Property Tax Assessments – Mello-Roos Explained

Feb 27, 2019

Most California homeowners will see anywhere from five to fifteen different assessments listed on their property tax bill in addition to the basic county property tax. These additional assessments are usually for business zones, bond payments, and special services. One of the most common California property tax assessments is Mello-Roos, which is a tax assessed on homes within a specific geographical area. Here is a brief overview of Mello-Roos property tax assessments and the concerns home buyers and sellers should have with them.

In 1982, the California legislature passed the Community Facilities District Act, nick-named “Mello-Roos” after its co-authors, Henry Mello and Mike Roos.  The Act authorizes creation of Community Facilities Districts that can sell bonds to finance construction and maintenance of public facilities in specified areas (the “districts”).  The Act was the government’s response to the 1978 taxpayer revolt that led to passage of Proposition 13, which limits the ability of local governments to raise property taxes at a rate higher than the rate of inflation.  In other words, Mello-Roos assessments were specifically created to raise additional tax revenue by going around the requirements of Prop 13.

Mello-Roos districts were deemed necessary because local governments were unable to build and maintain roads, parks, schools, community centers, etc. using only the money raised through basic property taxes. The Mello-Roos tax is assessed on property owners within a specified district because they are considered the primary benefactors of these improvements. The Act also allows for expansion of police and fire service to newly developed areas within a community facilities district.

While some believe Mello-Roos taxes are a proper way to charge the cost of public projects to local residents who derive the greatest benefit from them, others see Mello-Roos as a monument to government inefficiency and it’s inability to operate within a budget. As homeowners living within a district, or home buyers considering the purchase of a home within a district, what could Mello-Roos assessments mean to us?

Our first concern is the long-term use of Mello-Roos bonds.  Some districts issue Mello-Roos bonds strictly to pay for construction of new facilities. When the bonds are paid off, the property tax assessment goes away. But some districts continuously issue new bonds as a permanent funding source for on-going facilities maintenance and other recurring government services. The Mello-Roos assessment never goes away and homeowners could potentially pay Mello-Roos taxes forever. As current or potential homeowners in a district, we should research the use of Mello-Roos funding in the district to determine if the tax has an expiration date or is functionally permanent.

I hope you found this explanation of Mello-Roos property tax assessments helpful in your home buying or real estate investment decision process.  If you have questions about real estate terms or buy/sell/investment strategies, drop me a line! Contact Us

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