City's Director of Development and Construction Shelves Proposal For Permit Fee Hikes

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Theresa O'Donnell, director of Sustainable Development and Construction for the city of Dallas, called a little while ago to discuss developers' concerns over a City Hall proposal to hike building permit fees. She says she was "surprised and disappointed" by the letter several high-ranking members of the North Texas Commercial Association of Realtors and Real Estate Professionals sent to Mayor Tom Leppert, City Manager Mary Suhm and the council late yesterday -- in large part, O'Donnell says, because those are the very people who said they would support such a plan if the city could promise it would restore services eliminated due to layoffs in recent years.

"In January, we began meeting with the contractors and big [developers] and said, 'What do you want to see?'" O'Donnell tells Unfair Park. "And they said, 'We'll pay more if you restore services.' So we spent January through April with a number of industry leaders to come up with more services they wanted us to provide and a price they were willing to pay so we could recoup our costs. That's what we presented to the Economic Development Committee [on August 2]. But in the last week or so, it started to come loose. We got that letter last night. We started scrambling around and talked to everyone and said, 'We thought we were on the same page.' And we clearly aren't."

So much so O'Donnell responded today with a letter of her own in which she says she's shelving the proposal for the time being: "Let's all take the time to do this right so that
next year, no one is surprised or feels left out," she writes. The letter follows. So too a Q&A with O'Donnell about what led to the proposed fee hike in the first place.

When the proposal went before the council committee three weeks ago, not much was said -- at the time or even in the weeks after. But then, of course, things began unraveling. Why?

Let me give you some background first. The first thing a lot of people don't realize is: The building inspections department is an enterprise fund department, which means that we are a fee-for-service department. The fees that are charged for building permits and inspections, that's the revenue used to pay the salaries, the operating expenses, everything for that staff. We don't rely on the general fund at all.

Now, our department is tied to the construction industry -- so closely, as a matter of fact, that about a year and a half ago, when that industry started to collapse, our fees fell through the floor. And because the fees represent our ability to pay for staff, we cut the staff last year by 50 percent.

From what to what?

We had about 264 funded positions and cut 130. That's about right. Some of those were vacant positions, and we laid off 87 people who had jobs. So we had a drastic cut. But just because our revenues fell 50 percent it didn't mean our workload fell 50 percent. You have this unusual occurrence where a few large permits can skew the revenue, such that it makes it look like you've got a quite a bit more work than you have.

We'll issue 28,000 permits a year, and at least two-thirds of those are a fella coming in and wanting to put a deck on his yard or someone needing a water heater. But in that are maybe the 200 permits that are the eye-popping Uptown and downtown multistory buildings. Those projects generate a lot of fees, and for years there was so much revenue coming to building inspection that the $60 water heater permit wasn't covering the true cost of providing that, but there was a lot of money coming in, and we hadn't scrutinized fees in a while. But when we had the drop, it was the eye-popping properties going away, not the water heaters, and it revealed quite a few blemishes in our system. So we we spent the last year putting a critical, analytical eye toward what's the true cost of our services.

We said: It's $25 for a pluming re-inspection, but is that the true cost of service to put an inspector in the truck, have him drive out there, enter the data in the computer, red-tag or green-tag a job, drive back out there and so forth? So we went through to scrutinize all our fees and see where we needed to make adjustments and see which other services our customers wanted us to provide. Last year, we had to cut non-core services ...

Which means what?

Well, we put in place some boutique services-- a small division of four, five people who only did residential permits for new homes. In 2006 we were permitting between 3,800 and 4,000 new homes every year. Last year, we did 700. So we didn't need a special team for new-home residential. We had the express plan team. We cut that. They did expedited plan review, and we knew we couldn't provide a special team. All the specialized services were cut. They were eliminated, and we hunkered down to focus on core issues.

So while revenue dropped 50 percent, our workload, depending on what aspect you were looking at, dropped 12 to 15 percent. But our staffing level dropped by half. So the people remaining have to work a whole lot harder, our review times go longer, our customers got more frustrated.

So in January, we began meeting with the contractors and big [developers] and said, "What do you want to see?" And they said, "We'll pay more if you restore services." So we spent January through April with a number of in industry leaders to come up with more services they wanted us to provide and price they were willing to pay so we could recoup our costs. That's what we presented to the Economic Development Committee [on August 2]. But in the last week or so, it started to come loose. We got that letter last night. We started scrambling around and talked to everyone and said, "We thought we were on the same page." And we clearly aren't.

