The ISD Money Machine

While reading reporter Jonathan Dame’s excellent article on Newton’s Inspectional Services Department (ISD) in the February 24, 2016 Newton TAB, I was struck by two points:

  • 1)  that applications for building permits of all types have soared by 40 percent in less than a decade, and
  • 2) that ISD now generates more than $5 million annually in revenue for the city.

Although we all realize that the city is looking for revenue, I wonder if the first and best purpose of ISD is to generate permit fees? If so, then raising permit fees still further would bring in even more money. Or should the department’s main focus be to enforce our zoning ordinance and ensure compliance with building codes, as well as green space and environmental protection during construction?

As a resident of an area of the city (Newton Highlands south of Route 9) where there have been increasing demolitions of modest houses and  replacement by much larger and far more expensive houses, I find it curious that the city makes it so inexpensive to demolish a house.  I’ve heard it said that the “greenest” house is the one that is spared demolition, and indeed, as long ago as 2003, the American Institute of Architects  reported  EPA data showing that as much as 40% of the solid waste ending up in U.S. landfills was demolition and construction-related.  If we care about the planet, should the materials and labor represented by an existing house be tossed in the trash so easily?

Owing to the way ISD calculates permit fees (for demolitions, $20 per $1,000 of the projected cost of demolition and disposal; for new construction, $20 per $1,000 of the estimated construction costs), it requires only $300 to $800 to obtain a permit to destroy a house, whereas permits for new-house construction commonly range between $7,000 and $13,000. This makes bulldozing a house something of a bargain.

There were 94 full-house demolition permits issued in Newton in 2013, 94 in 2014, and 104 in 2015.  In the first 8 weeks of 2016, there have already been 16 such permits issued, putting us on pace to match last year’s figure. Because every demolished home is replaced by one costing from two to three times as much as the original, the change in the character—and affordability—of some neighborhoods is dramatic.

Might it not be a better idea to “nudge” developers toward preserving older homes by raising the demolition fees to a level based on the assessed value of the house?  That would acknowledge the sunk cost of the energy and materials embodied in the house. Should the city consider setting lower fees for electrical and plumbing permits for renovations than for new houses, to incentivize renovation over demolition?

Couldn’t ISD set permit pricing to align with zoning enforcement and the preservation of older, more affordable houses, and still be a revenue center for City Hall? What do you think?

Rising septuagenarian; 40-year resident of Newton, though a Northern Californian by birth. Married, with two Millennial daughters who are products of the Newton school system (Countryside, Brown, NSHS).

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Kathleen Kouril GrieserjjpriorElaine Rush ArrudaJohn KootTed Hess-Mahan Recent comment authors
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Jerry Reilly
Jerry Reilly

That’s a great idea John. It does seem like the incentives are completely backwards in the fee structure.

Julia Malakie

I agree. And it would also be wise to set pricing of demolition permits to allow for adequate enforcement of demolition procedures. Demolition companies I thought were supposed to, at a minimum, be hosing down the demolition dust, but that seems to be routinely ignored. I stopped by the Court Street demolition last week (video here: ) and it was typical, with dust flying all over. Then a supervisor appeared to notice me, and came down to turn on a garden-type hose which was totally inadequate to the task.

I asked last year at ISD and the Building Department about demolition safety concerns. Despite all the kerfluffle over PCBs in window caulking and light fixtures in the Aquinas School, which is going to be renovated not demolished, there are no measures taken to remove PCBs or lead paint before routine house demolitions. (And boy I am sorry to have to call house demolitions “routine.”) Hosing down the dust, or praying for rain, then carting off the debris (so dust can fly out of the back of the truck?), is it.

Sallee Lipshutz

Yesterday, while I was at the Waban Library Center collecting e-mail addresses of Waban residents for the Waban Area Council’s e-mail list, one of the voters who joined our list had an interesting question: Why don’t we charge $100,000 per Demolition Permit? After thinking about it a bit, I realize that it might slow the demolition incentive, but would require some thought as to how to clear away abandoned properties that fall into dangerous disrepair. Perhaps such a fee would have to be linked to a “Building Permit Delay” by a 2 year waiting period. It does raise some interesting questions.

Julia Malakie

I think a major contributing factor to buildings “falling into” disrepair is how easy it is to demolish them. I’ve heard people say “I’m not putting any money into my house, whoever buy’s it will tear it down.” It’s a perverse incentive to not maintain one’s house.

