Mello Roos 101, A Reader’s Digest version of Mello Roos.
Proposition 13 severely limited governments ability to use property taxes to finance public facilities. As an alternative method of financing, the Mello-Roos Community Facilities Act was created in 1982. Mello Roos enables public agencies such as counties, cities, and school districts, to form “Community Facilities Districts” (CFD’s). CFD’s issue bonds and create special “taxes” to finance public improvements and services as needed. These “taxes” (Mello Roos) is the debt service on these bonds that are passed on to the buyer.
In most of Aliso Viejo and many other newer cities or unincorporated areas or newer communities within established cities or unincorporated areas, you pay an annual “tax” that goes toward payment of the CFD bonds. The initial amount of that “tax” is based on the size of your home. In subsequent years, these “taxes” will not increase substantially because a cap on annual increases in the maximum “tax” has been incorporated into the bond plan. As an example, in Aliso Viejo, for the fiscal year 1991-92: the Capistrano School Districts CFD (CFD No. 87-1) which provides for local schools, ranges from approximately $158.10 for smaller attached homes, to $492.66 for up to large-size detached homes, and the maximum annual increase is 2%. The Orange County CFD (CFD No. 88-1), which funds road improvements and public safety facilities, begins at $654.95 for smaller attached residences, and ranges up to $1,636.90 for larger detached homes. The increase in the maximum “tax” for this CFD is capped at an annual amount of 3.5%. Your CFD “taxes” are payable as part of your regular tax bill. Is this amount tax deductible? Check with your tax advisor. This example was for Aliso Viejo only. Characteristics of each CFD including maximum caps will and do vary from CFD to CFD.
Builders, developers, commercial and industrial land owners, pay Mello-Roos taxes by the acre. Mello Roos is also paid by apartment owners commercial and industrial facilities.
Can Mello Roos go up higher than the stated maximum cap? If the total amount isn’t already at the maximum amount for a given property, it could jump to that maximum, which could be in excess of the stated maximum cap percentage per year. This maximum amount is stated in the “White Report” on a new property and disclosed if you get a report similar to Property ID and/or the Mello Roos disclosures issued by David Taussig and Associates on resale properties.
Could additional CFD’s be added? Yes, if the voters voted them in, which is highly unlikely. The way the CFD’s were created in the first place, was when there are fewer than 11 registered voters in an area where CFD’s are being considered, there doesn’t need to be a public vote. The land owners make the decision whether to establish the CFD’s and pass off the debt service (Mello Roos) of these bonds to the property owners or pay for the schools and infrastructure and charge more for the properties.
Remember – Mello Roos goes up every year, regardless of whether or not the property value goes up or down. The increase is minimal, however. In Aliso Viejo, this amount ranges from 2% to 3.5% of the current Mello Roos amount. As an example, if you’re currently paying $500.00 and it goes up 2%, that’s only $10.00 for the year.
All CFD’s are not the same and vary in amounts, increases, maturity dates, etc.
