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Understanding Mello-Roos
By Barbara Pronin
Every homeowner expects to pay property taxes to help fund local improvements and services.
 
But the passage of Proposition 13 in 1978, largely lauded for setting a cap on property taxes, severely restricted the funds available to local governments. So, in 1982, at the request of major developers who were constructing new communities in formerly undeveloped areas, the Mello-Roos Community Facilities Act was established, giving developers additional tax money with which to finance the necessary public facilities to serve these new developments.
 
As a result, in designated Mello Roos districts, a special property tax fee is collected beyond the one percent tax rate allowed by Proposition 13. These funds, which are typically determined based on the square footage of a home, are established before the home is built and are used exclusively to pay for public services and facilities such police and fire departments, schools, schools, libraries, parks and roads.
 
The public agency involved issues tax-exempt bonds to pay for these public facilities over a number of years – usually 20 years, although state law allows up to 40 years. The amount of the tax may only increase at a maximum rate of two percent per year over a 25-year period. It may also decrease if funds become available to reduce bond indebtedness – and anyone who purchases a new home in a Mello-Roos district has the option to pay the tax in full at the time of purchase.
 
Commercial and industrial property owners as well as homeowners are subject to the Mello-Roos tax, which is identified on the property tax bill as Community Facilities District (CFD) followed by a number and the amount of the fee, which is payable along with the general property tax bill.
 
Non-payment of the Mello-Roos tax is subject to the same penalties that apply to regular property taxes.
 
Buyers who have further questions about their Mello-Roos tax obligation should be directed to call their County Assessor’s Office for information.
 
Barbara Pronin is an award-winning writer based in Orange County, Calif. A former news editor with more than 30 years of experience in journalism and corporate communications, she has specialized in real estate topics for over a decade.

This material is not intended to be relied upon as a statement of the law, and is not to be construed as legal, tax or investment advice.  You are encouraged to consult your legal, tax or investment professional for specific advice.  The material is meant for general illustration and/or informational purposes only.  Although the information has been gathered from sources believed to be reliable, no representation is made as to its accuracy. 

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