Minnesota Supreme Court Ruling on Infrastructure Fees
September 20, 2018
In a win for Minnesota developers and commercial real estate, last month the Minnesota Supreme Court ruled in Harstad v. City of Woodbury that cities may not charge developers for infrastructure improvements that aren’t on their property.
The ruling stems from a 2015 developmental housing initiative when New Brighton developer Martin Harstad planned to build a 183-home development in Woodbury. The city indicated Harstad would need to pay an additional $1.3 million in Major Roadway Assessment (MRA) fees for future improvements on various roads that were not on his property. The city’s argument was that the MRA fee was paying for improvements needed for the increased traffic caused by the development. Paying this fee would have added thousands of dollars to the price of each home, ultimately impacting the homebuyer. Harstad sued the city over the fee.
Infrastructure fees are not uncommon in Minnesota. Cities have often held developers responsible for increased traffic by charging them to compensate for future use and improvement costs. Following the Supreme Court ruling, many other developers facing the same issue are eager to see current and future projects move forward. Additionally, Housing First Minnesota – the public policy arm of the Builders Association of the Twin Cities – is currently working to provide a closer examination of which Minnesota cities are charging infrastructure fees.
However, not all is said and done. The Minnesota State Legislature has the final say during the upcoming 2019 legislative session. Through state law, the legislature is expected to consider new limits on development fees. Critics have explored responses as expansive as development moratoriums in response to the decision.
While the Harstad decision concerned a residential development, the decision may give pause to cities seeking to raise new revenue without increasing their property tax levy. In 2016, the City of St. Paul lost a similar court case regarding a right-of-way assessment that raised $30 million annually. Court decisions and stronger legislative oversight will shine the light of transparency into more local government budgeting.
NAIOP is working hard for its members to ensure that fees assessed by cities on developers are fair and reasonable. Our public policy team will continue to do so during the upcoming legislative session where this ruling may be discussed.