A 40 percent building permit fee increase phased in over the coming year will be the subject of a public hearing Tuesday, Oct. 1, before the Mid-Columbia Council of Governments board of directors.
The meeting starts at 5:30 p.m., at the Northern Wasco County PUD board room, 2345 River Rd., The Dalles.
The proposal and some related finance issues at the council of governments have generated concerns among some contractors in construction fields, as well as some public officials, while others say the fees are appropriate and necessary.
Choosing from several fee implementation options, the council board opted at its Aug. 20 meeting for an option designed to minimize the “sticker shock” of increasing fees. If approved, the fee increase would occur in three phases, a 20 percent increase effective in January 2014, a 10 percent increase in July 2014, and a 10 percent increase in January 2015.
The increases are across the board. Plumbing fees, for example, would increase in stages from $210 now for a single-family dwelling with one bath to $294 in January 2015. Hourly rates related to mechanical permit fees will increase from $65 per hour now to $91 per hour in 2015. Electrical permit fees for a dwelling of up to $1,000 square feet will increase from $106 now to $148 in 2015.
Those critical of the increase say the council is charging too much for overhead and administrative fees, and should not have taken loans from the building codes reserve fund for purposes outside that department.
John Arens, executive director of the council, told the board at meetings earlier this year that the increases are necessary because wind farm projects have been winding down, resulting in a revenue decline.
Between 2007-08 and 2010-11 fiscal years, when wind farm construction was in full swing, Building Codes Services saw revenue surpluses ranging from $150,000 to more than $500,000 per year. However, that tide, as wind farm construction, ebbed. In fiscal year 2011-12, Build Codes saw a revenue shortfall of more, almost $214,000. The shortage was worse in 2012-13 at almost $260,000.
At the apex of wind farm revenues, in 2011-12, when Building Codes was flush with surplus wind farm revenues, the council board of directors decided to make a $500,000 inter-fund loan from Building Codes to pay off the bank mortgage on the Council of Governments building at East 11th and Kelly Avenue in The Dalles.
Two years later, after revenues had already begun to plummet, the board approved a second inter-fund loan of $100,000 to provide matching funds for an $870,000 grant to build a transportation center to put a protective roof over the council’s buses and provide space for a call center that dispatches health-care-related rides for Medicaid patients in seven counties.
“The fact is, the federal government pays for 80 percent of the buses, the state pays for 10 percent and we pay for 10 percent,” Arens said Friday. “Everyone would like to see them secure and maintained and taken care of.” At present they are stored behind the Oregon Department of Motor Vehicles building and previously had been stored by the railroad tracks.
The fact that the board dipped into Building Codes revenues for the loans, even after revenues had started to slump, had some people in the construction industry seeing red, including retired electrical contractor Wayne Lease and Scott Hege, whose career has been in the building industry.
“Why would you take money and loan to yourself at one half of one percent?” Hege asked. “It’s not good stewardship of the program or the state contract.” Hege protested the proposed fee increases at a meeting this summer.
“The loans may be legal, but morally and ethically they are a clear indication of poor management,” Lease said. “If the outstanding loans were immediately satisfied, would the permit fees need to be increased?”
Lease was also worried that the loan term exceeded the maximum allowed under state law, but the loan term is 10 years, the maximum allowed under Oregon law. Under another section of the same law, the interest rate is the minimum allowed, equal to the rate paid by the local government investment pool (LGIP). Any future inter-fund loans will have a higher rate of interest, Arens noted, because the council board passed rules setting a minimum loan rate equal to the LGIP rate plus 1 percent.
In contrast to complaints of bad stewardship from the community, Michael Smith, chairman of the council board and a county commissioner from Sherman County, contends that loaning the money out is actually better stewardship than using the reserves to backfill the operating budget. He likens it to the strategy used in Sherman County, which has benefitted substantially from wind farm revenues.
Sherman County has opted to turn its surplus into a sustainable, renewable resource.
“You want to find ways to protect your reserves,” Smith said. “One way we have done that in Sherman County is not to give away the money we have, but to loan it. That way it comes back in a predictable, sustainable and measured way … For example, if you look at the resources Sherman County has, if the court members were all hit by a bus and a new court came in, they could use the reserves to hire a ton of employees. One of the ways we are protecting that resource is by using it to benefit our community, knowing it’s coming back to us.
“Some don’t agree,” he continued. “Some think if you have a reserve, you should spend it to a certain level and talk about raising fees, but that’s not what I feel is responsible.”
While critics say the fund is being raided for other purposes, Smith says the loans remain an asset of Building Codes Services, repayable under the established loan terms.
Smith also responded to criticisms that rate does not provide a fair return for Building Codes. “We could charge, say 5 percent for the loan, but remember that MCCOG is not an entity unto itself,” he said. “It is five counties that are members. MCCOG performs its functions as a county. It’s given autonomy to run that way.”
