What Is Mello-Roos?

Community Facilities District Act (more commonly known as Mello-Roos) was a law enacted by the California State Legislature in 1982.[1] The name Mello-Roos comes from its co-authors, Senator Henry Mello (of the Monterey area) and Assemblyman Mike Roos (of Los Angeles). The Act enabled “Community Facilities Districts” (CFDs) to be established by local government agencies as a means of obtaining community funding.

History

When California Proposition 13 passed in 1978, it restricted the ability of local governments to raise property taxes by no more than an inflation factor. The budget for services and for the construction of public facilities therefore could not continue unabated. As a result, new ways to fund public improvements in respective locales were considered

Districts and taxes

A Mello-Roos District is an area where a special property tax on real estate, in addition to the normal property tax, is imposed on those real property owners within a Community Facilities District. These districts seek public financing through the sale of bonds for the purpose of financing public improvements and services.[2] These services may include streets, water, sewage and drainage, electricity, infrastructure, schools, parks and police protection to newly developing areas. The tax paid is used to make the payments of principal and interest on the bonds.

Mello-Roos is deductible in some cases but not in others.

New communities

Many communities requiring new schools and infrastructures such as public parks and roads impose Mello-Roos. While property tax is assessed as a percentage of the value of the home, Mello-Roos is independent and could rise or lower and is not subject to Proposition 13.

Disclosure Law

A new law significantly expanding the scope of existing Mello Roos disclosure requirements took effect Jan. 1, 2002.

Signed by Governor Davis, SB 1122 requires all California property owners to furnish a notice of special assessment to buyers prior to closing escrow if their property is subject to 1915 Act Assessment Installments. Sellers must fully disclose which special tax and/or assessment districts a property lies in, and provide a detailed breakdown of all costs associated with them.

Among the new information to be provided are current levy amounts, start and ending dates for the assessment, and a list of all facilities the monies are used for.

The Mello Roos Community Facilities Act was passed in 1982 as a response to Proposition 13, which taxpayers approved in an effort to limit homeowner taxes. Mello Roos quickly became popular as a means of raising money for additional improvements and services such as schools, fire stations, parks and other needed community services and facilities.

However, negative publicity associated with Mello Roos caused an increase in the use of alternative financing as permitted by the 1915 Bond Improvement Act. While the names may be different, the effect on homeowners is the same. These additional charges can add hundreds and even thousands of dollars per year in additional property taxes.

What's the Problem?

This tax was never fully disclosed to the 12 property owners in our community. Our Neighbor Paraham has researched this issue and found the California Property Tax Disclosure Report for New Construction/New Homes. Every homeowner in our community should have received and signed this report or something similar.