The city is in talks to settle a lawsuit with Lawrence home builders who allege building permit fees collected by the city are used improperly.

Attorneys for both sides confirmed Thursday that settlement talks are under way and are serious.

“I think it would be fair to characterize both sides as hopeful that a settlement will be reached,” said Terrence Campbell, who represents area home builders and the Lawrence Home Builders Assn.

But neither Campbell nor Gerald Cooley, the attorney who represents the city, would comment on whether the potential settlement would involve a money payment to home builders, a change in building permit policy or both.

The builders allege the city is using building permit fees to improperly fund activity not related to traditional building inspections. State law requires fees collected by government to support services used by the people paying the fees.

In particular, the builders complain that building permit fees are used to pay for rental and environmental inspectors and other programs not directly related to regulation of construction activity.

Cooley declined to get into the specifics of the case, but said the fact that settlement talks were under way was not an admission of guilt on the city’s part.

“The city felt and continues to feel that it was doing what was necessary to run the department and other departments that contribute to the building inspections program,” Cooley said. “It is just a question of one side’s interpretation versus the other side’s interpretation.

“We certainly feel we haven’t done anything inappropriate, but there is always a reason in any case to try and resolve it to the satisfaction of both parties.”

In their lawsuit, the home builders have not asked for a specific dollar amount in damages. But Campbell indicated in a 2004 letter to city officials that he thought builders had been overcharged at least $300,000.

Late last year home builders upped the stakes in the case by filing for class-action status for the lawsuit. That would allow anyone who has paid for a building permit since Jan. 1, 2002, to receive a partial refund or monetary damages if the city were found guilty in the case.

Douglas County District Court Judge Michael Malone must approve any settlement, Campbell said.