HomeMy WebLinkAbout2018-2-9 Memo to CAHAB re affordable housing fee MT Greg Sullivan, City Attorney
k_ Tim Cooper, Assistant City Attorney
City Attorney's Office Karen Stambaugh, Assistant City Attorney
Anna Saverud, Chief Prosecutor
Kyla Murray, Prosecutor
Edward Hirsch, Prosecutor
February 9, 2018 Bekki McLean, Prosecutor
TO: Bozeman Community Affordable Housing Advisory Board
C: Bozeman City Commission; Andrea Surratt; Chuck Winn; Anna Rosenberry; Martin
Matsen; Greg Sullivan; Tim Cooper; Brian Lameres
FROM: Karen Stambaugh, Assistant City Attorney VC17
RE: Affordable Housing Fee Proposal
ISSUE: CAHAB asked the City Attorney to investigate the legality of a fee-based affordable
housing program modelled after a program operating in Bend, Oregon.
CONCLUSION: Because of Montana statutory limitations on the use of fees collected by the Building
Division, a fee-based program identical to Bend's is not currently legal in Montana.
I. Bend, Oregon Affordable Housing Fee Program
A. Features of the program. The affordable housing fee program in Bend was established by the
City Council in 2006 and has been extended twice through 2019. The program currently
mandates a fee equal to 1/3 of 1% (0.33%) of the valuation on a building permit. The funds
collected are used according to the priorities set out in the city's Consolidated Plan, mostly in
the form of loans.
B. Legal authority. Oregon's Department of Consumer and Business Services(Department) has
adopted the 2014 Oregon Structural Specialty Code (OSSC) as the state building code. It is based
on the 2012 International Building Code. Rules adopted by the Department pursuant to Chapter
455 of the Oregon Revised Statutes (ORS) "shall, subject to ORS 455.210 (Fees), prescribe
reasonable fees for the issuance of building permit and similar documents, inspections and plan
review services by the Department..." According to ORS 455.210,the "fees may not exceed 130
percent of the fee schedule printed in the 'Uniform Building Code,' 1979 Edition, and in the
'Uniform Mechanical Code,' 1979 Edition..." ORS 455.210(3)(a) provides "A municipality may
adopt by ordinance or regulation such fees as may be necessary and reasonable to provide for
the administration and enforcement of any [building codes for which the municipality has
assumed inspection authority]." Therefore,455.210 authorizes local governments to adopt
their own building permit fees, but only those fees that are necessary and reasonable to provide
for administration or enforcement of the building code.
Bozeman, • 1
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TDD: 406-582-2301 THE MOST LIVABLE PLACE.
In 2016,Senate Bill 1533 was signed into law, allowing cities and counties to impose a
construction excise tax on residential and commercial construction, creating an exception to
the restriction in ORS 455.210 for the affordable housing purposes outline in the statute. Of the
tax collected,the local government can retain up to 4%for administrative costs. Fifty percent of
remaining revenues from residential construction must be used to fund developer incentives,
15% must be distributed to the Housing and Community Services Department to fund home
ownership programs that provide down payment assistance, and 35 percent must go to
programs and incentives of the city or county related to affordable housing. For commercial
construction, city and counties must use 50%of the revenues from the tax to fund programs of
the city or county related to housing.
Portland and Salem quickly adopted construction excise tax ordinances after passage of SB
1533. Cannon Beach adopted a similar ordinance in June 2017, and several other Oregon cities
and counties have either adopted or are considering a construction excise tax for affordable
housing. As noted above, Bend has had a similar building permit surcharge in place since about
2006. According to this article', Bend had been "grandfathered under a previous excise law that
was withdrawn by the legislature."
II. Feasibility of a Fee-Based Affordable Housing Program in Montana As Part of the Building
Permit Fee
A. Montana Building Code. Montana cities may adopt a building code by ordinance to apply
within its jurisdictional area. A city's building code may include only codes adopted by the
Montana Building Codes Bureau (BCB). Sec. 50-60-301, MCA. Pursuant to the Certified Local
Government Program for the enforcement of Building Codes as authorized by 50-60-301 etseq.,
MCA and the associated Administrative Rules of Montana, a city may enforce a building code
only if its code enforcement program has been certified by the BCB as in compliance with
applicable statutes and rules. To maintain certification,the city must also file its schedule of
fees to be imposed and plan for enforcement of the code,which must be approved by BCB.
