Persistence and NAHB Support Deliver Victory in Michigan Permit Fee Case

For more than 15 years, the Home Builders Association of Michigan (HBAM) has been battling the city of Troy, Mich., in court over the city’s shift to a privatized permit fee process. The case was finally decided in HBAM’s favor.

The long-running battle is a case study in perseverance and cooperation. Every time the city tried a new argument, HBAM was ready and NAHB was standing by with legal assistance.

Troy Flies Too Close to the Sun on Fees

In the aftermath of the housing collapse of the late 2000s and subsequent Great Recession, the City of Troy, in suburban Detroit, was looking for ways to save money on government operating expenses while still being responsive to citizens’ needs. Like everywhere else in the U.S. during that period, home building had ground to a halt, limiting growth for the city.

Troy contracted with a private firm to facilitate its building permit process. This firm would collect the permit fees and conduct the necessary inspections to approve the permits. It would then remit up to 25% of each permit fee to the city to use for “direct and indirect costs” associated with its building department. The city had effectively eliminated its operating costs while still collecting revenue for permitting.

But the city almost immediately started using the money for governmental functions and expenses outside of its building department in violation of the Michigan Single State Construction Code Act. That law requires city building department fees to roughly match what it costs to provide those services and that permit fees can be used only for running the building department.

In 2010, HBAM decided to take legal action against Troy and filed a lawsuit with the help of the NAHB Legal Action Fund.

The Case Drags on for Years

HBAM’s legal objections centered on two tracks:

1. The permit fees remitted to Troy were being used for other government purposes, in violation of the Construction Code Act.
2. The Headlee Amendment to Michigan’s Constitution protects residents from new taxes unless adopted by a vote of the people. In this case, HBAM argued that the remittances were “taxes” masquerading as permit fees.

Troy decided to focus on standing, arguing that HBAM had not exhausted administrative remedies by appealing the fees to the state and the City Council. The lower courts sided with Troy, but on appeal to the state the Supreme Court, the justices ruled unanimously in June 2015 that HBAM did not need to exhaust administrative remedies, sending the case back to the Circuit Court to determine if the Construction Code Act and the Headlee Amendment had been violated.

The second trip through the courts focused on whether Troy’s fees followed the law by matching service costs, or if they were just to raise revenue. Again, the lower courts agreed with the city, but, in August 2019, the Michigan Supreme Court unanimously ruled in HBAM’s favor. 

The Supreme Court then remanded the issue of eligible indirect costs to the Circuit Court to determine the correct amount. At this point, the case started to become very expensive for HBAM.

Hidden Costs of Long-Running Litigation

The City of Troy attempted to shield their permit fee remittances from exposure. They cancelled the contract with the private permitting firm and deployed creative accounting techniques to mask direct vs. indirect costs.

This is a common tactic in contentious litigation, especially against government entities. The larger party will use accounting and record-keeping tricks to slow or even halt proceedings, as rebutting the tactic requires specialized experts, which tend to be prohibitively expensive for many litigants.

To help make sense of Troy’s finances, HBAM hired their own third-party expert, Anderson Economic Group (AEG). Their Principal and CEO, Patrick Anderson, testified in the Circuit Court over two days as well as providing two separate studies of Troy’s finances.

On Feb. 2, 2023, the Circuit Court agreed that Troy broke the law by charging fees that didn’t really match the cost of providing building services. The court ruled that Troy’s building fees were an illegal tax, so the city couldn’t use costs from unrelated departments anymore. Troy appealed the decision, but the state Supreme Court once again sided with HBAM and awarded HBAM $700,000 in October 2025.

A settlement agreement was reached earlier this year.

The NAHB Legal Action Committee was involved in the case from the beginning, awarding Legal Action Fund grants and offering advice at nearly every step.

To show their appreciation for the committee’s work, HBAM returned a proportional share of the settlement — $89,000 — to the NAHB Legal Action Fund at the NAHB Fall Leadership Meetings in October.

HBAM wants other HBAs and members to leverage the expertise and funding opportunities available to them through the Legal Action Fund. NAHB staff is committed to sticking with important litigation, even if it takes 15 years. Applications are open for legal grants to be decided at IBS 2027. If you have a case that needs help, apply today.