Reforming Houston's Permitting Process

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This is the third in a series of white papers I have released on what I believe to be important issues facing the city of Houston that will also have the benefit of illustrating my approach to policymaking. The first white paper covering my position on the minimum wage can be viewed here, and my second white paper covering my pension reform proposal can be viewed here.


Dear Fellow Houstonians --

The Houston Permitting Center (HPC) has become a notorious bureaucratic labyrinth that industry, entrepreneurs, and builders complain is slowing down the speed of business in the city. In order to make sure Houston continues to be a city built for business, rectifying this problem must be of the utmost importance to the next mayor and city council.

Those applying for required city permits and licenses often tell stories of being given incomplete and conflicting information depending on whom one is speaking to at the moment. In addition, HPC customers complain of having to deal with a frustrating run-around due to different cogs in the system only knowing their small function and not knowing the functions of other parts of the system. 

That leaves permitting customers – including trained construction management professionals – bouncing around from one department to another until they hopefully are able to talk to the correct person...eventually.

Also, certain industries are complaining that there are businesses ready to open that are being delayed only because they are unable to obtain the necessary permits and licenses due to backlogs at the HPC. 

All of this wastes time and money (but I repeat myself.)

I have heard many meritorious proposals to improve the permitting process, including ePermitting and allowing building plans to be submitted via PDF files instead of carting wheelbarrows full of building plans around the HPC. However, while these may be very good solutions for remedying the challenges to an effective and efficient permitting process today - just like bringing all of the city's permitting apparatus under one roof was yesterday's solution when the HPC was created - my concern is what can we do to make sure that there is a continuously improving process that is able to adapt to new innovations in the future?

Now, I cannot claim to be an expert on permits (although it doesn't sound like the experts are doing such a great job, given the number of complaints,) but what I do know about is how to leverage competitive market forces to improve value and customer service.

Therefore, in consultation with architectural and construction management professionals, I have devised the following proposed reforms to leverage competitive market forces to improve the customer experience of those seeking to add to the built environment and do business in the city of Houston.

This proposal broadly outlines the direction I believe Houston should head with regard to creating a continuously improving permit-issuing process. However, this is not intended to be a final product, and I'm sure that there will be many additional suggestions to improve it in the future as further input from industry and stakeholders is received.


Elements:

1.    Competitive Permit Marketplace

The city of Houston collected $34.2 million in permitting fees in Fiscal Year 2013 – which is enough revenue to support the creation of a market in which city of Houston permits were transformed into commodities that could be generated by any number of companies that the city may certify to issue permits.

The city should open up the permitting process to private vendors such as SAFEBuiltBureau VeritasSGS, or any other qualified private companies that want to enter the permit-issuing market in Houston. As stated, these private vendors would be required to go through a certification process designed to ensure that quality, competent companies are safeguarding this important municipal function.

The process each vendor uses to acquire supporting documentation to make sure that applicants are in compliance with the city's codes would be left up to them, as would the fees that they charged for each permit so as to allow each vendor the flexibility they need in order to efficiently deliver high-quality permits that capture their costs for delivering the permit. 

The only caveat is that certain permits and licenses would have certain fees built into them that would need to be remitted to the city in order to fund the city's operations to police the industry. For example, the costs associated with health inspections of restaurants and food trucks would have to be built into the price of permits and licenses for those entities and remitted from the vendors to the city to fund those inspections.

The permits each vendor issues would then be electronically filed with the city.

Private permitting vendors would be able to apply to be certified to issue as many or as few types of permits as their company would like. Some companies may choose to specialize in construction permits while others may choose to specialize in commercial permits, for example. Likewise, some companies may prefer to not be the entity issuing sexually oriented business licenses.

The idea would be to create a competitive marketplace for obtaining city permits in order to encourage vendors and the HPC to make the process for obtaining all necessary permits as efficient and consumer-friendly as possible while still upholding the standards of the city of Houston’s codes.

Unlike the current system in which the HPC government-permitting monopoly outsources overflow building permits to Bureau Veritas – which then essentially acts as an unaccountable private monopoly – under this proposal consumers will get to choose from which company it will obtain its permits whether it be a private vendor or the HPC.

 2.    Public Option

The city should continue operating the Houston Permitting Center, but it should be required to operate without losing money. To help the HPC achieve this goal, the city should grant to the HPC complete flexibility over how to operate, restructure, and set prices for permits and services in order to fund its operations. 

The reason for granting this price flexibility instead of a pre-determined menu of permit rates is that the price of a permit should reflect the amount of work and expertise required in order to evaluate a permit application to ensure public safety.

The price of a permit should not serve the purpose of a back-door tax to raise revenue for the general fund.


