Tough Luck! Council Says You Must Subsidize Builders with $80k per Year

At their August 11, 2011 meeting, the City Council approved Building Permit Fees that recover only 70% of the cost of permit services, leaving non-building residents to pick up the tab for the remainder, approximately $80,000 per year out of the City's General Fund.

The Council discussion indicated that they thought that if didn't have building fees below cost people would not build at all, when in reality only a portion of building, or none at all, would be affected. At no point in the discussion did anyone bring up improving City efficiency or reducing percentages paid to contract City staff doing inspections and issuing permits, so that the lowered building permit fees would no longer be below cost.

Councilmember Vipperman vigorously opposed the subsidy to builders, saying the Council would have to explain to the residents why they have to subsidize builders.

Vipperman said residents may want the funds put toward something that would benefit them, such as the Paramedic program.

Councilmember Westerhoff called the $80,000 payment by residents to builders a "deminimus" amount. Vipperman said it's not deminimus to our residents who do not want to subsidize developers.

Mayor ProTem Carroll said building permits should be low to encourage building even though the city subsidizes it. He also said that if we encourage development we get it back over a longer time in higher property values.

Councilmember Vipperman challenged that premise asking what the assessed value of new construction is and how much property tax revenue would be generated from it.

Staff said that $8.9 million in new construction was completed the previous year. Vipperman said that the City's share of property taxes from that would be $900 per year, and would take 100 years to just recover the subsidy.

Other Councilmembers were not deterred by the 100 years to recover the subsidy and minimal $900 per year contribution to the City's General Fund.

Of note, the $900 annual property tax amount was incorrect. It would actually be $9,000 ($9 million x 1% property tax rate x 10% city share).

Residents were dumbfounded that the Council was so adamant that the residents subsidize builders, even though residents were struggling in a down economy, with an $80,000 annual payment to builders that only would bring in, so they thought, $900.

Background

In June 2006, the City did a fee study, as required by law, to determine building and planning fees. Building Permit fees were set at twice the Los Angeles County rate, in line with what other similar communities charges. At this rate, the residents were not subsidizing developers.

In 2008, the City adopted the updated Los Angeles County Building Code, mistakenly neglecting to retain permit fees at double the County rate. This resulted in a 50% reduction in Building Permit Costs.

In 2009, the City contracted a new fee study to determine what Building Permit, and other, fees should be.