correct size blogOn August 11 the Division of Local Government Services issued Local Finance Notice 2017-15 jointly with the Division of Codes and Standards to remind municipalities of statutory fee limitations and how construction code fees must be accounted and budgeted.  According to the notice, the Division issued it into the response to “instances where municipal construction code enforcement offices are consistently earning revenue well in excess of the offices’ operating costs.”

N.J.S.A. 52:27d-126a requires the municipality, by ordinance, to set enforcing agency fees for plan review, construction permit, certificate of occupancy, demolition permit, moving of building permit, elevator permit, and sign permit, in accordance with standards established by DCA.  However, those fees cannot exceed the annual costs for the operation of the construction office.  By regulation (N.J.A.C. 5:23-4.17(c)), the fees must be calculated to reasonably cover the municipal costs of enforcing the regulations to ensure that construction code revenue is used only for construction code enforcement purposes and by the means to make revenue available year to year.  The regulations further define which costs can be covered.  They include salary and employment benefits; cost of motor vehicle used for enforcement; direct costs in support such as equipment, supplies, furniture, maintenance of equipment, printing, safety equipment; professional expenses; fees for contracted private on-site inspection agencies; documented legal costs in connection with construction code enforcement litigation; annual audit fees; and indirect overhead, and other expenses of the municipality in support of the enforcing agency. Indirect and overhead expenses cannot exceed 12% of all other costs of the construction office unless the indirect and overhead expense of the municipality exceeds 12% of the municipal budget.  Then indirect and overhead construction office cost can be increased in proportion to the municipal budget’s overall indirect and overhead expenses.

If construction code enforcement is provided by a shared service agreement, one uniformed fee schedule must be applied by all parties of the agreement.  The lead agency is responsible for collecting the fees with no additional fee required to be paid by an applicant to any municipality or county.  If construction code enforcement is provided by a private on-site inspection and plan review agency the fees cannot exceed the contracted amount the municipality pays to the third party vendor, except to cover additional overhead and other operational cost incurred by the municipality.

Municipalities have two options on how to dedicate any revenues earned from the construction code enforcement fees.  The first is to state the fee revenues in a separate section of the municipal budget together with appropriations for the purposes to which such revenues are applicable; with the total of anticipated revenues equaling the total appropriations.  When using this method, the current year revenue cannot exceed the prior year realized revenue, with certain exceptions.  The second method is to dedicate the Uniformed Construction Code Enforcement fees using a “dedicated by rider.”  This method permits the accumulation of funds at a reasonable level to offset future code enforcement expense.

State regulation also requires that the appropriation and expenditures for the construction code fee revenues be tested annually as part of the municipal audit.   DCA will notify municipalities if they are required to perform further sample testing by March 1 for Calendar Year municipalities and September 1 for State Fiscal Year municipalities.  The outcome of such testing must be a separate opinion in an addendum to the annual Audit.

We suggest you review this notice along with the Local Finance Notice with your Chief Financial Officer, Construction Code Official, and Municipal Auditor.

Contact: Lori Buckelew, Senior Legislative Analyst, lbuckelew@njslom.org, 609-695-3481 x112.