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3.    Quality Control

 An independent permitting quality control inspection group should be formed in order to conduct statistical samplings of private vendors' permits and the HPC’s permits on a proportionate basis for quality control purposes to make sure that all codes are being properly adhered to and enforced.

A fee paid by the private vendors and the HPC based on the proportion of permits each issues should fund the quality control group.

4.    Quality Assurance Incentives and Disincentives

Quality control is extremely important since the codes are in place to protect the public. As such, there should be quality assurance incentives and disincentives put in place to incentivize the highest standards of code compliance and to discipline code noncompliance.

A menu of fines should be developed for certain failures to ensure that permits are only issued to those that are up to standard, as determined by the permitting quality control inspection group. If a fine at a particular rate does not effectively dissuade noncompliance, the fine should either be raised or a vendor’s ability to issue permits should be suspended.

At the end of the year, fines collected in each code category should be redistributed as quality control bonuses to vendors with the best quality assurance record for that time period in each code category.

5.    Mechanism to Eliminate Codes and Permits that do not Materially Advance Public Safety

It should be the policy of the city of Houston that codes requiring permits and licenses be narrowly tailored in order to ensure public safety and that the costs of compliance with those codes is consistent with the benefits derived from them.  

Therefore, a mechanism should be developed in order to help the city eliminate codes and permits that serve as little to nothing more than paying a fee in exchange for a piece of paper that does nothing to achieve the goal of improving public safety. Likewise, codes that require expenses far in excess of the benefits derived by the general public in order to comply with should be either eliminated or modified to be more cost-efficient.

The mechanism should involve paying a fee in order to file a complaint stating that a certain part of a code requiring a permit is not materially advancing public safety.

If the complaint is found to be frivolous, the fee should be forfeited. If the complaint is found to be meritorious, the fee should be refunded. If the complaint is found not only meritorious but the code is ultimately repealed because it is indeed found to not materially advance public safety, the person or entity filing the complaint should receive a monetary award – such as, possibly, the refunding of all fees the complaining person or entity has had to pay over the past ten years in order to obtain that permit.

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Why this will make for a greater Houston (Benefits):

1.    Choice and competition will deliver superior pricing, efficiency, and customer service to those requiring permits to comply with the city code.

For those frustrated with the city's permitting system, this allows an alternative. With the competitive market forces brought to bear, private permit vendors will have every incentive to outperform – in price and service – the Houston Permitting Center to provide their customers with quality, efficient, and accurate permits and licenses.

Likewise, with the flexibility granted by the city to the HPC, it will be given the opportunity to improve its performance to retain customers.

2.    Savings to the city of Houston.

As the private vendors gain expertise and market share, the mandate that the HPC remain financially self-sustaining will cause it to either dramatically improve its efficiency or to gradually wind-down as its functions are naturally outsourced over time to private sector vendors as dictated by market demand.

Either way, the city of Houston will be saved millions of dollars a year if the result of outsourcing municipal building departments, alone, in other mid-sized cities is any guide.

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3.    Savings to private industry.

More importantly, by reducing permitting delays those seeking required permits in order to comply with the code should be saved countless time and money while reducing the overall time it takes to construct buildings and get businesses up and running in the city of Houston.

With these productivity gains, the city’s construction workforce should gain capacity to build more buildings with the same amount of people by reducing the amount of aggregate time spent on construction delays due to permitting delays.

Likewise, the increased efficiencies realized in obtaining commercial permits by reducing the cost, expense, and time required in order to obtain those permits should make Houston a more business-friendly city and increase economic activity citywide. Since a large portion of the city's revenue is derived from sales taxes, it is also possible that this reform could directly contribute to at least a small increase in sales tax receipts as delays in getting businesses up and running are reduced.

4.    The public will be safer than ever. 

The quality control group funded by vendor fees as well as the quality assurance incentives and disincentives will ensure the public is safer than ever and that the city remains ultimately responsible for code compliance enforcement. Also, the potential to eliminate codes that serve no public safety purpose allows for there to be greater focus on codes that do bolster public safety.

 5.    Ineffective codes will be eliminated.

The mechanism to eliminate parts of the code that do not materially advance public safety – including taking into consideration a cost-benefit analysis of the effect of the code – will ensure that the city’s codes and permits are relevant to the overall health and safety of Houstonians instead of back-door 
taxes that simply add time and expense to doing business in the city of Houston. With this, the city’s codes should gain new relevance and respect.

I would love to get your feedback on my proposal as well as gather your input on any additional suggestions you have for improving the permitting process, public safety, and the speed of business in Houston. To join or endorse my campaign, please sign up here.

For a greater Houston,

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Jonathan Hansen
Houston City Council At-Large Position 4, candidate
HansenForHouston.com