Santa Rosa is considering an overhaul of the building fees it charges for everything from replacing a water heater to building a Wal-Mart.

Instead of basing fees on the values of projects, the city is following the lead of many other communities and may set its fees on the actual cost of providing plan reviews and building inspections.

The change has been in the works for years, but it took a back seat after the recession forced cutbacks in the city's Community Development Department.

Now that the budget has improved somewhat, the city has finished a lengthy study of how much it costs to process various permits and soon will ask the City Council to consider wholesale changes to how fees are set.

The council heard a summary of the study last week, opened up a 45-day comment period and set a public hearing for Nov. 5.

The changes could have major implications for the building industry in Sonoma County, depending on how much of the city's cost the council decides to recover for private development.

The city passed a policy in 2004 calling it "desirable" for all "development related" fees to recover 100 percent of the cost of processing development applications.

Fees rose in the following years, but they never got anywhere near 100 percent of the processing costs.

The study showed that the city spends just over $5 million annually on development activities but collects only about $2.6million in fees for those same activities.

That means the city is recovering only 52 percent of its costs, effectively subsidizing private development activities with $2.4million in general tax revenue per year.

"If you don't increase fees, you will continue to subsidize with the general fund to the tune of $2.4million per year," Chad Wohlford, a Sacramento-based consultant, told the council.

Some of that subsidization has been intentional. Many fees, such as those for appeals and changes to homes in historic districts, have been intentionally set low to not discourage citizen participation. Others services, like pre-application reviews, are free.

In general, the smaller the project, the less of its costs the city recovers.

For example, a conditional-use permit costs the applicant $221, but runs the city $1,190, for a subsidy of $969. That's a paltry cost-recovery rate of 19 percent.

A building permit for a 2,500-square-foot custom single-family home, including plan check and inspections, costs the developer $2,825, compared to the full cost of $4,117. That's a 69 percent cost-recovery rate, or a $1,292 public subsidy.

While most fees are lower than the full cost of performing the service, some are higher.

The study found that the $208 fee to install a residential solar panel array was 103percent of the city's costs, while the $2,397 in fees for a 2,000-square-foot production home were 139percent of the city's costs.

Community Development Director Chuck Regalia explained that the city recovers less of its costs under the current valuation method because the work of processing permits for a small home is not that different from what's needed for a larger one.

"There's still the same number of inspections on a new single-family house whether it's 900 square feet or 2,200 square feet," Regalia told the council.

As a result, switching from the valuation method to the cost method could end up increasing fees for smaller homes and reducing them for larger ones.

For example, planning and building permit fees for a 1,000-square-foot home are $1,547, or 43 percent of the total city cost. The same fees for a 10,000-square-foot home increase to $8,341, or 137 percent of the cost of providing the services.

This means that the city for many years has been effectively making money from permits for large homes and losing money on permits for smaller homes.

If the city requires 100 percent cost-recovery, which is not expected, the fees for the 1,000-square-foot home would increase by $2,035 while the fees for the 10,000-square-foot home would decrease by $2,265.

While there can be the perception of inequity when communities make such changes, generally residents are pleased to know they are switching to a system that is "fair and equitable and reasonable and defensible," Wohlford said.

The city already has been in contact with building trade groups to discuss the changes, Regalia said. The trades already feel the city's permit costs are too high, but he said he hoped they can come up with changes the building industry can support.

Councilman Gary Wysocky recommended Regalia take a "flak jacket" to that meeting.

"I'll be a surprised if they agree to any increase in fees. That's just the nature of the beast," Wysocky said.

(You can reach Staff Writer Kevin McCallum at 521-5207 or kevin.mccallum@pressdemocrat.com. On Twitter @citybeater.)