During the most recent legislative session, the State passed House Bill 852. The bill was signed by the Governor and became effective on May 21, 2019. The Bill prohibits cities from basing the amount of a building permit fee or inspection fee required in connection with the construction or improvement of a residential dwelling on the value of the dwelling or construction cost of any improvements being proposed for the dwelling. Addison, along with many other cities throughout Texas, have based building permit fees on the value of the project. Therefore, Addison must now adjust the way in which it assesses fees for residential construction.
In determining how to assess the fee, the first step is distinguishing between commercial and residential projects. No changes are currently being proposed to fees for commercial projects. They will continue to be assessed based on valuation. Residential projects are to be defined in accordance with the Texas Local Government Code Section 214.211 and the International Residential Building Code. Based on this definition, the following structures will be considered residential:
- Detached one-family and two-family dwellings and associated accessory structures of three stories or less
- Bed & Breakfasts containing less than five guest rooms
- Live-Work Units containing less than 10% commercial space
- Townhomes or condominiums containing three stories or less with separate entrances and exits.
- Miscellaneous permits associated with the above uses.
Staff reviewed the current Town expenses and permit revenue obtained from residential construction projects. Staff estimates that the current cost for Building Inspection functions is approximately $550,000 annually. As Addison consists primarily of commercial development, Building Inspections staff spend approximately 15% of their time on residential construction activities such as plan review, permitting and inspections. This equates to approximately $82,500 in expenses annually. In Fiscal Year 2018, the Town received $70,124 in permit fees from residential development. Through the end of August in Fiscal Year 2019, the Town received $79,941 in residential permit fees.
In developing new fees, Staff investigated fees that would maintain as much revenue as possible, while keeping Addison’s fees in line with other cities. Based on this analysis, Staff is proposing to replace the current valuation-based permit fee calculation with a hybrid approach. The fee for most new construction and renovation projects would be established on a per square foot scale based on the following table.
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Residential Combination Building Permit
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Gross Square Feet
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Fee
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2,000 sq ft or less
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$1.15 per sq ft
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2,001 sq ft to 5,000 sq ft
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$2,300 for the first 2,000 sq ft plus $.75 for each additional sq ft up to and including 5,000 sq ft
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5,001 sq ft to 8,000 sq ft
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$4,550 for the first 5,000 sq ft plus $.50 for each additional sq ft up to and including 8,000 sq ft
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8,001 sq ft or greater
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$6,050 for the first 8,000 sq ft plus $.25 for each additional sq ft
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As the project gets larger, the cost per square foot is reduced. This recognizes that there is some economy of scale related to larger projects. This scale attempts to retain similar amounts of revenue as the former valuation-based fee. For example, the current permit fee for a new 2,500 square foot home would be approximately $2,874 based on industry standards for the value of a home of that size. Under the proposed fee per square foot, the permit fee would be $2,675. For comparison, the average permit fee of our comparator cities for a home of this size is $1,463.
For other more minor projects such as fences, foundation repairs, water heaters and HVAC replacements which do not lend themselves to a square foot calculation, staff is proposing a range of flat fees. These fees are detailed in the attached permit fee table along with a comparison of what other cities charge.
In most cases, the fees being proposed are higher than average, but are within the range of what other cities are charging. Addison has historically charged a higher fee than our comparator cities under the valuation-based permit fee structure. While the proposed fees do result in a lower permit fee, Staff is proposing fee amounts that are still, for the most part, higher than average. This was done to retain as much revenue as possible given other revenue constraints the Town is facing. Staff is projecting a loss in residential permit fee revenue of approximately $30,000 with these changes.
The Fiscal Year 2020 budget anticipates building permit fee revenue to be $574,500. Given the volatility in the construction industry and Addison’s relatively small size, the Town has always been very conservative when budgeting building permit fee revenue. In Fiscal Year 2018, the Town collected approximately $1,250,000 in permit fee revenue. Through the end of August in Fiscal Year 2019, the Town has collected $975,000 in permit fee revenue. Therefore, staff believes that the proposed loss in residential permit fee revenue can be absorbed without impacting the budget. |