City admits to accidental overcharges, plans refunds

Whitefish city officials say an error in calculating impact fees caused newer homeowners to be overcharged, but the issue has been corrected and refunds are planned accordingly.

City Manager Dana Smith acknowledges that city staff made an error in calculating water and sewer impact fees that likely resulted in overcharges for new developments. The city implemented new impact fee amounts in 2019.

“We did find an error in our program calculator, in which we account for the number of fixtures per building,” Smith told City Council. “We’re aware of that issue. It’s a very limited window that we’re going to have to look at for about two years. We’re going to look back at those buildings and see if any refunds are required.”

Smith said city staff is working on reviewing the fees collected based on plumbing fixtures, but an exact timeline for when refunds will occur is uncertain because of other projects staff is currently working on. A total amount for all the refunds is not yet available, she noted.

The error was revealed after Whitefish residents Paul Gillman and Bill Burg brought forward concerns about the city’s calculation of impact fees.

Gillman, who has a background in computer science, began examining the impact fees after looking at constructing a home addition. He claims that overcharges could average thousands of dollars per home building permit.

Impact fees are one-time charges for new development, whether new subdivisions, a new home on a lot or a remodel of an existing home, that increases the demand for city services. Whitefish collects impact fees in seven areas, including sewer and water. Impact fees can be used for public improvements and to recoup the costs from such previously incurred by the city.

Under state law, cities are required to review and update impact fee studies every five years. In 2018, Whitefish completed a study of its impact fees and new fees went into effect in 2019.

FCS Group, a consultant hired by the city, conducted the study of the city’s impact fees in 2018 suggesting increases or decreases in the different individual impact fees. One of the areas where the consultant suggested the city increases fees was for wastewater to pay for the planned construction of a new wastewater treatment plant.

Based on their own calculations, Gilman and Burg also claim that the city is incorrectly charging for its impact fees.

"Impact fees are governed by Montana statute 7-6-16 that puts strict limits on what types of projects can be included, how fees are calculated and the max fees that can be collected," Gillman said in a letter to the council. "The City of Whitefish appears to violate all of these restrictions."

They claim the city based calculation of its fees on an incorrect table, didn’t take into account different sizes of water meters and used capital improvement projects that were never constructed in determining its fees.

Smith said she followed up with FCS Group regarding the impact fees after the error was found. Changes to the impact fees were only made to take into account planned infrastructure projects in the city, she noted.

“I do believe that we are assessing impact fees correctly based on my conversations with FCS Group,” Smith said. “I am waiting for an email that says that and will forward that on to Mr. Gilman.”

Whitefish’s impact fee uses a base fee and then adds costs for types of plumbing fixtures to determine the final fee.

Gillman and Burg claim that the city’s error resulted in a large increase in impact fee collections.

Prior to the increase in fees, in fiscal year 2018 the city collected about $488,000 in sewer and water impact fees. In FY20 the first full year after the increase, the city collected about $1.5 million.

Smith says that while the dollar amount for impact fees collections went up that was largely due to the increase in building permit numbers rather than the adjustment made to the fees themselves.

In 2020 for the calendar year, there were 354 building permits issued, which is up more than 150 permits from calendar year 2018 when the permits totaled 200.

Both Gillman and Burg requested that the city undergo an outside audit regarding the impact fees.

Smith says she’s met with Gillman and Burg said she’s not opposed to doing an audit of the fees and points out that the city is subject to audits by the state.

“But I also question the use of taxpayer dollars to audit something that has gone through a significant public process,” she said. “I’m an open book, there’s nothing we are trying to hide.”

Council appeared confident in Smith’s explanation of the situation.

Councilor Andy Feury said he’s comfortable foregoing an outside audit.

“I think Dana caught the imperfections in our spreadsheets, and I’m perfectly fine with that,” he said. “That’s why we hired FCS in the first place to make sure we are charging the right amount to be fair to our residents. I think we proceed as we are right now. And if there are refunds we will get those back to people.”