Builder or local government — who pays for development-related transportation upgrades? Division OK’s bill to clarify

Developers are in the business of building homes, but cities must determine how a proposal impacts current infrastructure — and how to pay for expected upgrades.

However, a 2018 Minnesota Supreme Court ruling in Harstad v. City of Woodbury prohibits cities from imposing a fee on developers for future street improvements needed to meet the subsequent increased capacity that results from the residential development.

That means costs fall on existing taxpayers. If the city doesn’t have the needed tax capacity — or cannot absorb the costs — a development may not happen.

“Cities are asking for a clear and lawful path forward to support development while at the same time protecting the interests of taxpayers,” a letter to lawmakers from six organizations representing municipalities read.

Rep. Sandra Masin

Rep. Sandra Masin (DFL-Eagan) proposes a solution in HF527 that would permit municipalities to charge developers fees to cover improvements to current transportation infrastructure due to the proposed development. Fees would need to be proportional to their intended purpose.

The House Local Government Division green-lighted the bill Wednesday by a 6-3 party-line vote and sent to the House State Government Finance and Elections Committee, where it is scheduled to be addressed Feb. 18.

Prior Lake Mayor Kirt Briggs said fees can currently be charged for sewer, water, stormwater and parks.

“This provides a city with a tool to equitably collect a fee as development occurs orderly,” he said. “In Prior Lake, 94% of our taxes come from residential homeowners; there is no other place to put it than on existing homeowners.”

Ken Ondich, New Prague’s community development director, noted current funds are not limitless.

“Burdening our taxpayers with these new streets is not really a viable option as we do have other, older streets that still need attention, rehabilitation and reconstruction,” he said.

Among concerns expressed by opponents, including 10 groups who signed onto a letter, is other funding options exist, including special assessments, and the proposed fee would further exacerbate the gap between Minnesotans who can afford a home and those who cannot.

Paul Eger, vice-president of governmental relations with the Minnesota Association of Realtors, said the state already lacks inventory for homes that cost less than $300,000.

“Minnesota’s housing affordability is the lowest in the Midwest, our state’s inventory of available homes is the worst in the nation and consistently ranks at the bottom, and most shamefully, our housing equity gap is the widest here in the Twin Cities in the entire nation,” said Nick Erickson, director of regulatory affairs for Housing First Minnesota. “Frankly, if we’re thinking of adding a new tax on housing at this point that is unconscionable.”

“We’d be fooling ourselves if anybody thinks the developer is paying for this,” said David Werschay, CEO of Werschay Homes.

A companion, SF277, sponsored by Sen. Eric Pratt (R-Prior Lake), awaits action by the Senate Local Government Policy Committee.