Feature Story:

Is the Economy Threatening Building Code Effectiveness?

There's been a decade of steady progress toward implementing a single national model building code in all communities across the country. Since the legacy code groups combined forces to release the first international code in 2000, many states have put such model codes into effect. However, even though the pace of new construction has slowed significantly, economic issues still threaten code adoption and enforcement progress in many areas of the country. Community resources have become overextended, forcing difficult decisions by local officials. And unlike earlier in the decade, when states more rapidly adopted model code version changes released every three years, many states have now slowed their new code edition adoption rate. Since the mid-1990s, ISO has been at the forefront of code monitoring through the Building Code Effectiveness Grading Schedule (BCEGS) program.

Figure 1:
Current Adoption by Region

This chart shows the percentage of departments adopting the latest edition of the code, the year after publication of a new edition. The spike for the west in 2007 is a result of California adopting a new code for the first time since 1997. 2010 adoption rates decreased in all regions from previous years.

An October 2010 survey by the National League of Cities (NLC) indicated that nearly nine in ten city finance officers are less able to meet their fiscal needs than in 2009. The NLC noted that the weak fiscal condition of the nation's cities will most likely extend for another 18 months to several years. The NLC study also pointed out that cities are instituting hiring freezes, laying off personnel, and delaying or canceling planned infrastructure projects to close funding shortages. Those effects are widespread across municipal governments around the country and not many agencies or services are exempt, including municipal building code administration. The effects may extend years down the road.

In many cases, financial woes correlate with severe local and state budget deficits. The NLC study indicates that across the country municipal funding shortfalls are likely to range from $56 billion to $83 billion through 2012. The New York Times recently reported that the effects are widespread not just in areas of the country where economic issues have existed for some time. In fact, a number of experts are likening the financial condition of some states to the period preceding the mortgage crisis financial meltdown. To cite just two examples, the city of Harrisburg, Pennsylvania, recently received $3.6 million from the Commonwealth of Pennsylvania to plug a local severe funding gap; and Tucson, Arizona, is struggling with a $20 million revenue shortfall in a state already reeling from budget issues.

Local building code agencies are not immune to budgetary issues. In fact, they may be more at risk because of a common funding model in which financial operations depend entirely on permit fees. With that model, budgets are "front-loaded" so that fees paid at the beginning of each project must fund future activities, from plan review and inspections up to and including issuance of the final certificate of occupancy. New building construction projects can vary in length from just under a year for a one-family dwelling to several years for large and complex commercial structures. Therefore, the revenue received now is critical to fund future operations, making the case for why financial operations of local agencies are an important part of the BCEGS review process.

ISO administers the BCEGS program for the property/casualty insurance industry. Following the property losses from Hurricane Andrew, a working group consisting of the insurance industry and a number of national associations and agencies, including the International Code Council (ICC), the Federal Emergency Management Agency (FEMA), the National Fire Protection Association (NFPA), and the Institute for Building and Home Safety (IBHS) formed in 1992. The group's goal was to develop a national program focused on reducing losses from natural hazards.

Since 1995, BCEGS has demonstrated that there are great variations across the country in how communities administer effective building codes. The ISO BCEGS program now evaluates more than 16,700 code jurisdictions serving more than 25,000 communities. ISO or, in some states, an independent rating bureau (Hawaii, Idaho, Louisiana, Mississippi, and Washington) collects information about the adoption and enforcement of building codes in each community. ISO or the bureau analyzes the data based on criteria in the BCEGS and assigns a classification a number from 1 to 10. Class 1 represents superior community commitment to code adoption and enforcement, and Class 10 indicates a community that has earned very few points on many evaluation criteria.

The BCEGS evaluation includes analysis of a jurisdiction's adopted code, including amendments, certifications of code officials, and staffing levels and workloads for residential and commercial construction plan review and inspection. In each category, the respective BCEGS criteria set optimal benchmark code adoption and enforcement activity levels.

An analysis of the related ISO BCEGS data shows a slowing trend of community-level code adoption even during the construction boom. In 2002, the year before code groups published the 2003 code, 90 percent of departments adopted the 2000 code. In 2005, the year before the industry published the 2006 code, 50 percent of departments had moved to the 2003 code. Then in 2008, the year before the industry published the 2009 code, slightly more than 40 percent had moved to the 2006 code. It appears that just 30 percent of code agencies will adopt the 2009 code before the publication date of the next edition.

Those trends may well lead to more staff cutbacks or consolidation through private code-enforcement agencies. In many communities, the building code department is a major source of revenue. When the department becomes a burden on the taxpayer, municipalities may curtail operations. In some places where code enforcement isn't mandatory, communities could eliminate their departments altogether. Remember that a department may have to cover inspection for years to come from the revenues it receives this year.

Figure 2:
Revenues and Expenses by Region

This chart represents the percentage of the current year's expenses covered by current year's income, for building code departments in five regions. The department breaks even for the year at 100 percent. Funds collected in one year may have to fund inspection work on that project in the future. Texas only funded 58 percent of its cost in 2009, and for 2010, they are at 114 percent, or 28 percent short of revenue for the two years. Texas has had consistently high workloads compared to the other regions.

In anticipation of a slowdown or because of budgetary issues, a sizable number of communities cut back on staffing. The sharp rise in workload for 2009 and 2010 is an indicator of those cuts. Communities with smaller populations appear to have taken the most drastic reductions, while larger communities have been able to stay very close to BCEGS benchmarks. The largest communities were close to the ISO benchmark until they spiked in 2007. Note that ISO benchmarks are averages for the entire building code department over the course of a year. For commercial plan reviews, the ISO benchmark is one plan review per plan reviewer. For residential plan reviews, the ISO benchmark is two plan reviews per plan reviewer.

Figure 3:
Residential Plan Review Workload by Value per Reviewer


Figure 4:
Commercial Plan Review Workload by Value per Reviewer

These charts illustrate the staffing trends described above. They depict the calculation of the total number of building plan reviews conducted in a year divided by the total number of plan reviewers employed that year. For both residential and commercial plan reviews, the three categories of communities with values less than one billion dollars were close to or better than our benchmarks from 2003 to 2010. The thicker blue horizontal line represents the BCEGS benchmark.

Analysis of ISO BCEGS data demonstrates that the national code adoption and enforcement landscape varies significantly. But around the country, adoption of the latest code edition is slowing, so local code enforcement agencies can't require the latest construction features despite the intent of code development groups. And to complicate the issue further, analysis of BCEGS data also reveals that the revenue-to-expense ratio of local building code enforcement agencies is dropping. That means future budgets will be even harder to balance leading to staffing and workload issues. Local community officials will need to make critical decisions to retain the integrity of the essential mission of code administration. ISO continues to monitor, evaluate, and report status of code effectiveness to insurers and the building code community. It will be important for insurers to track those trends carefully with the BCEGS program. The future of code effectiveness may well hang in the balance.

For more information . . .
. . . on any topic related to the BCEGS program, click Contact ISO Mitigation, or call the ISO mitigation specialists at 1-800-444-4554.

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ISO has embarked on a project to review and update the criteria for the Building Code Effectiveness Grading Schedule (BCEGS®). We are soliciting your feedback to help us develop modifications and additions. Learn more.