City of Bainbridge Island's Attempt to Impose Excessive Building Permit Fees Rejected by Court of Appeals

On February 24, 2007, a panel of Division II of the Washington State Court of Appeals ("Court") unanimously determined that the City of Bainbridge Island's ("City") excessive fees on building permit applicants violated state law, specifically RCW 82.20.020. See Home Builders Assoc. of Kitsap County v. City of Bainbridge Island, No. 34743-1-II (Feb. 21, 2007).

This class action lawsuit was initiated by the Home Builders Association of Kitsap County ("Home Builders") in 2001, subsequent to the City's increase in its building permit fees from 100% of the fee schedule in the Uniform Building Code to 110% of that fee schedule. After additional inquiry, the Home Builders discovered that the City's per permit cost quadrupled those of similar jurisdictions and that overhead costs exceeded direct costs by over 400%.

RCW 82.020.020 expressly prohibits, with limited exceptions, local governments from imposing any tax, fee, or charge, either direct or indirect, on development activities. One exception includes "reasonable fees….to cover the cost to the city…of processing applications, inspecting and reviewing plans, or preparing detailed [environmental impact] statements required by chapter 43.21C RCW."

In this case, the Court was asked to determine if the Home Builders or the City had the burden of demonstrating compliance or noncompliance with RCW 82.020.020. The Court also determined what standard was applicable to determining compliance with RCW 82.20.020.

With respect to the burden of proof, the Court determined that the City, and not the Home Builders, "must show that its fees fall within the specific exemption and that they are reasonable." In doing so, the Court also rejected the City's assertion that compliance with RCW 82.020.020 merely required demonstrating that the City's fees were not "grossly disproportionate" to the City's costs of regulation:

"RCW 82.020.020 does not mention the phrase ‘grossly disproportionate.'… The legislature established that the proper measure of fees imposed as an exception to the general prohibition of fees on construction is that they be ‘reasonable.' Reasonable is defined as ‘being or remaining within the bounds of reason: not extreme: not excessive.'"

Finally, the Court ruled that the City's practice of including a pro-rata share of all municipal overhead costs, including costs only remotely related to the building department, into its fee schedule calculations violated RCW 82.02.020. Rather, the Court held that RCW 82.020.020 expressly limits the City to including only those costs for processing applications, inspecting and reviewing plans, or preparing detailed SEPA environmental impact statements in their fee schedule calculations.

This important decision is a necessary step to ensure that local governments do not use permit application fees as simply another method of raising general revenue to pay for general governmental services. Similarly, this decision is also necessary to ensure that local governments do not impose excessive fees for the purpose of discouraging development. The Home Builders were represented by Richard M. Stephens.

Click here to read the Court's decision: HBA Opinion (PDF)

Additional articles on this case:
Rachel Pritchett, BI Lawsuit Over Use of Permit Fees is Back in Court
(Feb. 24, 2007).

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