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The Real Benefits of Mello-Roos
As
always, today's families recognize the importance of living in a community
that's as desirable as their home itself. Mello-Roos enables critical
community facilities to be provided whenever they're needed at a lower cost to
homeowners. By doing so, Mello-Roos ensures a higher quality of life for
every family in that community. Perhaps most importantly of all,
Mello-Roos helps preserve the value of your new home investment.
Where did Mello-Roos 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 within the CFD. Commercial and industrial property owners are also
subject to Mello-Roos. All proceeds raised from Mello-Roos
assessment 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 years period. On the other hand, it's possible that this tax
will decrease, should 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. As already mentioned, the special assessment can be
added to your property tax bills until your portion of the tax is paid off. A
schedule of maximum special tax payments over a period of 25 years is available
to homeowners prior to the close of escrow. Those who purchased a new home also
have the option to pay for their Mello-Roos tax in its entirety at the
time they buy. However, because statistics indicate that the average homeowner
in California moves every seven years, it's often prudent to spread the
payments over time.
Why Can't Builders Bear the Cost of these
Facilities?
They can. But ultimately, the builder must recover these
considerable costs in the form of higher home prices. Commercial construction
loans acquired by builders typically incur higher rates of interest than CFD
financing, which accrues at significantly lower rates.
Mello-Roos Makes Sense
Buying a home
is the most important decision most of us will ever make. Mello-Roos
offers the security of knowing that your community will continue to prosper and
grow in ways that are most beneficial to its residents.
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