The Massachusetts legislature passed a bill this session that extends expiring building permits for an additional three years, joining four other states that have already enacted similar legislation, while several others currently debate the issue. Proponents tout the permit extension law as a low-cost economic stimulus initiative, protecting the backlog of permitted, shovel-ready projects that have stalled because of the economic recession.

Opponents of the blanket permit extensions – primarily municipal organizations and environmental groups – say the laws are unnecessary and deprive municipalities of a formidable leveraging tool. Environmentalists contend the laws exempt projects from compliance with environmental ordinances passed during the past two years.

“There is no evidence that viable projects are being held up or jeopardized under current law,” according to a statement by the Massachusetts Municipal Association, which represents the state’s cities and towns. “Cities and towns already have the authority to extend local permits, and do so routinely. Communities are motivated to extend local permits for approved projects in order to gain the revenue and economic benefits of development.”

To date, New Jersey, Pennsylvania, North Carolina, and South Carolina have passed permit-extension laws, while several large municipalities are considering extension legislation. Pennsylvania was the most recent state to pass such a law, basing its provisions on New Jersey legislation enacted two years earlier. The Pennsylvania law extends any permit valid on January 1, 2009, to July 2, 2013. The law applies to a wide range of state and local approvals, including site plans and building, water, sewer and road permits. The Massachusetts law extends permits issued between January 1, 2008, and January 1, 2011, for three years.

Proponents of the permit-extension legislation contend that stalled projects are languishing because of soft demand, which makes it difficult to secure necessary financing commitments from risk-averse lenders. In better economic times, these permitted projects would already be under construction, advocates say. With permits in hand, developers are poised to move forward as soon as the economic environment improves.

Expiring Permits

The danger of allowing permits to expire, advocates say, is that the arduous process of obtaining a new permit must start again, requiring additional financial commitments and causing extended delays that would slow recovery.

“We ought to make sure that all the hard work that had been done obtaining permits at local, regional, and state levels doesn’t evaporate in the middle of this downturn,” says Greg Peterson, an attorney with Boston-based Tarlow Breed Hart & Rogers, who represents developers. “What I’m hearing from clients is that, in the middle of this downturn when they can’t get financing and tenants aren’t sure they want to commit to leases, they’ve got variances and permits that are going to expire. With no money coming in, they’re being asked to spend money on lawyers and engineers to get extensions to renew permits to keep a development job alive.”

Advocates also point out that developers are not the only ones hurt by an expiring permit. Government tax revenues will also suffer. Development parcels with building permits in place are taxed at higher rates than parcels without development approval. When permits expire, tax revenues drop.

Renewal Worries

While the most vocal opposition comes from municipal officials, their opposition is not universal. Veterans of municipal economic development who have shepherded projects through the permitting process warn that without blanket permit extensions, renewal of even the most desirable project is not a certainty.

“I would have no problem ceding control [of permits] to the state government if it expedited construction,” says Jim Kostaras, former executive director of strategic planning and community development for Somerville, a close-in Boston suburb. “My concern is when a permit expires, you open the door to people who didn’t support the permit in the first place. They will rise again and tack on amendments or additional requirements that force developers back into the permitting process.”

While municipal officials assert that permits are extended all the time, Kostaras, now a senior associate at the Institute for International Urban Development, a nonprofit development consulting firm, says renewals seldom take place without controversy. “The city could easily extend a permit, but then members of the planning board could start jockeying to drag it out. Procedurally, extending a permit is an easy thing to do, but politically it is problematic.”

Others in the development industry note the strong connection between permits and financing, and warn that an expiring permit could break that connection. “Permitting and obtaining financing go together, and both stars have to align for the project to move forward,” says Jim Bachelor, president of Arrowstreet, a Somerville-based architecture firm and a ULI member, who has guided many projects through the permitting process. “That applies to site permits as well as building permits,” he adds. “Site permits don’t include the details of a building permit, but the elements are more political. In some cases, if a site permit expired, the project would die and never revive.”

“Renewing a permit, even in a situation where everybody is completely happy, with 100 percent support, it could take three or four months to renew, and that’s the best case,” says Peterson, the Boston attorney. The country is experiencing an extraordinary economic crisis, which justifies the extension laws, he says. “Municipalities must recognize they were careful in the initial review process and trust that it deserves an extension.”