Ted Hess-Mahan
Ted Hess-Mahan

“Couldn’t ISD set permit pricing to align with zoning enforcement and the preservation of older, more affordable houses, and still be a revenue center for City Hall?” The short answer is “No.” The longer answer is that the fee charged must be proportional to the costs incurred by the city for issuing, processing and regulating demolition permits. Municipalities are permitted to charge a fee to be compensated for the cost of services provided, but do not have the power to levy taxes unless specifically permitted by law. In determining whether a particular charge is a valid regulatory fee or an impermissible tax, courts look to the following factors: 1. Fees, unlike taxes, “are charged in exchange for a particular governmental service which benefits the party paying the fee in a manner ‘not shared by other members of society.’ ” Emerson College v. Boston, 391 Mass. 415, 424 (1984)(quoting National Cable Television Ass’n v. United States, 415 U.S. 336, 341 (1974)). 2. Fees “are paid by choice, in that the party paying the fee has the option of not utilizing the governmental service and thereby avoiding the charge.” Emerson College, supra at 424-425. 3. Finally, the charges “are collected not to raise revenues but to compensate the governmental entity providing the services for its expenses.” Id. at 425. 3. Valid fees fall into one of two categories: “user fees, based on the rights of the entity as proprietor of the instrumentalities used . . . or regulatory fees (including licensing and… Read more »

Jack Prior

Ted — Can the demolition fee incorporate a (larger) portion of indirect incurred costs associated with administering the zoning, planning, and review processes associated with development and building activity? The fee can not be a profit center toward other portions of city government like education but perhaps development overhead might be apportioning differently?

Kathleen Kouril Grieser

Ted – My understanding is that ISD used to charge a flat fee (I think it was $15.50) for any demolition permit, but fairly recently changed the pricing to align with building permits as a percentage of the costs ($20 per $1000 of projected costs). Clearly the newer pricing seems more rational and certainly generates more revenue. But neither the flat fee nor the percentage of costs fee has any relationship to the expenses to the City associated with ISD approving a demolition permit. One could argue that the Preservation Planner’s time preparing a brief report on the historic nature/value of properties that must go before the Historical Commission for demolition delay consideration is a cost, but I don’t recall hearing that ISD even inspects houses for which demolition permits have been requested – so what is the expense to ISD? the time it takes a staff member to fill out and rubber stamp the permit? That’s why I found the case law you cited very interesting, especially this part: 3. Finally, the charges “are collected not to raise revenues but to compensate the governmental entity providing the services for its expenses.” According to this decision, City Hall should calculate the expense of the Preservation Planner’s time on an average Historical Commission demolition delay report + the ISD staff member’s time to fill out and stamp the demolition permit and the cost of that combined staff time should be the amount charged for a demolition permit fee for houses that… Read more »

Elaine Rush Arruda

Great reporting, John! Thank you for bringing this data to our attention.
Couldn’t the cost of the demo permit have to pay for the landfill costs for the city? I don’t know if developers in Newton are allowed to dump the debris in our landfills, but if that is the case, there is a cost associated with it. Also the wear and tear on streets from the dumpster trucks, backhoes, etc. cost the city money. You should see Sharon Ave., Robinhood, Crescent St., Auburn St. from all the demos!
Maybe these laws (I believe they are state, correct?) need to be questioned and changed. I know that in Minnesota, developers are required to pay fees toward parks and open space. You should see the fabulous parks around the Twin Cities!

Ted Hess-Mahan
Ted Hess-Mahan

@JJPrior, based on its Emerson College v. City of Boston decision, the Massachusetts Supreme Judicial Court has generally struck down impact fees for residential development to fund additional firefighting services, educational infrastructure, and an affordable housing fund, because they benefit the entire community. Impact fees related to improvements such as expanded water or sewer connections, on the other hand, have been held constitutionally valid, because they confer a particularized benefit to the fee payer.

The demolition permit application fee must be based on the service provided, i.e., the issuing, processing and regulating the demolition permit. They are assessed at a rate of $20 per $1,000 for the estimated demolition costs. Building permits are also assessed at $20 per $1,000 of estimated construction costs. Building permit fees compensate the city for inspections, planning, and other costs incurred in issuing, processing and regulating construction, which includes making sure that the building plans and construction comply with the state building code, and the city’s zoning and stretch energy code. The city also charges fees to apply for a special permit or variance. Again, these are intended to compensate the city for the issuing, processing and regulation of zoning relief.

Julia Malakie

I knew that fees were supposed to be based on the cost of providing the service or regulation, and I knew that building permit fees were based on the (supposed) construction cost, but I hadn’t really thought about the inconsistency of that. The cost of inspections, etc, doesn’t necessarily correlate with the cost of construction, in one house is using more expensive materials, or better paid labor, than another.

But a bigger question I have is about estimated construction costs that seem unrealistically low, given the selling prices of the houses. Does anyone determine whether these estimates turn out to be true? And how would anyone even be able to do that?