New Permit Fee Legislation Enacted
On May 21 Governor Abbott signed HB 852 into law. The bill, which became effective immediately, provides that: (1) in determining the amount of a building permit or inspection fee required in connection with the construction or improvement of a residential dwelling, a city may not consider: (a) the value of the dwelling; or (b) the cost of constructing or improving the dwelling; and (2) a city may not require the disclosure of information related to the value of or cost of constructing or improving a residential dwelling as a condition of obtaining a building permit except as required by the Federal Emergency Management Agency for participation in the National Flood Insurance Program.
Building permit and inspection fees are defined by Texas law as user fees. User fees are charges levied by a municipality for the right to use city services. The legality of a user fee is determined by two factors: 1) the user fee must bear some relation to the actual cost of providing a service and 2) the user fee should not be attached to a bill for unrelated services. User fees that generate revenue in excess of the cost to administer the program are very likely to be deemed an illegal occupation tax under the Texas Constitution.
Going forward, cities may assess building permit and inspection fees on a square footage basis, a flat fee schedule or other basis rooted in Texas law’s requirement that fees align with the municipality’s cost of providing the service. Here are answers to some common questions that may arise during implementation of the new law:
Can a city continue to use the permit valuation table published by the International Code Council?
No, the valuation of new construction published in the table does not bear a reasonable relationship to the municipality’s cost of providing building permitting and inspection services. This method of calculating permit fees is explicitly prohibited by HB 852. The ICC table urges jurisdictions to evaluate their fees internally and was not written in deference to Texas law.
Are all cities immediately compelled to update their building inspection and permitting fees?
No, HB 852 states that cities can no longer require the disclosure of the value or cost of constructing or improving a residential dwelling. Only fees based on the valuation of new construction or not based on the city’s cost to provide associated services need to change. Many Texas cities already have fee schedules that comply with HB 852.
Can a city charge fees on a per square foot basis?
Yes, so long as those fees are, based upon internal review, reasonably reflective of the municipality’s cost to provide building permitting and inspection services associated with the fee.
Does this law apply to third parties contracted by the municipality to provide building inspection and permitting services?
Yes, even though the provider is an independent entity, the disclosure requirements of HB 852 as a condition to obtaining a building permit in the municipality’s jurisdiction are still applicable.