A city's fee schedule is required to be based on the costs of the program. Although certified
local governments may establish their own permit feesz,the city must ensure that all
construction-related fees or charges imposed and collected by the city are "necessary,
reasonable, and uniform" and are:
(i) Except as provided in subsection 2(g)(ii), used only for building code enforcement,which
consists of those necessary and reasonable costs directly and specifically identifiable for
the enforcement of building codes, plus indirect costs charged on the same basis as other
local government proprietary funds not paying administrative charges as direct charges.
50-60-106(2)(g), MCA (emphasis added). Per ARM 24.301.203, "permit fees must only be used
for those costs related to building code enforcement activities ... It is not intended that permit'
1 City Explores Housing Options and Catches Some Heat, March 21, 2017(available at
http://www.kastl370.com/index.php?option=com_content&view=article&id=4444:city-explores-housing-options-
and-catches-some-heat&catid=17<emid=101)
Z A.R.M. 24.301.138(6)
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fees be used to support fire departments, planning, zoning or other activities, except to the
extent that employees in those programs provided direct plan review, inspection or other
building code enforcement services for the city, county, or town's building code enforcement
programs."
The City of Bozeman, as a self-governing charter form of government, has broad powers under
the Montana Constitution to exercise any power not prohibited by the Constitution, Montana
Statute, or the City Charter. One such limitation on the City's powers is found in 7-1-113, MCA,
which prohibits "the exercise of a power in a manner inconsistent with state law or
administrative regulation in any area affirmatively subjected by law to state regulation or
control." An area is affirmatively subjected to state control "if a state agency or officer is
directed to establish administrative rules governing the matter or if enforcement of standards or
requirements established by statute is vested in a state officer or agency." Section 50-60-202,
MCA, designated the Department of Labor and Industry as"the only state agency that may
promulgate building regulations" and the Department is charged with administering Title 50,
Chapter 60, MCA. §50-60-103, MCA. As discussed above,the Department has promulgated
administrative rules specifying the types of fees that may be imposed by the City and
administers a certification program under which the City may operate, and therefore the City
cannot use its self-government powers to supersede the limitations of Title 50,Chapter 60. See
also City of Helena v. Svee, 377 Mont. 158 (2014) (holding the City of Helena had "trespasse[d]
into subject matter that had been made the exclusive domain of the Department of Labor and
Industry by the Legislature.").
B. Prohibition on taxes on services. As noted above, Bend's excise fee is a percentage of the
building valuation, which raises an additional concern that the fee would be considered a form
of tax in Montana. The City of Bozeman is prohibited from adopting a tax on income or the sale
of goods or services because that power has not been specifically delegated by the state
legislature to Montana local governments. Sec.7-1-112(1), MCA.
Labelling a revenue-producing enactment a "fee" will not shield it from the prohibition in 7-1-
112(1). A distinguishing feature between a tax and a regulatory fee is whether the revenue
collected may be put to any public function (for example, deposited to the general fund), or
must be used for a public function or service specifically linked to the fee. See Montana Dakota
Utility Co. v. City of Billings, 2003 MT 332 (2003) (finding a Billings ordinance establishing a
"franchise fee" on several utilities was an illegal tax on goods and services). The Billings
franchise fee was 4%of gross annual revenue generated by each utility occupying the right of
way. The court noted the revenue was not earmarked for right-of-way maintenance or
regulation, but intended to be used to reduce general property taxes and to fund transportation
improvement projects, public safety operations and park maintenance, and therefore found it
unrelated to the use or occupancy of the right-of-way. In contrast, Billings' sewage and water
development fees were held to be within the specific statutory authority granted in section 7-
13-4304, MCA("Municipal Sewage and/or Water Systems; Authority to Charge for Services") in
Lechner v. City of Billings, 244 M 195 (1990). There,the fees were being set aside for sewage
and water development projects rather than being held as general revenue.
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Conclusion: Without legislation specifically authorizing Montana local governments to add a fee to
building permits for the purpose of supporting affordable housing, either as an exception to the fee
provisions in the building code statute or as a specifically authorized tax, a fee such as Bend's would
likely be held illegal under current Montana law.
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