Killer fees?

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CHARLOTTE – Steve Gentry is a broker for Charlotte-based Piedmont Properties, but occasionally he steps away from the company to strike a deal as a solo developer.

Recently he did just that and developed a 10,000-square-foot warehouse-type building in north Charlotte for a waste disposal company. Before starting the warehouse, he hired an engineer to lay the groundwork for his project. That set him back $12,000. Once the engineering was done, the city of Charlotte sent someone out to review the engineers work. That set him back $19,000.

He paid $7,000 more for a review of the engineering than he paid for the engineer to actually do the work.

He then paid nearly $10,000 in building permit fees and $10,000 in new sewer fees. In total, Gentry said, he paid almost $40,000 in government fees before he was handed his building permits for the project.

Developers say that these fees have increased since the city came out of the Great Recession and have risen to the point that growth could soon be affected. If the fees have a palpable effect on a project’s bottom line, it becomes harder to justify a project, they say.

The city and county said the fees have increased after years of holding steady, but only rise enough to cover the services provided.

In an interview, Gentry did some quick mental math and estimated that the $40,000 he spent in fees on his warehouse project made the rents increase in that building by 40 cents per square foot in a market where a 5-cent-per-foot increase in rents can make a deal go away. Gentry said he was fortunate his deal was a build-to-suit for his client.

“I guess this is the first time I’ve pulled a permit in Mecklenburg County since the Recession,” Gentry said. “This deal on Metromount (Parkway) was a total shock. If I’m not mistaken the fees have tripled since the Recession.”

Having to drop $40,000 for his project may have been a shock to Gentry, but it doesn’t appear that fees have actually tripled in the last half decade.

Jim Bartl, director of Mecklenburg County Code Enforcement, said they haven’t increased quite that much.

“On July 1, 2010, (Code Enforcement) raised permit fees across the board 4.75 percent, to balance our budget – after we reduced staff by 46 percent – in order to align revenue with expenses,” Bartl said. “Basically (we charge) building permit fees, plus fire fees, plus any local ordinance review fees. Depending on the scope of work, fees can also be triggered in Environmental Health, CMUD, DOT and other agencies.”

Patrick Granson, Mecklenburg County’s director of plan review and permitting, said the building permit fees include charges for building, electrical, mechanical and plumbing.

But Granson said the county isn’t just assigning arbitrary fees and charging developers egregious amounts of money. It doesn’t appear Code Enforcement is raking in big profits and sending out inspectors with gold-clad iPads just yet. The department is fee-funded, Granson said, meaning that all fees collected are recycled within the department to pay for day-to-day operations. “We balance the fees with the services; it’s always a zero balance,” he said.

But having a zero balance doesn’t mean revenue never exceeds expenses.

Whenever the department brings in more money than it spends, Bartl said the money goes into what is called a “special fund.” As recently as 2011, the special fund was depleted, and Bartl said he had to ask the county for $460,000 to make it through the end of the year. He also had to drop almost half of his staff to make it through the Great Recession. Before the Recession, Bartl said the special fund contained $8 million but the department burned through it when fees stopped coming in.

But development has returned – and developers have been paying the increased fees – and the special fund has returned to health. Bartl said the last time he checked, at the end of fiscal 2013 in July 2013, the special fund held between $5.5 million and $6 million.

Bartl, bound by county regulation, isn’t allowed to spend the reserve money on the wants, or even the needs, of his department. The only time money can come from the special fund is in times of economic hardship, when Code Enforcement isn’t making enough money to cover expenses, he said.

To developers, however, that special fund looks more like a profit than a rainy-day fund.

Milton Silver, owner of locally based Silver Investments Ltd., said the combination of fees involved in getting permitted to start construction on commercial projects is troubling.

“No questions, it will affect your bottom line,” he said. “It’s still a whole heck of a lot of money (in fees) to build out.”

And it isn’t only Mecklenburg County fees that developers have to pay; the city of Charlotte also wets its beak.

David Weekly, land development manager with the city, said the county is responsible for the “vertical aspect” of a development, anything to do with the actual structure and enforcement of state building code. The city, Weekly said, is responsible for the “horizontal aspect” of the development and enforces city ordinances such as water quality, tree saving and engineering review. And the fees can get steep in a hurry.

According to the fiscal 2014 user fees on the city’s website, the city charges fees for grading and erosion control, water detention and drainage, plan review and inspection, plan revision, tree ordinance review and inspection, tree preservation, land development, the Charlotte Department of Transportation, and engineering plan review and inspection, as well as a litany of bond fees. The specific fees change depending on the size of the project, but it’s feasible that Gentry paid $19,000 in city fees.

Silver said he paid several thousand dollars in city fees and “into the five figures” in keeping with ordinances on a 46,000-square-foot building he recently completed on Sidney Circle, close to Gentry’s project.

Nan Peterson, the city’s customer service and permitting manager, said that, like the county, the city’s Land Development Department is fully funded by fees collected. But, unlike the county, Peterson said the city never has a surplus. Instead, the department’s expenses often exceed revenue and it must borrow money from the city’s general fund.

Scott Hensley, head of Piedmont Properties, said that while the local fees are problematic for most all developers, it’s especially hard on smaller projects, like Gentry’s.

“The cost of doing business in Charlotte is getting to the point where it could stop growth,” he said. “These smaller projects, $1 million or $2 million, feel it worse. When their total cost is under $2 million, (the fees) become a big slice of their fixed development cost.”

However, developers may find that it’s not much different elsewhere.

Raleigh, which handles both permitting and land development issues for the municipality, adjusts its fees each fiscal year, and in July increased them 2.6 percent and will look to increase them again this July, according to Christine Darges, Raleigh’s planning and development manager. Mecklenburg County fees changed in 2010, for the first time since 2006, when they were actually decreased. City of Charlotte fees were steady throughout the four fiscal years of the recession and didn’t increase until fiscal 2013. Peterson said some fees increased by 7 percent, some by less than 1 percent and some remained steady.

Still, Gentry isn’t pleased with the amount of money he spent just on fees, and said he may hesitate before trying to develop something else in the city.

“It is not a fun process,” he said. “I know a lot of developers that do this every day and I feel bad for them. I took this (warehouse) deal to three developers and they wouldn’t touch it. Theyt said it was too much pain to do this deal.”