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What
is Mello-Roos?
Background:
In 1978 Californians enacted Proposition 13, which
limited the ability of local public agencies
to increase property taxes based on a property’s assessed value.
In 1982, the Mello-Roos
Community Facilities Act of 1982 (Government Code §53311-53368.3)
was created to provide
an alternate method of financing needed improvements and services.
The Mello-Roos Community Facilities Act of 1982
The Act allows any county, city, special district,
school district or joint powers authority to
establish a Mello-Roos Community Facilities District (a “CFD”)
which allows for financing of
public improvements and services. The services and improvements
that Mello-Roos CFDs
can finance include streets, sewer systems and other basic infrastructure,
police protection,
fire protection, ambulance services, schools, parks, libraries,
museums and other cultural
facilities. By law, the CFD is also entitled to recover expenses
needed to form the CFD and
administer the annual special taxes and bonded debt.
Why is a Mello-Roos CFD Needed?
A CFD is created to finance public improvements and
services when no other source of
money is available. CFDs are normally formed in undeveloped areas
and are used to build
roads and install water and sewer systems so that new homes or commercial
space can be
built. CFDs are also used in older areas to finance new schools
or other additions to the
community.
How
is a Mello-Roos CFD Formed?
A CFD is created by a sponsoring local government
agency. The proposed district will include
all properties that will benefit from the improvements to be constructed
or the services to be
provided. A CFD cannot be formed without a two-thirds majority vote
of residents living within
the proposed boundaries. Or, if there are fewer than 12 residents,
the vote is instead
conducted of current landowners. In many cases, that may be a single
owner or developer.
Once approved, a Special Tax Lien is placed against each property
in the CFD. Property
owners then pay a Special Tax each year. If the project cost is
high, municipal bonds will be
sold by the CFD to provide the large amount of money initially needed
to build the
improvements or fund the services.
How is the Annual Charge Determined?
By law (Prop. 13), the Special Tax cannot be directly based on the
value of the property.
Special Taxes instead are based on mathematical formulas that take
into account property
characteristics such as use of the property, square footage of the
structure and lot size. The
formula is defined at the time of formation, and will include a
maximum special tax amount
and a percentage maximum annual increase.
How Long Will the Charge Continue?
If bonds were issued by the CFD, special taxes will be charged annually
until the bonds are
paid off in full. Often, after bonds are paid off, a CFD will continue
to charge a reduced fee to
maintain the improvements.
IMPORTANT TO KNOW:
• Rights to Accelerated Foreclosure. It is important for CFD
property owners to pay
their tax bill on time. The CFD has the right (and if bonds are
issued, the obligation) to
foreclose on property when special taxes are delinquent for more
than 90 days.
Additionally, any costs of collection and penalties must be paid
by the delinquent property
owner. This is considerably faster than the standard 5 year waiting
period on county ad
valorem taxes.
• Disclosure Requirement for Sellers (California Civil Code
§1102.6). When reselling
a property in a CFD, the seller must make a “good faith effort”
to obtain a Notice of
Special Tax from the local agency that levies the Special Tax, and
provide it to the buyer.
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