Judge hears building permit profit lawsuit

The suit alleges millions of dollars were collected by municipalities by overcharging permits and inspection services.

 Hennepin County Judge Francis Magill heard arguments in the lawsuits alleging the cities of Corcoran and Dayton overcharged for new residential building permits. The lawsuits were brought by Housing First Minnesota, publisher of Housing Industry News.

The April 7 hearing covered both cases and comes nearly two years after the lawsuits were filed.

Separate cases, similar arguments

While both cases were heard together, involve the same underlying case law and were raised by the same plaintiff, these are two separate court cases.

The suits against the cities of Corcoran and Dayton allege the cities inflated the cost of building permits above the cities’ costs for inspection and plan review. Minnesota uses a fee-for-service model for building permits. State law requires these building permit fees to be “fair, reasonable, and proportionate to the actual cost of the service for which the fee is imposed.”

At the April 7 hearings, Magill heard arguments in both cases simultaneously.

From 2018 until 2021, Housing First Minnesota alleges the city of Corcoran collected more than $2.5 million in surplus building permit revenue, which was then placed into the city’s general funds and was used to pay for municipal development projects.

During the hearing for the city of Dayton, the discussion was similar. According to court filings, the city was accused of over-collecting $2.9 million for the years 2018-2021, with all but $200,000 diverted to the city’s 409 Fund.

“As our briefs illustrated and our attorney highlighted in today’s hearing, both the cities of Corcoran and Dayton were overcharging new residents for building permit fees and earmarked the profits to build up surplus funds which Minnesota law and agency guidance explicitly prohibit,” said James Vagle, CEO of Housing First Minnesota. “Given the depths of Minnesota’s housing challenges, this is especially troublesome. We look forward to Judge Magill’s decision.” 

Builders’ standing questioned

In both hearings, lawyers for the cities challenged Housing First Minnesota’s ability to bring the lawsuit and attempted to dismiss any claims of harm. 

Greene Espel PLLP, the law firm 

representing both cities, argued that Housing First Minnesota lacks standing to bring a suit against these cities on this topic since Housing First Minnesota itself was not harmed by the city’s permit practices. 

The cities’ attorneys also argued that since the building permit fees are included in the cost of the home, homebuilders are not harmed by overcharging for building permits. 

A decision from Magill could take several months. 

Disclosure: Housing First Minnesota, the plaintiff in the case, is the publisher of Housing Industry News.