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‘But We Need the Money!’: Can Towns Boost Application Fees in a Time of Financial Distress?

Connecticut Law Tribune

April 12, 2010

Authors: Timothy S. Hollister

Anyone paying the slightest attention these days to municipal governments knows that they are straining with reduced property tax revenues, reduced state aid, and escalating costs. As a result, they are looking under every figurative rock for new or enhanced revenue sources.

One of these potential sources is application fees for land use and construction permits. This reality brings to the forefront the authority of and limits on local governments to charge application fees, and particularly whether such fees provide a means to help balance local budgets or at least reduce deficits.

As a legal matter, this issue has been highlighted recently by a case decided by the Connecticut Supreme Court. A group of builders who work in Madison have brought a class action claiming that the town, over several years, collected illegal, excessive fees for building permits. The plaintiffs’ claims include a state law count under the Unfair Trade Practices Act. The Supreme Court, in Neighborhood Builders v. Town of Madison, 294 Conn. 651 (Feb. 2, 2010), held that the plaintiffs met the requirements for class certification, and remanded for further proceedings. Another, similar case of some notoriety occurred several years ago. A three town regional school district applied for a building permit for an expansion of its high school. The host town’s building permit fee schedule was typical, charging a set fee per $1,000 of total construction cost, for a total of about $75,000. The building inspector, however, imposed a fee in excess of $300,000. A local newspaper reported his justification for this fee as, “We need the money.”

What are the rules? In general, the principle, well established in Connecticut case law (which is consistent with judicial decisions nationally), is that application fees are intended and authorized to cover the municipality’s reasonable cost of administering or processing the application. Thus, a town may charge an applicant its costs to publish and mail legal notices, to provide an appropriate location and security for a public meeting or hearing, and to hire a stenographer to transcribe a proceeding.

The power to set fees is limited by the principles that municipalities may only exercise those powers expressly delegated by the legislature or necessarily implicit in those powers, and therefore any financial charge by a municipality that is not authorized by statute or is imposed not to cover administrative costs but to raise revenue for the town’s general fund and unspecified use is an unauthorized tax.

In Connecticut, the application of these principles dates to 1872, when in Welch v. Hotchkiss, 39 Conn. 140, the Supreme Court upheld as reasonable a license fee of 50 cents to erect, enlarge, or add to any building. More recent cases in Connecticut, such as Karen v. Town of East Haddam, 146 Conn. 720, 725-26 (1959), and other jurisdictions apply the same principles.

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