Montgomery County building permit fees assailed by developers

Woodfield Investments, a Virginia real estate developer, wanted to move forward with plans for Mallory Square, a $40 million, 365-unit apartment complex on Shady Grove Road west of Interstate 270. But Woodfield hit pause when it learned the cost of the Montgomery County building permit: roughly $1.1 million.

If Woodfield were doing business within the city limits of Gaithersburg, a few miles north in Montgomery, a permit for the same project would cost about $400,000. Across the river in Alexandria, the estimated cost was $300,000.

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Such disparities are at the center of a debate between Montgomery officials and developers who say some of the county’s fees are excessive. The costs are a prime example, they contend, of how the county has earned an “anti-business” reputation that has damaged its ability to compete against other localities.

“The math just doesn’t work to our advantage,” said Scott Zimmerly, a regional director for Wood Partners, another firm that wants to build apartments in Montgomery.

A group of developers is pressing County Executive Isiah Leggett (D) to trim some fees. In response, Leggett has asked aides to form a working group of industry and county representatives to review the matter.

“It’s an economic development and competitiveness issue,” said Robert Kaufman, vice president of government affairs for the Maryland National Capital Building Industry Association, who has been leading the business effort. Some of most prominent names in the region’s development industry are involved in the push, including the Bozzuto Group, Camden Property Trust and EYA. Other interests are represented by attorneys with Lerch, Early & Brewer and Linowes and Blocher, two prominent law firms with developers as clients.

At issue is a very specific kind of construction: three- to five-story “stick-built,” or wood-frame, apartment buildings. They are less costly to build than steel and concrete projects, and developers see a robust market for them in the fast-growing northern part of the county. But building-code requirements make them more expensive to inspect, Montgomery officials said.

The details are complex and highly technical. All jurisdictions collect fees to cover at least some of the cost of building inspections and plan reviews. But formulas for calculating fees vary widely, depending on the size and type of project, how the regulating agencies are organized, and the extent to which developers, rather than taxpayers, are expected to bear the costs.

With millions of dollars possibly on the table, the industry push has produced tensions between Kaufman and Diane Schwartz Jones, director of the Montgomery Department of Permitting Services. The two jousted for months in meetings and in testy hallway encounters before Kaufman decided this summer to go directly to Leggett.

In an interview, Jones said she supported creating the working group, but she also described Kaufman’s initial approach as “bullying” on behalf of a select group of developers seeking exceptions to the rules.

“We’re not opposed to looking at our fees,” she said. “But if a change is going to be made, I need to be able to explain it and understand it, and not just make the change arbitrarily because some group of developers wants to pay less for their projects.”

Kaufman said bullying was not his intent. “I’ve never thought of myself as a bully,” he said. “All I can say is, ‘Here are the facts, and you tell me how you want to deal with it.’ ”

The lobbying also comes at the beginning of the 2014 election cycle, in which Leggett is seeking a third term. The county’s real estate sector has been active in funding past campaigns of Leggett and one of his two competitors in the 2014 Democratic primary, former county executive Douglas M. Duncan. The third declared candidate, County Council member Phil Andrews (D-Gaithersburg-Rockville), does not take money from real estate interests.

Leggett has agreed to cut an information technology fee that developers pay — to support the Department of Permitting Services’ IT operations — from 10 percent of a permit’s cost to 5 percent.

Through his spokesman, Patrick Lacefield, Leggett said politics had nothing to do with the decision to cut the IT fee or to entertain broader reductions. Kaufman concurred.

“He doesn’t need us,” Kaufman said. “I’m sure it doesn’t hurt that this is a political season, but I truly don’t believe he made that calculation.”

Unlike in many localities, the DPS is an “enterprise fund” operation, meaning it runs solely on user fees and takes no money from the county’s tax-supported general fund. Jones said the fee-based approach frees up taxpayer money for other services — such as police, fire protection and schools — that jurisdictions with lower permit fees don’t necessarily fund. The city of Gaithersburg, for instance, relies on county-funded schools and fire protection.

The fees underwrite a “one-stop shop,” created in 1996 to consolidate 10 regulatory activities that had been administered by four county departments. Those activities include the enforcement of electrical, mechanical and zoning codes, storm-water and flood-plain management, sediment control, and well and septic system approval. The DPS will also be responsible for administering new regulations to protect the county’s tree canopy.

But there are costs associated with being “ready to serve,” as Jones put it.

To build in Montgomery means “you’re paying for the costs of us being there and the costs of services we provide,” she said.

But Kaufman said members of his group think they are paying an unreasonable premium for doing business in the county.

“I don’t think there’s something special about Montgomery County that reviewing things costs three times more,” Kaufman said.

The DPS has operated at a surplus for the past two years, reflecting an uptick in economic activity. It collected $43.7 million in the fiscal year that ended June 30, about $2.5 million more than forecast. In fiscal 2012, it reported $39.9 million in revenue, 17.5 percent more than estimates.

But that followed four years of recession and economic stagnation, when revenue came in low. “We’re completely dependent on the development cycle,” Jones said.

Direct cost comparisons with other jurisdictions are problematic, Montgomery officials contend, because permitting agencies offer different portfolios of services.

Alexandria, like Montgomery, runs its building permit operation as a self-sustaining enterprise. But, unlike the DPS, Alexandria’s Department of Code Administration doesn’t enforce the zoning code or compliance with site plans — detailed drawings, sometimes required of developers, that depict roads, parking, landscaping and other promised features.

Mallory Square, for instance, is a site plan project. That’s one reason an Alexandria building permit for a similar project would cost about a third as much as a permit in Montgomery.

“A lot of their fees are more comprehensive than what we have,” said James Hunt, Alexandria’s permit center division chief.

How jurisdictions calculate fees for building permits can vary widely. Gaithersburg charges a straight 1 percent of construction costs. Fairfax County takes the total square footage of a project and applies a multiplier set by law. Montgomery applies multipliers to construction costs based on recommendations by the not-for-profit International Code Council.

Developers have also expressed frustration that a permit for a high-rise apartment building in Montgomery costs less than for a mid-rise, such as Mallory Square.

For example, builders of a 17-story apartment tower on Ripley Street in Silver Spring, which has 351 units, or roughly as many as Mallory Square, paid $289,000 for a construction permit, according to county records, far less than the $1.1 million fee Woodfield faces.

The reason, according to DPS officials, is that Mallory Square is treated as if it were five buildings because mid-rise, wood-frame apartment structures are divided by fire walls. It means they usually have separate stairwells, alarms and sprinkler systems. Concrete and steel high-rises, while larger, turn out to be less labor-intensive for regulators.

Kaufman said the Mallory Square project is on hold until the permit fee comes down.

Woodfield partner Margaret Smith Ford did not respond to phone messages seeking comment. In an Aug. 20 letter to Leggett, Ford thanked him for his willingness to entertain the issue of fee reductions and his “commitment to keeping Montgomery County competitive with our neighboring jurisdictions.”

 
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