New-housing infrastructure fees stir up the suburbs

Deep in a report by the trade group Housing First Minnesota on fees cities collect on new housing is a little chart that shows how Prior Lake's residential land costs $80,000 to $125,000 an acre while it's just $21,000 per acre in a nearby unincorporated part of Scott County.

It was Prior Lake City Council Member Kevin Burkart who pointed out this land comparison with neighboring Credit River Township in the builders' association report. It annoyed him — and with good reason.

The chart suggested some sort of direct comparison of two ripe apples. Yet Burkart noted that only the buildable land in Prior Lake lies inside a city, with infrastructure already in place that cost money. It's not pastureland.

The builders' association report undoubtedly drew the attention of municipal officials in the region. Among other things, it suggested Prior Lake and other towns run their parks departments as profit centers. A chart showed Prior Lake collecting more park-dedication fees for a couple of recent years than the city spent on developing parks, and the difference was labeled "park net revenue income." Only Lakeville had a more "profitable" park building service line.

Well, not exactly. What's happening is that cities collect fees in one year and then acquire land and build parks in following years.

In Prior Lake, they might be particularly sensitive right now to charges of burdensome city fees because one of the legs of the chair the city relied on to fund growth has been knocked out.

Like other municipalities in the region, Prior Lake once had a fee for streets and roads that was charged to developers on a per-acre basis as new developments took shape. It might be called different things, but think of it as an infrastructure fee. Such fees had to be tossed overboard as a result of a high-profile court case that last year went against the city of Woodbury.

This dispute went back to when Woodbury proposed a fee that exceeded $20,000 per acre for a cost of future road construction on a new subdivision proposed by Twin Cities developer Martin Harstad. The money would cover the cost of bigger roads that would be needed in the future, when the development proposed by Harstad eventually had all 183 of its planned units.

Harstad apparently didn't bother trying to negotiate down what turned out to be a seven-figure infrastructure fee, instead deciding to sue the city. He prevailed all the way through an appeal to the Minnesota Supreme Court.

There are other ways to fund road construction in developing communities other than on the infrastructure fee the Harstad case effectively killed, but the number reported by the Prior Lake American was $25 million in costs that existing property owners of Prior Lake would now get stuck paying as the city continued to develop.

That sounds like an awfully big total for a small fee. The city had been charging only about $6,500 an acre — or about a third of what Woodbury proposed for Harstad's deal — but there are about 3,500 acres in Prior Lake still to be developed.

This infrastructure fee problem wasn't just of concern to City Hall insiders, Burkart said; residents clearly shared it. One taxpayer idea he heard was slapping a moratorium on new building until a permanent funding source was put in place for all the infrastructure that's needed.

These Prior Lake residents had grasped the issue, he said, and that's all about whether the developments pay their own way or instead find a way to get existing taxpayers to pay for some of the costs.

As Burkart put it in an e-mail, "I don't want to socialize street improvements related to growth over our 26,000 existing residents." That is, the upside for the new development deal is going to go to the landowner and developer, but some of the cost gets picked up by taxpayers already in Prior Lake.

A fee reduction for new development is pretty much a dollar-for-dollar increase in the taxes of everybody else.

To put excessive fees in the context of the growing problem of not enough affordable housing, Burkart continued, is irritating. Knocking out the funding source for stuff that needs to get built anyway means "making housing more affordable for some" while making it less affordable for others.

There are financing tools left in the drawer, said Casey McCabe, the city's community development director. One idea is having the city declare that a proposed subdivision is "premature" if it lacks some necessary infrastructure, like streets not up to city standards, putting the cost back on the landowner and developer.

"The city's position is that the system we had in place was fair, where the developments paid for traffic improvements that were needed," McCabe said. "I don't want to throw any other communities under the bus … but the traffic fee Prior Lake was charging was $6,549 an acre. Prior Lake would be looking for a reasonable, equitable infrastructure fee much like the sewer costs and water costs and parkland dedications as provided for in the statute."

In a second conversation with Burkart this week, he said he still didn't know how the proposed bill would fare in the Legislature, but he sounded more optimistic that cities could work out a funding solution with the builders' trade association.

Prior Lake certainly doesn't seem to be interested in pursuing the only other option.

There is another option, of course, and that's nobody pays much. Instead of funding a new intersection of paved streets with stoplights and turn lanes, the city could just leave all the intersections in the newest part of town completely uncontrolled. Then when everyone's going off to work and school in the morning, neighbors will find out who really understands right-of-way rules.

Or maybe there's no paved street at all. A gravel road would be even cheaper.

lee.schafer@startribune.com 612-673-4302