A special tax or community facilities district (CFD) establishes additional assessments on properties levied and varied based on a selected property characteristic (excluding property value). The Mello-Roos Community Facilities Act of 1982 allows any county, city, special district, school district, or joint powers authority to establish a Mello-Roos community facilities district (CFD) which allows for financing of a broad range of public improvements and services. The services and improvements that Mello-Roos CFDs can finance include streets, sewer systems, and other basic infrastructure, police protection, fire protection, ambulance services, schools, parks, libraries, museums, and other cultural facilities. By law, the CFD is also entitled to recover expenses needed to form the CFD and administer the annual special taxes and bonded debt. A CFD should include all properties that will benefit from the improvements to be constructed or the services to be provided. They are most commonly used in circumstances in which approval is limited to a small group of landholders, since they must be approved by a two-thirds majority.
The special tax creates a dedicated funding source suitable for capital improvement bond financing but also an additional cost on property ownership. Often, after bonds are paid off (typically 20-25 years, but may be up to 40 years), a CFD will continue to charge a reduced fee to maintain the improvements and/or continue to provide services.
A CFD presents an opportunity to fund infrastructure improvements and other needed public facilities for the benefit of property owners but can have other challenges and disadvantages, as detailed below.
Opportunities and Advantages. Mello Roos CFDs may be best suited to larger, newly developing, areas that otherwise could not occur without infrastructure improvements. CFDs can result in highly desirable, well-maintained neighborhoods given the provision of services and facilities such as new schools and parks.
Challenges for Implementation. A jurisdiction must adopt goals and policies concerning the use of Community Facilities Districts prior to their formation (Government Code Section 53312.7). Jurisdictions should consider if added special taxes for services and maintenance are appropriate for newly developing areas given that older areas without a CFD may be getting the same or similar services through their payment of regular property taxes. There are limitations on the inclusion of agricultural, open space, or conservation areas in CFDs (Government Code Section 53312.8). A CFD can be difficult to form because it requires a two-thirds majority vote of residents living within the proposed boundaries. If there are fewer than 12 residents, the vote is instead conducted of current landowners. Therefore, they are most commonly used in circumstances in which approval is limited to a small group of landholders.
Potential Disadvantages for Prospective Buyers. A CFD can increase housing costs over areas without Mello-Roos special tax assessments. Prospective homebuyers may be turned off if they perceive that they would be paying more than they need or want (e.g., schools or other amenities if the buyer does not intend to use the facilities). Ongoing maintenance of the community improvements could be more costly than anticipated.
Relevant State Law
Government Code Section 53311 – 53368.3. The Mello Roos Community Facilities Act of 1982.
California Land Title Association. Understanding Mello Roos.
California Title Company. The Truth about Mello Roos.
Merced County Tax Collector. Mello-Roos.
City of Vacaville. Community Facilities Districts.