Understanding Mello Roos

By Matt Unangst, 23 Jan 16:05

• Also known as Community Facilities District
• Area where property owners are required to pay for public bonds
• Taxes can pay for a wide range of services and facilities
• Taxes can extend for up to 40 years
• Act allows for flexibility in tax apportionment
• Maximum amount of tax must be summarized in public report with liens
• Not affected by Proposition 13
• Not affected by property sales

Proposition 13, passed in California in 1978, severely limited local governments in their attempts to finance public services and facilities by preventing increases of real property taxes. In an effort to aid local governments, the California legislature passed the “Mello-Roos Community Facilities Act of 1982.” This avoided the limits set by Proposition 13 by placing taxes evenly on all properties instead of basing them on property values.

A Mello-Roos district is a district that has taken advantage of the Mello-Roos Act to pass a bond measure in order to pay for public services and/or facilities. Services that can be financed under the Act are police and fire protection; ambulance and paramedic services; recreation and library programs; maintenance and service of public spaces like parks, roads, and museums; flood and storm protection; and hazardous waste removal. The facilities allowed to be financed under the Act are parks and recreation facilities, parkways, open-space facilities, schools and libraries, child care facilities, natural gas pipelines, telephone and cable lines, and power plants and lines, among others.

Mello-Roos taxes are usually billed and collected with general property taxes. They are subject to the same penalties as general property taxes.

Mello-Roos taxes stay in effect until both the principal and interest on the bond are paid off, but are not allowed to last for more than 40 years.

Failure to meet a Mello-Roos tax payment could result in judicial foreclosure by the Community Facilities District.

Community Facilities Districts are allowed to apportion Mello-Roos taxes in a great variety of ways. Most are assessed by density of development, square footage of development, or total acreage.

A limit is set on Mello-Roos taxes when the Mello-Roos District is created. This amount cannot be exceeded, even if the property is sold or inflation occurs. Also included in the original establishment of the district is a statement of how the tax is to be apportioned and collected.

If a property with a Mello-Roos tax lien is to be sold, its tax lien will be reported on its public report, as any regular lien would be reported, as a "Notice of Special Tax Lien." Also as with any other lien, Mello-Roos tax payments must be up-to-date before the property can be sold. Since Mello-Roos taxes are not based upon the value of a property, they are not affected by property sales.

KEYWORDS: mello-roos, prop 13, proposition 13, lien, community facilities district, tax lien, bond measure, bond tax, property tax

SEE ALSO: Understanding Required Reporting to the I.R.S.

Tags: mello-roos