Building Inspection Fees Are in Crusader’s Sights

A retired Palm Springs developer is on a crusade to prove that California counties and cities dramatically overcharge for building inspections -- and a growing number of government officials say he’s right.

Dick McCarthy argues that local governments routinely violate state law by charging more for building inspections and other services than they cost to provide. In effect, he says, these inflated fees amount to a hidden tax used to pay for other government services.

In response to his complaints, five cities, as well as Riverside and Orange counties, voluntarily slashed fees. The city of San Marcos, for example, dropped its tract-home inspection fee to $750 from $3,150 after he proved that inspectors weren’t spending the time on job sites to justify the charge.

Local governments are facing the most severe cash crunch in a decade, and McCarthy’s activism threatens to take away millions of dollars in revenue just when municipalities need it most.

Nowhere are the stakes as high as in Orange County, which is now McCarthy’s biggest target.

The county slashed its fees after he first complained in 1997. But he says the fees are still too high. So he -- with home builder Barratt-American Inc. and the Paladin Group, a government-fee consulting company he founded -- has sued the county.

Orange County Superior Court Judge C. Robert Jameson will decide later this year whether the planning department must refund millions of dollars in excess revenue collected before 1999.

The planning department already finds itself in a financial crisis, and having to refund millions of dollars would make the situation worse.

The department has seen a sharp drop in revenue because of the earlier fee cuts, as well as the slowing economy. Officials last month laid off 20% of the department’s staff and proposed fee increases of 50% or more.

The lawsuit, one of six McCarthy has filed against local governments, is being closely watched by the building industry.

At issue is a state law that says local agencies cannot charge a fee or service charge, or increase those charges, beyond the amount required to provide the service unless it is approved by voters. Any excess charges collected must be used to reduce the fee or service charge creating the surplus.

Orange County maintains that its fees do not violate the law. Attorney Jeff Dunn, who is defending Orange County, Encinitas and Corona against suits by McCarthy, said the fees have properly recovered the cost of providing the services plus overhead needed to run the government. The law, Dunn added, does not require governments to account for how their spend every dollar of fees, only that the fees generally reflect the cost of providing the service.

Because of lawsuits filed by McCarthy in San Diego County, several cities have begun changing the way they charge for inspections and other building services. Instead of charging a flat rate, they charge hourly fees to cover the staff time and related expenses.

Orange County Supervisor Chris Norby, who was sworn in last week, said he supports changing the county’s fee approach. “The fees should reflect actual costs, not be used as just a way to pile costs on home builders,” he said.

Paul Tryon, executive vice president of the Building Industry Assn. of San Diego County, said these changes are long overdue.

“These jurisdictions have relied on custom and history, and they haven’t been challenged [until now], so they didn’t change what they were doing,” Tryon said.

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McCarthy launched his effort in 1989 after balking at fees charged for four custom homes he was building in Palm Springs. He’d returned to the building business after a several-year hiatus helping U.S. intelligence officials monitor civil unrest in Central America.

McCarthy, 77, said his goal is simple.

“We’re just saying everyone should pay their fair share, nothing more, nothing less,” he said.

A case against Murrieta was settled in 1999 after officials admitted that the city’s method of calculating fees was “unreliable, inaccurate and improper,” according to the settlement agreement. The fee for inspection and plan checks dropped to $488 from $1,300.

Cases that McCarthy brought against Encinitas and Rancho Cucamonga were rejected, with the judges ruling he waited too long to challenge the fees. He’s appealing those cases. A trial in Corona begins next month. A hearing date hasn’t been set for a lawsuit against Lancaster.

Developers across California are yelling louder than ever about what they consider the unfair burden of fees.

In a 2001 report called “Pay to Play: Residential Development Fees in California’s Cities and Counties,” the state Department of Housing and Community Development said residential fees add an average of $24,325 to new subdivision homes. That amount covers building inspections as well as fees to build schools, parks and make street improvements.

Tom Ingram, who retired last month as Riverside County’s building director, was one of the first local building officials to support McCarthy’s efforts.

They met in the early 1990s after McCarthy had alienated many building officials in Southern California by distributing cartoons showing bureaucrats gored by lance-wielding knights.

“They thought he was a raving maniac,” Ingram said.

He thought McCarthy had a point. Several years earlier, Ingram convinced Riverside County supervisors to stop transferring unspent building fees into the general treasury.

Riverside County eventually adopted a new system that charges developers based on the type of inspector and how much time is spent on the job. Fees for a 3,400 square-foot tract home now run about $700, based on roughly $100 per hour for seven hours of inspection time.

Orange County charges a flat fee for the same size home of about $2,750, based on tables published by the International Conference of Building Officials.

Orange County Auditor-Controller David E. Sundstrom, however, has suggested that new fees be set based on billing for time and materials, plus overhead.

“This method will provide a much higher level of accountability,” concluded a report on the planning department prepared by County Executive Officer Michael Schumacher.