The Community Facilities Districts, commonly referred to as Mello Roos, is a law that permits districts to convert portions of the district or the whole district into a special local district. The intent of designating community facilities district is to raise more money in the form of taxes and fees from the residents of these special districts. Local governments utilize Mello Roos to collect more in taxes to improve schools, develop projects in the district, and improve roads and infrastructure.
The Community Facilities Act was passed by Senator Mello and Assemblymen Mike Roos. Both Mello and Roos realized that in periods when economic activity went down, particularly in recessions, governments had a limited means of collecting taxes because of the lower income on which to tax this money. This issue they believed was a major deterrent in investing in local and state governments at a time when investments might be needed the most. Mello Roos is a special tax on real estate and property owners.
One of the major reasons both Senator Mello and Assemblymen Roos instituted such a tax was because Proposition 13 which was passed in 1978 reduced property tax payments, therefore decreasing tax revenue that the state had previously relied on. Instead of fazing out the previous current property tax rates, the government immediately reduced property tax rates with the passage of Proposition 13. This drastically reduced state and local budgets, and both politicians believed the tax, passed in their name was the solution to help states and local governments increase their taxing ability.
Mello Roos Taxes
Implementation of Mello Roos taxes require constituents of a given area to vote by a two thirds margin to implement additional taxes on the residents of a Mello Roos Facilities District. When there are too few residents to vote on such measures, the local governing body may opt to only allow property owners to vote on such measures because of the direct affect it has to their finances.
After passage of a Mello Roos tax, local governments can begin forming their plan on how they wish to spend this extra tax revenue. Oftentimes, local governments may opt to spend extra revenue to pay down old, or most likely raise money to fund district projects such as building roads, structures, parks, and others. Local governing body’s may site that reasoning for such a tax is to create more jobs with the projects that they build. This is the subject of great controversy as many opponents believe other body’s can fulfill economic goals better than local governing bodies.
Tax Rates and Purpose of Mello Roos Taxes
Tax rates for Mello Roos vary and are based on specific formulas put in place during the passing process. Taxes are imposed on property owners and can be based on property value. Such taxes are an addition to old taxes. They do not replace old taxes; therefore, the tax liability of property owners goes up with a Mello Roos Tax. Tax rates are based on the goals of the local government, the size and scope of the projects they wish to create, and the economic conditions at the time of the taxes implementation.
Common expenses that Mello Roos taxes pay for are for public improvements such as schools, roads, airports, bridges, economic development, parks, police, fire department, and other specific local requirements. The tax can also pay for old government bonds and acts as a security for the issuance of new bonds.
