Oh the dreaded term, “Mello-Roos”. Like a 4, no 9 letter word. But what does Mello-Roos mean and where did this tax come from?
When Proposition 13 passed in 1978, it severely limited the ability of local governments to use property taxes to construct public facilities and services. As a result, Californians were forced to find new ways to fund public improvements in their respective locales. The Mello Roos Community Facilities Act of 1982 was co-authored by Senator Henry Mello of the Monterey area and Los Angeles assemblyman Mike Roos. Enacted by the California legislature, the act enabled “Community Facilities Districts” (CFD’s) to be established by local government agencies as a means of obtaining this crucial community funding. Today the colloquial name for the Facilities Act of 1982 is simply “Mello Roos”.
What Public Facilities Are Funded By Mello Roos?
School districts are the most common beneficiaries. Since state funds are not available to provide the quality of facilities necessary in every community in California, Mello Roos makes the acquisition of timely financing possible. In addition, Mello Roos can provide financing for other vital community needs. These needs include the construction and maintenance of public roads, traffic light systems, storm sewers, water mains, police stations, fire stations, ambulance services, public libraries, recreational parks, museums and cultural facilities.
How Is Community Funding Provided?
Let’s say, for example, that plans for a new school are approved in your Community Facilities District. To finance the school, tax exempt municipal bonds are issued. These public bonds are repaid (or secured) over an extended time through the levy of a special tax (Mello Roos) on properties that benefit from the facility. This tax is usually added to the annual property tax bills (over a 20-25 year period) of residences with the CFD. Commercial and industrial property owners are also subject to Mello Roos. All proceeds raised from Mello Roos assessments must be used exclusively to finance the specific public facilities and/or services that were authorized in your CFD.
How Much Will I Be Assessed?
This will vary from one CFD to another. Typically, an adopted formula that relates to the size of the home (square footage or lot size) is used to determine the amount of an individual assessment. In general, the special taxes and assessments do not exceed 1% to 1.5% of the market value of new homes. Moreover, the total amount of all annual taxes (including property tax) usually does not exceed 2% to 2.5% of the home’s market value.
Will My Mello Roos Tax Increase?
It can. However, this special tax can increase only at a maximum rate of 2% per year over a 25 year period. On the other hand it’s possible that this tax will decrease, should the state or other funds become available that could be used to reduce existing bond indebtedness, or be used to construct new facilities in lieu of additional bond sales.
Can I Choose How To Pay For Mello Roos?
Yes. The special assessment can be added to your property tax bills until your portion of the tax is paid off. Those who purchase a new home also have the option to pay for their Mello Roos tax in it’s entirety at the time they buy.
Can an existing home that does not have a Mello-Roos ever get one?
Yes, many older communities have imposed Mello-Roos on an areas that include older homes, not previously subject to Mello-Roos. This is done when property taxes begin to fall short of what is necessary. Many areas also renew expiring Mello-Roos and increase exsisting Mello-Roos. Current laws requires a 2/3 vote of the community for this to pass.
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