Mello Roos district is an ad hoc tax district created in California to fund infrastructure projects.
Only two-thirds of voters must approve the formation of a district, which allows for the imposition of a special tax on its citizens.
The state law that allows such districts was enacted in 1982 as a mechanism for local governments to get around the state’s 1978 property tax cap.
The Mello-Roos tax law is still a source of contention. Developers in California have been known to market their freshly built homes as having “No Mello-Roos!”
Mello Roos: What You Need to Know
A city, county, or school district might form a Mello Roos Community Facilities District (CFD).
A Mello permits a local authority, such as a county or city, or a school district, to sell bonds to fund a specific project or service.
Infrastructure enhancements to police and fire services, schools, parks, and childcare facilities are all authorised under California law.
A Mello-Roos district is a special taxing district established in California to fund local infrastructure and services.
Only residents of the district who profit from the project are subject to the tax.
The statute allowing Mello-Roos districts was enacted to let municipalities to raise funds for local initiatives notwithstanding Proposition 13’s property tax cap restrictions.
The tax assessment may be levied until the district’s bond debt is fully repaid, including interest.
The law’s sponsors, California State Senator Henry Mello and State Assemblyman Mike Roos, are known as the Mello-Roos tax.
Their bill served as a detour around Proposition 13. The California Constitution was amended in 1978 to restrict property taxes to 1% of assessed value and to limit the rate of increase on the assessment to 2% each year.
The Mello tax is levied against the land rather than the property’s assessed value. That is how the cap imposed by Proposition 13 is circumvented.
Mello are most commonly employed nowadays to build infrastructure and support services in and around new developments.
It also gives a chance to repair older and less affluent communities when property taxes are no longer sufficient to provide basic services.
Mello-Roos Advantages and Disadvantages
Mello supporters argue that the rule allows for new housing construction at a lower cost to future buyers.
A developer constructing a huge new community might either refuse to pay the cost of new infrastructure in and around the community, or pass the expense on to homeowners by boosting property prices.
Opponents point to the increased tax burden and the difficulties of selling a home with a special tax assessment attached.
Mello taxes are often not deducted from federal taxes since they do not meet IRS standards.
Mello-Roos Fine Print
Because Mello districts are subject to accelerated foreclosure regulations, the bond issued by a CFD is deemed a lien against a property, and failure to pay the tax can result in foreclosure swiftly.
Realtors must tell potential buyers if a home is in a CFD and thus subject to a special tax assessment.
Mello taxes are normally included as a line item on a property’s annual tax bill, but a district may send homeowners a separate bill on rare occasions.
Mello districts are tracked by county assessors’ offices.
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