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-RoosCFD 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.
