Construction Permit Delays? Higher Permit Costs?

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The U.S. Chamber of Commerce Foundation recently published its Enterprising Cities Regulatory Climate Index 2014 (Index), assessing 5 areas of regulation across 10 cities in the United States: (1) Dallas, Texas, (2) St. Louis, Missouri, (3) Raleigh, North Carolina, (4) Boston, Massachusetts, (5) Atlanta, Georgia, (6) Detroit, Michigan, (7) Chicago, Illinois, (8) Los Angeles, California, (9) San Francisco, California, and (10) New York, New York.

The Index’s 5 areas of regulation represent the life cycle of a business: (1) starting a business (see Table 5), (2) dealing with construction permits (see Table 6), (3) registering property (see Table 7), (4) paying taxes (see Table 8), and (5) enforcing contracts (see Table 9). To measure the regulatory burden, it looked at (A) the number of procedures, (B) time to comply with the requirement, and (C) the costs and fees paid to the government or service providers that are required by the local laws. The Index’s scores and ranks are the simple average of ranking of all 5 areas of business regulation in each of the 10 cities; each of the 5 areas of business regulation is again the simple average of the normalized values of procedures, time, and costs; and each component in an area of business regulation is ranked relative to the other 9 cities.

The Index concludes that “[a]mong these 10 cities, Dallas and St. Louis impose the lightest regulatory burden on small businesses. Raleigh, Boston, Atlanta, and Detroit have moderate overall scores. New York City, San Francisco, Los Angeles, and Chicago, on the other hand, are marked by high regulatory requirements to open and operate small businesses (Table 3).” The overall scores of the 5 areas of regulation for the 10 cities indexed (see Table 4) are:

  1. Dallas — 89.5
  2. St. Louis — 85.2
  3. Raleigh — 73.7
  4. Boston — 73.3
  5. Atlanta — 72.7
  6. Detroit — 64.9
  7. Chicago — 52.9
  8. Los Angeles — 47.9
  9. San Francisco — 41.3
  10. New York — 34.7

With regard to the second are of regulation — dealing with construction permits — the Index recognizes that obtaining construction permits varies substantially across the nation, including the cost, time and required procedures depending on the zoning approval process, environmental reviews and building permit reviews. It reported that the regulatory costs average 1% of the construction costs and 3 months of processing to complete a set of 15 standard procedures for both pre- and post-construction phases for small commercial buildings.

It also reported that the costs of construction permits varies substantially across the nation — Dallas, Raleigh, and St. Louis have the lowest fees for administrative compliance, ranging from 0.3% to 0.7% of the total cost of construction; Atlanta, Boston, Chicago, Detroit, and New York City have moderate costs of permits, ranging from 0.8% to 1.3% of total construction costs; and Los Angeles and San Francisco have the highest costs of permits at more than 3.0% of total construction costs. It estimated that the costs to obtain construction permits in San Francisco and Los Angeles are about 10 times the permit costs in Dallas and Raleigh, and the waiting times for permits are as low as two months in Raleigh, Dallas, and St. Louis, but at least twice that in Chicago, Los Angeles, and San Francisco. It concluded that these costs are largely driven by the additional procedures required by those cities (e.g., San Francisco requires builders to submit a city environmental quality review that would cost an extra $50,000 in fees (the equivalent of 1.6% of the construction costs) and it takes (at least) an extra 66 days to review; Los Angeles has a similar procedure, but with a lower cost). In contrast, Atlanta, Dallas, and Raleigh offer expedited and streamlined services for construction firms when applying for permits and provide express services for inspection.

Additional Source: The U.S. Chamber of Commerce Foundation, Enterprising Cities Regulatory Climate Index 2014 (May 11, 2014); The Business Journals, Hey business owner – you want easy? Try Dallas. Want hard? Try New York (May 12, 2014)