Weathering fluctuations in building permit revenues.

• Author: Cowans, Bruce
• Position: Best Practices

Rates for building permits are based on anticipated demand, which is difficult to predict. Boom-and-bust cycles often result in either too much or too little revenue.

Economic fluctuations make it difficult for governments to break even on the cost of providing building permits, which are required in most states. Rates are based on anticipated demand, which is difficult to predict. Boom-and-bust cycles often result in either too much or too little revenue. A surplus may lead to legal trouble, while a revenue shortfall may result in budget and service cuts.

Building departments are usually funded via permit fees paid by builders. Most building departments are part of the general fund, but many operate as enterprise funds. These departments offer a variety of services that may include site planning, plan review, trade permits, storm water drainage plans, arborist review, zoning, septic and well, and sediment control.

The major expenses for any building departments are personnel related --relatively fixed costs that can be forecast with a high degree of certainty. Annual revenue, in sharp contrast, is highly variable, boiling down to demand, or how many builders submit applications in a given year. This number may fluctuate significantly over time. Based on U.S. Census data from 2000 to 2014, the number of residential permits was 25.9 million in 2005, 7 million permits in 2009, and 12.6 million in 2014.

Over this volatile 14-year period, during times of low permit volume, many departments were forced to cut staff. Some departments even went through multiple rounds of staff reductions as they sought the optimal staffing level. When applications picked up with the economy, the same departments needed to recruit and train new staff to handle zoning reviews, plan reviews, and onsite construction inspections.

Though building permit departments have started to process more applications, they have not increased staff at a comparable rate. There are two reasons: 1) competing for experienced staff with technical skills in construction and trades is difficult in a relatively strong economy, and 2) building departments have taken advantage of computerized tools that can streamline the plan review and inspection processes. Automation has allowed for electronic plan submission and mobile applications for scheduling and reporting on inspections.

A surplus comes with its own set of problems. Revenues in excess of costs leaves permit departments open to...