What is Mello Roos Tax in San Diego?

Are you an out of state or out of country buyer? Have you only rented in San Diego? Are you a first time home buyer? No matter where you are in your California Real Estate journey, the chances are that you haven't heard of Mello-Roos tax. Well, don't worry. We are here to provide you with reliable information on the Mello-Roos tax in San Diego and we are always available to answer your real estate questions.

1. A Mello-Roos Community Facilities District (CFD) is formed.

Mello-Roos is a method of financing government entities, such as cities, counties, school districts and other special districts, that are in need of public improvements. The Mello-Roos method is used to fund these public improvement projects; however, before the government entities can form a CFD they must first obtain permission from the area landowners or hold an election of registered voters within the proposed CFD.

The good news for concerned San Diego homeowners, is that a CFD cannot be formed unless a two-thirds majority residents within the proposed boundaries vote in favor. If a two-thirds vote is not received, then the CFD cannot be formed and the Mello-Roos financing method cannot be implemented. The slight down side, is that if there are fewer than 12 residents, then the vote form the CFD will be conducted amongst the current landowners. In the latter cases the land within the residential boundary might be owned by a single individual who can decide at their discretion whether to vote in favor or against the formation of a CFD.

2. The municipality sells bonds on behalf of the CFD.

These bonds are sold to private investors who purchase them for tax-free interest income. The money raised through the bond sales becomes the debt obligation of the CFD.

3. Bond proceeds are used to pay for public improvements within the CFD.

The types of improvements that can be funded by a CFD tend to be broader than those public improvement projects that are funded by traditional assessment districts. For example, schools, police stations, fire stations, and libraries can be constructed with CFD bond proceeds. Roadways, water lines, and other traditional types of public improvements can also be funded with the proceeds from CFD bonds.

4. Money is repaid to bondholders through Mello-Roos special tax.

The service for the bonds is repaid by the levy of a special tax on property within the CFD. The amount of special tax is determined by each CFD's Special Tax Formula and may vary between property types. The special tax revenue is used to pay back the investment and to repay principal and interest to bondholders. Taxation and repayment continues each year for the life of the bond issue, which is typically 20 to 40 years.

5. Understanding Mello-Roos taxes.

Mello-Roos could be considered a voluntary San Diego tax due to the fact that only people who own property within a CFD are obligated to pay the taxes on the established CFD. It is important to note that county property taxes are still levied on all homeowners and considered mandatory, regardless of the formation of a CFD. The latter distinction is important to understand when budgeting for California taxes. In fact, buyers should carefully consider whether or not they want to purchase a property in a CFD.

The above Mello Roos information is deemed reliable but not guaranteed.