The Vermillion City Council may help the Vermillion School District cut the price tag of the new elementary school currently being constructed in the city by reducing the city’s building permit costs.
It’s an idea that was explored by council members at its noon meeting Tuesday. City staff will further explore the issue and craft an option for the city council to consider later this month.
With an estimated total cost of $33.5 million, the permit cost of the new elementary school building will total about $101,000. That’s about 0.3% of the cost of construction.
The school district, having experienced increased costs in building materials as it launched the new elementary project, is exploring ways to decrease its total price tag.
City Building Inspector Kalin Bird shared data he had compiled of the permit costs of recent building projects in the Vermillion School District. The 2020 building addition to Vermillion High School, with a total cost of $2.1 million, had a permit cost of $5.5 thousand. That adds up to be 0.2% of the total construction cost.
The district remodeled locker rooms in school buildings in 2016. That project had a price tag of nearly $851,000. The district paid $2.3 thousand in permit costs, which was about 0.2% of the project’s cost.
In 2015, the district completed a $490,600 remodeling of various parts of Vermillion High School. Permit costs were roughly $1,400 or 0.2% of construction costs and in 2014, the construction of a $104,500 trade school building at the high school had permit costs of $445 which is 0.4% of the total construction cost.
“Where does the money saved go if we are going to reduce it (the permit cost) from $101,000?” Bird said. “Does it go to the contractor? They are set with a bond of $33.5 million. Our permit costs – if they save anything, where does that money go?
“We don’t really have any reductions in the past that I could find,” he said. “Everything kind of seemed to be on that fee schedule.”
Bird noted that a recent $14.7 million high school addition in Harrisburg required over 100 inspections with a total cost of $34,000. That could mean Vermillion’s new elementary school project will demand more than twice as many, or over 200, building permit inspections from the city.
He said it is up to the city council members to determine what a fair building permit cost should be for the school project.
Bird said, in answer to a question, that the city’s permit fees are not dependent on the number of inspection visits by city staff to a building project.
“The way our fee schedule works is the estimated construction costs,” he said. “Our fee schedule — it doesn’t say if there are 100 inspections or three inspections. It includes our review time, our inspection costs, but it’s based on the estimated construction costs, so (for the elementary school) it’s based on the $33.5 million.”
The city used a fixed schedule, Bird said, but it varies depending on the total construction cost of a building project in areas of review time and inspection time.
“You as a council adopt a resolution which says what the building permit fees that staff are to apply to all of the building projects that happen that are issued a building permit,” City Manager John Prescott said. “So I would assume that the council has the ability to change or grant an exception because you approve the resolution that sets the rates and fees.”
Data that Bird has collected shows that Vermillion’s building permit fees are not out of line with those allocated to building projects in Sioux Falls and Harrisburg.
“If that’s the case, that’s fine, unless we’re getting twice the money we need to inspect the construction,” Council member Rich Holland said, “and that — you can’t tell me.”
“This is a difficult one because in our lifetime, we haven’t built a new school in the community from the ground up,” Prescott said. “The ‘70s was probably when the newest building was built – the middle school – and like a few projects we’ve had, this is a multi-year building project. Most of ours are done in a week, it could be a couple months, but this is probably a two-year project so it’s a little bit harder to know what all of those costs would be.”
Bird noted that a new Family Dollar retail store building currently being constructed in Vermillion has demanded multiple inspections.
“For a house, we basically have your footing, framing and final (inspections),” he said. “Granted, we come back for changes that need to be made if we find anything wrong, but with Family Dollar, I’d say we’re not at the final stage and I’ve probably been there 10 times.”
“Have we ever reduced building permits or waived building permits for any other organization in the past from the last recent years?” Mayor Jon Cole asked.
“No, essentially the only thing we do in our reduction is like utility costs, whether it be the hookups or the taps or anything like that, which is the same thing we’ve done with this one (the elementary school project),” Bird said, “like the water and sewer taps. With the electrical, I think the only thing they have (now) is temporary power. I don’t think we’ve ever waived or reduced an actual permit cost.”
“Are they just trying to completely eliminate the building fee?” Cole asked.
“I don’t think so,” Bird replied, noting that Superintendent Damon Alvey was attending the meeting.
“How this came to be is the lead contractor (for the elementary project) is from Nebraska and when they’ve done public entities like schools, they’ve never seen a building permit issued to the schools in a community because basically you’re taxing the same people that are paying for this to go forward,” Alvey said. “It’s not part of our project; it will come from someplace else in the budget.
“The contractors don’t get this; this will just take something away from someplace else in the project — whether it’s another piece of it or something has to wait a year or two to get done,” the superintendent said, “so we’re asking for the whole thing if it all possible, but based on what you’re saying, obviously there’s time and effort from the city that needs to be accounted for.”
Alvey said any reduction the city could provide would be appreciated.
“When you’re over budget, you’re always looking for places to cut,” he said, “and like most people who are building right now, we’re over budget, so we would appreciate any kind of consideration for a reduction so we could use those dollars for something that would enhance the project.”
Voters in the Vermillion School District approved a $26 million bond issue in November 2021 to finance the new school project. Project building costs have since risen to $33.5 million.
“We have $2.5 million of fees on top of that, so we’re at a $36 million project as of right now,” Alvey said.
“Where’s the rest of the money coming from?” Council member Mike Murra asked.
“We’ve taken out Capital Outlay certificates, which is a debt that the school district owns and pays for over time,” Alvey said, “and we’ve used our Capital Outlay reserve dollars that were already built into the project.”
“Is there such a thing where an extension of payment can be applied or granted where that payment won’t be due until further down the road?” Cole asked.
“That’s a council direction we can easily work out,” Prescott said with a bit of humor. “I’m fairly certain the school district isn’t going anywhere – we can track them down if that’s something that the council wants to do.”
He noted that this is a challenging issue for the city council “because an important aspect of having our community grow is getting the new school built. That’s certainly something the voters spoke to and that’s something we want to see happen for our community for the long run.”
Prescott noted that the council’s decision may set a precedent for city inspection costs for other future building projects in the community.
Council members discussed a number of different ideas, ranging from dialing back the building permit fee for this project to the city’s schedule in 2021, to perhaps offering sales tax breaks for building materials.
The city raised its permit costs this year. Using the fee schedule that was in place at the time of the bond issue vote in 2021 would lower permit costs for the new school by approximately $16,000.
The contractors involved in building the new school will pay sales taxes on the needed construction materials.
“I think the key would be making sure with an agreement that (sale tax) rebates, because the contractor will pay the sales tax, the rebates that a contractor might get falls back to the school district,” Prescott said. “If we could make that happen, it potentially could be more than $100,000.”
He suggested to council members that the city issue the building permit for the new school project while city staff works on various options for a permit cost to the school district that would be determined and approved in the future.