WHAT IS MELLO ROOS - AND WHY SHOULD YOU CARE?
Mello-Roos is a tax. When Proposition 13 was enacted, it restricted local governments from using property taxes to build public services and facilities. As a result, new funding methods were devised. Enter Mello Roos.
Mello Roos tax is called different things by different agencies. It started as a law called the “Community Facilities District Act”, which enabled the formation of "Community Facilities Districts" (CFDs) to provide a method of financing public facilities and services in new developments and areas undergoing rehabilitation.
Mello Roos taxes are usually found in newer residential developments. Older houses (typically those built before 1988) don't have them.
The first CFD formed by the Capistrano Unified School District (“CUSD”) is No. 87-1 (“87-1”). It encompasses parts of Mission Viejo and Aliso Viejo and was formed to fund construction of school facilities in these cities to mitigate the impacts to CUSD from new development.
87-1 is based on legal agreements entered into between CUSD and the Mission Viejo Company (“Formation Documents”*). These documents dictate how 87-1 funds can be used. Not all Mission Viejo residents in the CUSD boundary pay the 87-1 Mello Roos tax; only some do. These include homeowners in Pacific Hills, Auburn Ravine, Calafia, Quail Run, Stone Ridge and parts of Canyon Crest. Additional residential and several business properties are also in the 87-1 area. To determine whether you are paying Mello Roos taxes, check your property tax bill. The CUSD Mello Roos tax is listed as “Mello-Roos R4”. The County Mello Roos tax is listed as “Mello Roos R5”.
The 87-1 Mello Roos tax is supposed to pay the principle, interest and bond-related costs. However, CUSD is using the 87-1 Mello Roos tax in ways other than what is allowed, prompting many to question whether these additional uses comply with the Formation Documents. The effort to determine the legality of this other usage is underway. It will be reported in a future issue of the Community Common Sense, along with suggestions about how to help.
Since its inception, the 87-1 Mello Roos tax has increased by 2 percent or more each year, and has now more than doubled. It was recently discovered that CUSD is collecting millions of dollars per year in excess of what is needed to service the 87-1 bond debt and to maintain a bond reserve fund of $3.5 million.
This extra tax is collected and deposited in an account called the “Special Reserve Fund”. The CUSD Board of Trustees has spent “Special Reserve Fund” monies on construction projects in violation of the 87-1 Formation Documents. The result is that a small number of taxpayers have been funding most of the projects that benefit the entire school population. This is like having a neighbor reside in the same Homeowners Association as you but without having to pay the dues you are paying, yet having access to all the same association benefits that you have.
The estimated total of 87-1 Mello Roos taxes deposited by CUSD in the “Special Reserve Fund” is tens of millions of dollars. However, the public doesn’t know the exact amount because CUSD has not yet revealed the total despite repeated requests to do so. It appears that either CUSD doesn’t want the public to know, or perhaps they don’t know how much they have collected.
What CUSD has admitted is that $3.4 million of the 87-1 Mello Roos tax will exceed the amount needed to completely service the 87-1 bonds in 2012/2013. In the year 2013/14, that amount will increase to nearly $3.6 million, and will increase by another 2% a year until the tax is ended – if ever.
The 87-1 bond (tax) is scheduled to end in 2020 but at this time, there is no end date. The bond was set to be retired in 2014 but was extended by CUSD to 2020; apparently the only 87-1 CFD bond to be extended by CUSD.
Unless there is a change, between 2012 and 2020, CUSD will collect in excess of $28 million in 87-1 Mello Roos taxes above and beyond the amounts needed. This gross overcharging must end, along with the tax.
Immediately write to the CUSD Board of Trustees (see their email addresses at: www.capousd.org) and tell them you want the 87-1 Mello Roos tax (“Mello Roos R4”) to end when the 87-1 bond is paid off and you want all funds in the “Special Reserve Fund” to be used for early retirement of the bond. Though the 87-1 bond is scheduled to be paid-off in 2020, it can be paid off sooner using the monies in the “Special Reserve Fund” for debt retirement.
Editor’s note: This is part one of a multi-part series. In the next issue we will present the “nuts and bolts” of Mello Roos and its impacts on taxpayers.
* See link to copy of Formation Documents under "Links".