Three state wide organizations representing Michigan's construction industry have filed a lawsuit in Oakland Circuit Court accusing the city of Troy (Troy) of illegally charging building permit fees in excess of those needed to operate the building department. The suit also charges the city with using fees from building permits for purposes other than those allowed under Michigan law.
In their complaint the Michigan Association of Home Builders (MAHB), the Michigan Plumbing and Mechanical Contractors Association (MPMCA) and the Associated Builders and Contractors/Michigan (ABC/MI) allege Troy is violating Michigan's Stille-DeRossett-Hale Single State Construction Code Act (the Act). The lawsuit also alleges Troy violated Michigan's Headlee amendment prohibiting new local taxes without a vote of the people. The Headlee amendment requires voters to approve any local taxes not already in place at the time the amendment was adopted. The lawsuit alleges Troy's action have transformed the fees into unauthorized taxes.
Section 22 of the Act specifically mandates local building permits fees bear a "reasonable relationship to the cost" of providing the building department services and further mandates that local units of government "shall not use the (building permit) fees for any other purpose" than running the department.
Troy signed a contract effective on July 1, 2010 to have a private company operate their building department. Under the terms of the contract the private company retains 80% of all fees and pays 20% of the fees to Troy. Troy then deposits the excess fees into its general fund where they are used to pay for other city departments and services. The contract also provides when building department fees exceed 1 million dollars during any fiscal year Troy will receive 25% of all building fees for deposit into its general fund.
"This lawsuit is not about privatization," said Lee Schwartz, Executive Vice President for Government Relations for the MAHB. "We don't oppose privatization done in compliance with the law. What we do oppose are local governments turning their building departments into cash cows for other areas of government.
Section 22 of the Act was specifically amended in 1999 to put an end to the practice of overcharging for permits in order to create a new source of revenue to pay for non-building department services. Unfortunately, Troy has chosen to ignore the law in order to deal with their financial difficulties."
The lawsuit requests that the Circuit Court enter a preliminary injunction requiring Troy to place all funds received by it in violation of the Act in a separate account with a requirement that those funds may not be used for any purpose other than permitted by the Act. Ultimately, the lawsuit requests a permanent injunction barring Troy from charging excess fees and requiring that all fees collected be devoted exclusively to payment of the costs necessary to provide building department services. The lawsuit does not seek any injunctive relief against Troy's use of a private company to operate their building department. Neither the request for preliminary or permanent injunction would prevent a private company from providing those services so long as the fees charged and services provided are compliant with the Act and do not violate Michigan's Headlee Amendment.
"By charging more than it costs to run the building department and diverting the excess revenue into the general fund to be used by other departments Troy has also violated the Headlee Amendment " charged Chris Fisher, President of ABC/MI. "The Michigan Supreme Court has ruled in order to be a fee and not a tax, a user fee must serve a regulatory purpose rather than a revenue-raising purpose; it must be proportionate to the necessary costs of the service; and the fee must be voluntary-those charged the fee must be able to refuse or limit their use of the commodity or service. Since by Troy's own admissions the fee is clearly not proportionate to the cost of providing the service and it's being used for a revenue-raising purpose as opposed to a regulatory one, this is an unapproved tax and a violation of the Headlee amendment."
Troy has tried to justify overcharging on permit fees as simply recovering money used from 2001 through 2009 to subsidize the operation of the building department, a contention all three associations dispute.
"When times were good city officials made the political decision to attract more construction to Troy by not fully funding the department through fees. That gave them a significant advantage over neighboring cities that set their fees to cover the full cost of running their departments, "stated Schwartz. "Presumably the increased value to Troy of the new construction in long-term property taxes more than made up for the lower fees they charged. Now in tougher times Troy is turning around and asking contractors doing business in the city today to pay for the breaks they knowingly gave to contractors who did business in the city back then."
Troy's actions artificially increase the cost of construction in the city leaving those who are building the choice of either absorbing the illegally inflated costs or reducing their competitive advantage by passing the unlawful costs on to the customers.
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