recovers less than half of that amount in the form of fees.

Can the city recoup more? And if so, should it?

“If there is a reasonable basis for including the costs, then it comes down to a policy decision,” consultant Tracey Dunlap told a meeting last week of the city council finance committee and the mayor’s task force on permitting costs.

The objective of Dunlap’s work is to help determine what expenses to include within the so-called “Building and Development Services fund,” then begin making policy decisions about the proportion of those costs to recover through permit fees.

While the topic sounds dry, it has significant financial implications.

“This is one of the largest single functions in our city,” said Ralph Eells, director of finance and administrative services.

The topic also has political implications. One of the major issues that Deborah Vann raised in her successful campaign to unseat incumbent city council member Jim Llewellyn was that developers ought to pay more of those costs, lessening the burden on general taxpayers.

Costs are divided into two areas – “building,” which involves a specific construction project, and planning or “development,” which involves land-use matters like subdivision applications and short plats.

Within each of those areas, Dunlap broke down costs into three layers – project-specific costs provided to a specific application; support costs related to the general activities of the city departments involved; and administrative costs, meaning a share of general city administrative and operating costs.

The numbers presented show that “building” fees, which are based on the value of the structure, recover far more of the building costs than do “development” fees, much of which come from hourly charges to the applicant.

Fees for building permits and building-related work, such as plan-check fees, brought in almost $850,000, three-quarters of the $1.16 million in costs. The $850,000 captured all of the project-related work, all of the support work and half of the attributable general overhead.

Development fees, though, amounted to only $365,000, just over 20 percent of that department’s costs of $1.67 million. That amount was only 70 percent of the direct project costs, and did not recover any of the more remote charges.

There is nothing unusual about cities recovering a much larger proportion of building costs than development costs, Dunlap said, because while building permits clearly benefit the applicant, the case is less strong when it comes to the activities that regulate growth and planning.

“In some sense, those efforts are more for the community’s benefit than the applicants because they help preserve the texture of the community,” she said.

Is it fair?

Questions were raised about some of the information presented, especially whether there was any way to judge the “reasonableness” of the city’s costs. Comparisons are difficult, city officials said, because of unique aspects of the island, especially its physical size.

“In terms of area, this is the sixth largest city in the state,” planning director Stephanie Warren said.

The amount of land available for building has an impact on the level of activity.

“Mercer Island looks like a good comparison because it’s almost the same population,” Eells said, “but it’s all built out, so it can have two planners.”

Others questioned the fairness of allocating certain costs to project applicants – especially costs incurred when a staff member responds to inquiries from the public, as opposed to activity generated by the applicant.

“The question of assigning staff time for neighbors questioning projects is going to be significant,” committee member Ian Bentryn said.

Dunlap said it is difficult to compare the practices of other cities, because few have as much detailed information as Bainbridge, which computes its costs based on time-keeping by city employees.

“Most cities recover 100 percent of project-related costs in the building area,” she said. “Everything else is subject to variation. A lot of times, half the people think a particular cost item should be recovered and half think it shouldn’t, so they end up recovering 50 percent.”

Councilwoman Vann said that her most pressing issue is whether to stick with hourly fees, at whatever level, or go to a flat monthly fee.

There is a trade-off, Dunlap said. Hourly fees do a better job of cost-recovery. In a sense, they are also fairer, she said, because a few poorly done applications tend to take an inordinate share of staff time.

But there is an administrative cost involved in collecting data and generating a bill, she said.

Developer Dick Allen said the hourly fees can be a blessing in disguise.

“It’s a minefield the first time you do it,” he said. “But after going through it once and knowing what you need to do, it makes you do the work better.”

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