So we're not gonna do it. I sent out e-mails this morning apologizing, saying we thought we had a consensus. We even had members of those organizations at the briefing with us. These are services we thought our customers wanted, and if they don't want them we're willing to withdraw this fee proposal and maintain the current level of service today. We do not want to be disruptive to our customers. If they feel like this was rushed or if this was not in due course and done hasily, we'll back off. I told my boss [Assistant City Manager A.C. Gonzalez], "We're backing off, and we need to step back and start work with them at the beginning of the year about next year."

When you got the letter, you were ...

Quite surprised. [She laughs.] We had six or eight meetings with all of these organizations. We got kind of a cryptic phone call about 3:30 yesterday afternoon hinting some kind of letter was being drafted, and we didn't know what it was about. And I was surprised and disappointed. I thought we'd done a good job. We clearly we not reading the tea leaves right, so we'll take a step back and take a deep breath and start over.

This year's budget ... well, it's too late to try to negotiate. There are some complicated things in the letter they want to talk about, and since the budget will be approved in a month, it's not prudent to rush through this. We can certainly agree we'll work immediately on next year's budget and go through these things in a thoughtful way and do a broader attempt to include everybody in these conversations. I don't know where the disconnect is, but if we can fix it, we will. It's no big deal.

What's most disappointing about the proposal falling through?

It's disappointing that we can't improve our service to the industry, but that to me is what our department is about -- providing the level of services the industry wants at a price they're willing to pay. It's about economy. And the fact is, the council's zoning agenda was over by 1:30 today, and that tells me the economy isn't strong yet. If our customers are telling us it's not time, we'll work with them. They'll tell us when it's time.

One of the chief issues people had with the proposal was the addition of fees to permits for homes in historic districts. Some preservationists feel like there should be no fee, since historic-home owners already have to jump through myriad hoops others don't to make sure they conform to the Landmark Commission's rules regarding changes allowed to their properties.

We're a fee-for-service department, but there have been some free-riders -- like the historic folks. We had initiated some new fees so they'd have to pay something. It was not a full cost recovery, but a modest fee. We used to have six historic planners, and now we're down to only one this year, so we were trying to get some additional resources to supplement that. It's hard for me as a director to take resources from the plumbers and building inspectors when one department's getting a free ride. We hope to put more equity in the system, but maybe we'll wait. But their problems with the fees? That's a rationalization. They're free riders in a pay-as-you-go system.

Below is the text of O'Donnell's e-mail:

From: O'Donnell, Theresa
Sent: Wednesday, August 25, 2010 5:00 PM
To: Macey Davis
Subject: RE: Meeting on Permit Fee Increases

Hi Macey

Thanks for your encouragement. I think Manny and John did a nice job today and I really appreciate what they had to say. Their basic concern was not being included in a meaningful way in these negotiations and I heard that loud and clear.

As you know, I pride myself on conducting an open and transparent process that listens to all stakeholders and constituents. We clearly didn't hit the mark on this effort, so it's only appropriate that we take a step back.

There is a lot of "meat" in the letter you sent to Mayor and Council that warrants a thorough review and measured response. Given the short amount of time remaining before the final budget goes to Council, I don't believe we could do an adequate job addressing all the concerns expressed by the various groups. The FY10/11 Budget goes to CC for adoption in less than a month! As you can well imagine, a mountain of paperwork is required to get to that step. Trying to introduce new concepts, provide analysis, reach consensus, brief the necessary committees on the changes and get the proper documentation submitted is next to impossible at this late date. More importantly, it would put the industry leaders in a squeeze to study this new information, make decisions and formulate positions with very little time to really absorb and consider all aspects of any proposal. There is no reason to put that kind of pressure on anyone. The industry is still languishing and we are sensitive that, we don't want to add to their difficulties.

As always, we are committed to working with the industry through this transition. However, it is simply not prudent to rush something through at this late date. Let's all take the time to do this right so that next year, no one is surprised or feels left out.

I'll be out for the next couple of days taking care of the girls, please contact Betty if we can be of additional assistance. Thanks again for all your help on this.

Best regards,

Theresa
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