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Mello-Roos
Community Facilities Districts (CFDs), more commonly known as Mello-Roos, are special districts established by local governments in California as a means of obtaining additional public funding. Counties, cities, special districts, joint powers authority, and school districts in California use these financing districts to pay for public works and some public services.
The Community Facilities Act was a law enacted by the California State Legislature in 1982. The name Mello-Roos is derived from its co-authors, Senator Henry J. Mello (D-Watsonville) and Assemblyman Mike Roos (D-Los Angeles).
When Proposition 13 passed in California in 1978, it limited the property tax rate and the ability of local governments to increase the assessed value of real property by not more than an annual inflation factor. As a result, the budget for public services and for the construction of public facilities could not continue unabated. New ways to fund local public improvements and services were considered and adopted by the California State Legislature. A Mello-Roos tax is a parcel tax that circumvents Proposition 13 (which limits property taxes based on the assessed value of real property) because it is not levied on the assessed value of real property.
California Proposition 218 (1996)) constitutionally requires two-thirds (2/3) voter approval to approve the formation of a Mello-Roos Community Facilities District. In instances where the number of registered voters within a Community Facilities District is very small, the required election is held as a property owner election. Sometimes a real estate developer is the only "voter" in such property owner elections that approve a Mello-Roos tax.
Once approved, a Mello-Roos Community Facilities District is formed. Once formed, a special tax (which is different from regular property tax) is imposed on all property within the community facilities district. The Mello-Roos special tax is in addition to the regular ad valorem property tax on the property. The Mello-Roos special tax is based on a formula that is specific to that district, that was approved in proceedings. The formula can be based on a variety of factors but cannot be based on the value of the property. In practice, most Mello-Roos community facilities districts base the special tax on a number of common formulas, such as the square footage of the improvements, or proximity to a specific improvement, or based on the acreage of the lot. This is spelled out in the "Rate and Method of Apportionment" of the special tax, which is a legal document approved in the proceedings.
These districts can be used to pay for ongoing services (such as enhanced landscaping within a community). Or, if approved by voters, the special tax may be used as the security on which to issue land-secured municipal bonds (debt). If debt is approved, the special tax will repay the bond principal and interest each year.
Mello-Roos community facilities districts may pay for the following public improvements and services: streets, water, sewage and drainage, electricity, infrastructure, schools, parks and police protection to newly developing areas.
There is conflicting information on whether Mello-Roos taxes are deductible from federal and state income taxes. In general, only "ad valorem" property taxes (based on the value of the property) are deductible. Mello-Roos taxes are not ad valorem property taxes, but rather are generally flat parcel taxes. However, the IRS has stated that:
Mello-Roos
Community Facilities Districts (CFDs), more commonly known as Mello-Roos, are special districts established by local governments in California as a means of obtaining additional public funding. Counties, cities, special districts, joint powers authority, and school districts in California use these financing districts to pay for public works and some public services.
The Community Facilities Act was a law enacted by the California State Legislature in 1982. The name Mello-Roos is derived from its co-authors, Senator Henry J. Mello (D-Watsonville) and Assemblyman Mike Roos (D-Los Angeles).
When Proposition 13 passed in California in 1978, it limited the property tax rate and the ability of local governments to increase the assessed value of real property by not more than an annual inflation factor. As a result, the budget for public services and for the construction of public facilities could not continue unabated. New ways to fund local public improvements and services were considered and adopted by the California State Legislature. A Mello-Roos tax is a parcel tax that circumvents Proposition 13 (which limits property taxes based on the assessed value of real property) because it is not levied on the assessed value of real property.
California Proposition 218 (1996)) constitutionally requires two-thirds (2/3) voter approval to approve the formation of a Mello-Roos Community Facilities District. In instances where the number of registered voters within a Community Facilities District is very small, the required election is held as a property owner election. Sometimes a real estate developer is the only "voter" in such property owner elections that approve a Mello-Roos tax.
Once approved, a Mello-Roos Community Facilities District is formed. Once formed, a special tax (which is different from regular property tax) is imposed on all property within the community facilities district. The Mello-Roos special tax is in addition to the regular ad valorem property tax on the property. The Mello-Roos special tax is based on a formula that is specific to that district, that was approved in proceedings. The formula can be based on a variety of factors but cannot be based on the value of the property. In practice, most Mello-Roos community facilities districts base the special tax on a number of common formulas, such as the square footage of the improvements, or proximity to a specific improvement, or based on the acreage of the lot. This is spelled out in the "Rate and Method of Apportionment" of the special tax, which is a legal document approved in the proceedings.
These districts can be used to pay for ongoing services (such as enhanced landscaping within a community). Or, if approved by voters, the special tax may be used as the security on which to issue land-secured municipal bonds (debt). If debt is approved, the special tax will repay the bond principal and interest each year.
Mello-Roos community facilities districts may pay for the following public improvements and services: streets, water, sewage and drainage, electricity, infrastructure, schools, parks and police protection to newly developing areas.
There is conflicting information on whether Mello-Roos taxes are deductible from federal and state income taxes. In general, only "ad valorem" property taxes (based on the value of the property) are deductible. Mello-Roos taxes are not ad valorem property taxes, but rather are generally flat parcel taxes. However, the IRS has stated that: