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What is it?
Mello-Roos refers to "special" tax districts. Senator Henry Mello and former Assemblyman Michael Roos won passage of Mello-Roos Community Facilities Act of 1982. This legislation authorized the Mello-Roos Community Facilities Districts (CFD) as a way to assist cities, counties and school districts to provide new infrastructure and facilities after governmental funds were cut by the passage of Proposition 13 in 1978.
Due to the passage of Proposition 13, government forced builders of new communities to pay for the public facilities (new roads, schools, etc). Consequently, these funds were added to the cost of homes. These price increases hurt new home buyers as fewer people were able to afford high-priced homes.
How It Works
- A Mello-Roos Community Facilities District (CFD) is formed. Mello-Roos is a method of financing government entities (cities, schools districts and other special districts) to fund the cost of public improvements. Before government entities can form a CFD, they must either obtain permission from area landowners or hold an election of register voters within the CFD.
- The municipality sells bonds on behalf of the CFD. These bonds are sold to private investors who purchase them for tax-free interest income. The money raised through the bond sales becomes the debt obligation of the CFD.
- Bond proceeds are used to pay for public improvements within the CFD. The types of improvements which can be funded by a CFD are much broader than those types of improvements which can be funded by traditional assessment districts. For example, schools, police stations, fire stations and libraries can be constructed with CFD bond proceeds, as well as roadways, water lines and other traditional types of public improvements. CFD´s can also be formed for purposes of public facility maintenance.
- Money is repaid to bondholders through the Mello-Roos special tax. The service for the bonds is repaid by the levy of a special tax on property within the CFD. The amount of the special tax is determined by each CFD´s Special Tax Formula, and may vary between property types. The special tax revenue is used to pay back the investment, repay principal and interest to bondholders. Taxation and repayment continues each for the life of the bond issue, usually 20 to 40 years.
- How is it calculated and measured? As of 2009 the maximum due is $1,227 based on the square footage of home. The Tax department would then determine the percentage to charge each home necessary to satisfy the yearly bond payment. The maximum mello roos amount due per home may increases or decrease each year by 4%
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