Higher interest rates would mean higher service fees for the member counties, Smith said. “It would get to the point where we are pushing wooden nickels around.”
Critics found areas of concern in other parts of the operation, including the amount of the Building Codes Services budget that goes to pay for shared costs — things like council administration and finance personnel, building space and related costs, information technology, etc. They felt the overhead charged to Building Codes Services could be excessive.
These costs are allocated among funds based on several specific formulas, according to council documents. Overhead and administrative services costs are pooled and allocated monthly to the five different programs (Workforce Investment Act, Integrated Family Services, Area Agency on Aging, Transportation and Building Codes) based on program personal services costs.
Facilities costs, such as office space, janitorial services, utilities, etc., are allocated based on office space used. Information technology is allocated based on the number of computers in use.
A cost allocation chart suggests that Building Codes Services pays slightly less than 28 percent of its budget for allocated costs, about $370,000.
“I don’t think it’s exorbitant,” Arens said. “I think, overall, our agency’s allocations are competitive. If you look at nonprofit structures, you’ll see that average overhead, the cost of doing business, is about 25 to 30 percent. If you want to try to compare it to local governments, you can’t.”
Government budget documents don’t approach that level of detail, he said. The council of governments also pays less in what Arens calls “burdened labor costs.” These are the costs in excess of salary, including health insurance. The council covers only the employee premium. It does not cover family premiums, like some government entities do, creating a burdened labor cost of 30 percent, where public employees costs may be as high as 70 percent.
“The structure we have at the agency is a pretty cost-effective structure,” Arens said.
Key questions for Building Codes Services focus on the level of service provided, the cost to provide it, and whether the state or a contracting entity like Mid-Columbia Council of Governments should be providing it.
Hege, who is also a Wasco County Commissioner in addition to a construction consultant, questions why the change was made from state operation to contract in 2007.
“The whole construction community was not super happy about the whole process when it happened,” said Hege. “We were a little confused about why it was happening. The state was doing a very adequate job. They had the advantage of a fee structure being very, very fair. Actually, I believe if you look at the fee structure, almost every entity does charge quite a bit more than the state. There was a concern at the time that it would happen.”
Hege questioned the need to raise fees when Building Codes budget showed an ending fund balance of about $912,000 last year. But the fund’s budget shows that, unless fees are raised, the Building Codes will continue to spend money faster than it makes it this year, further depleting reserves.
Even with the proposed 20 percent increase this year — reduced from the originally proposed immediate 40 percent increase to avoid “sticker shock” — an estimated $150,000 will have to be drawn from reserves. The budget doesn’t factor in fees from big projects, such as the $600 million Google data center addition announced last week. Or the prospect of Walmart construction looming later on the horizon.
Were permit numbers to remain at current levels, even with full implementation of the 40 percent fees at the beginning of 2015, revenues would still lag behind expenses overall. Arens is relying on improving economic conditions to help balance the budget. Even at the height of wind farm construction, Building Codes staffing levels have remained the same as when the function was assumed from the state in 2007. The staff includes one building official, one inspector with structural, mechanical and manufactured dwelling certifications, one with structural, mechanical, manufactured and residential plumbing certifications, 1.4 staff with electrical certification, one with plumbing and residential mechanical certifications, plus two office staff a total equivalent to 7.4 full-time employees.
Inspections are provided in each jurisdiction at least weekly, covering 11,171 square miles. The jurisdiction includes Hood River, Wasco, Sherman, Wheeler and Gilliam counties, with the exception of structural and mechanical inspections in Hood River County. In 2008, Mid-Columbia Building Codes Services contracted to provide services for Grant County as well, increasing services to Wheeler Count with staff driving from John Day and reduced overtime for inspectors from The Dalles.
Contractors have told the Council of Governments that they don’t want to see a decrease in the existing level of service. The organization has implemented efficiency measures such as online permitting and equipping inspectors with notebooks that include documents related to the projects they are inspecting.
“Citizens need to keep in mind why Building Codes exists,” Arens said. “It exists for public safety.” Shortcuts like photographic and video inspections may not provide enough information to assure the construction has been completed in a safe manner, which would mean a risk to the public and the potential for a ‘trail of lawsuits.’
“We’re concerned about finding the balancing point that maintains the integrity of the program and provides enough services so contractors can do their work.”
In the final analysis, Hege and Lease say: “It’s importnat to note that the fees aren’t paid by the contractor, they are passed on to the taxpayer.”
County commissioners are interested to hear what contractors will have to say at the Oct. 1 public hearing.
“I’ve had a lot of input from contractors in the area and so I have concerns,” said Wasco County Commissioner Rod Runyon, who serves on the council board. “I want to make sure everybody gets heard.”