Mello-Roos

The Community Facilities Act (more commonly known as Mello-Roos) was a law enacted by the California State Legislature in 1982.^[1] The name Mello-Roos comes from its co-authors, Senator Henry J. Mello (D-Watsonville) and Assemblyman Mike Roos (D-Los Angeles). The Act enabled "Community Facilities Districts" (CFDs) to be established by local government agencies as a means of obtaining community funding. Counties, cities, special districts, joint powers authority, and schools districts use these financing districts to pay for public works and some public services.^[2]

History

When California Proposition 13 passed in 1978, it restricted the ability of local governments to raise property taxes by more than an inflation factor. The budget for services and for the construction of public facilities therefore could not continue unabated. As a result, new ways to fund public improvements in respective locales were considered.^[1] The Mello-Roos fees are generally considered an end-run around Prop 13, which caps property taxes while Mello-Roos are not capped.

Districts and taxes

A Mello-Roos District is an area where a special property tax on real estate, in addition to the normal property tax, is imposed on those real property owners within a Community Facilities District. These districts seek public financing through the sale of bonds for the purpose of financing public improvements and services.^[3] These services may include streets, water, sewage and drainage, electricity, infrastructure, schools, parks and police protection to newly developing areas. The tax paid is used to make the payments of principal and interest on the bonds.

Tax Deduction

There is conflicting information on whether Mello-Roos taxes are deductible from federal and state income taxes. In general, only "ad valorem" taxes (based on the value of the property) are deductible. Mello-Roos taxes are not ad valorem. However, IRS stated that

"Assessments on real property owners, based other than on the assessed value of the property, may be deductible if they are levied for the general public welfare by a proper taxing authority at a like rate on owners of all properties in the taxing authority’s jurisdiction, and if the assessments are not for local benefits (unless for maintenance or interest charges)." ^[4]

California uses the federal standard for deductibility of property taxes on state income tax. ^[5] In either case, the taxpayer has the burden to establish that deduction of Mello-Roos taxes falls under these criteria.

New communities

Many communities requiring new schools and infrastructures such as public parks and roads impose Mello-Roos. While property tax is assessed as a percentage of the value of the home, Mello-Roos is independent, could rise or fall, and is not subject to Proposition 13.^[6]

Older communities

Many older communities have imposed Mello-Roos on 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 existing Mello-Roos. Current laws requires a 2/3 vote of the community for this to pass.

References