State Supreme Court Says Troy’s Inspection Fee Profits Illegal

In a little noticed but potentially significant decision released last week, the Michigan Supreme Court found the city of Troy violated the law when it charged building inspection fees that exceeded the reasonable cost of providing the service.

The court, in a unanimous opinion, said state law requires that such fees bear a “reasonable relation” to the cost of the inspections. It also said that Troy’s use of surpluses to recoup what the city said were historical deficits in its building department did not meet that test. The Supreme Court ordered the case, initially filed in 2010, returned to the Oakland County Circuit Court for an examination of more evidence on the precise cost of providing inspection services. In Troy, the inspections are conducted by a contractor, but the city retains 20%-25% of the fees collected.

Lee Schwartz is the executive vice president of the Home Builders Association of Michigan, the lead plaintiff in the lawsuit. Schwartz said the court’s decision was a straightforward endorsement of the association’s underlying argument, and it should put municipalities around the state on notice that excessive fees are unlawful.

“Our position is simple,” Schwartz said. Fees “have to bear a reasonable semblance to the cost of providing the service. Troy and some . . . other jurisdictions went way out of bounds.” Evidence presented in the litigation showed that Troy had kept excess fees totaling $2,326,061 in the years 2012-16. The money was used to offset deficits from previous years and the cost of administering the program, Troy’s attorneys argued.

The unanimous court said, however, that state law “does not envision a ‘surplus’ baked consistently into the fees.”

Troy City Attorney Lori Bluhm said she viewed the ruling as a “mixed decision” and maintained that the city’s fee structure is reasonable. City officials are reviewing the decision, she said.

Schwartz said the plaintiffs, who include two other construction industry associations, hope that the city will agree to talk about a more equitable fee structure in the wake of the high court’s decision.