[Note: This news article from California shows some of the problems that can arise with special tax districts. In California, voter approval is required to establish a district. The Massachusetts Chapter 40T law would not provide this safeguard. – Ed.]

June 9, 2007
Merced Sun-Star (Merced, CA)

Homeowners stunned with Mello-Roos taxes.

Byline: LESLIE ALBRECHT–[email protected]
[email protected]

When it came time for Loretta Ibarra to buy a new house, she knew to ask about two words before going ahead with the purchase: Mello Roos.

That’s the name of a tax that homeowners in some new subdivisions pay. Ibarra had heard horror stories from her sisters about Mello-Roos taxes and she wanted to avoid them if possible. One sister in Antioch paid $8,000 yearly; another in Salida paid $5,000.

Ibarra was relieved when the saleswoman at The Meadows subdivision off E. Gerard Avenue said the house she wanted to buy wouldn’t be subject to Mello-Roos taxes.

Four months after she bought the house, Ibarra was surprised and angered when she found out that she’ll be asked to pay $1,000 in annual Mello-Roos fees after all. But Ibarra and her neighbors will have some say in the matter. In a few months they’ll vote in an election that will decide whether a Mello-Roos tax district is established at The Meadows.

The election will mark the first time in Merced that homeowners have participated in such a vote. Usually, Mello-Roos districts — which must be approved by two-thirds of voters — are formed before any houses are built in a new subdivision. If there are fewer than 12 registered voters in the area, only the landowners participate in the election.

Because the developer is the only landowner at that stage, the election is usually determined by one vote in favor of establishing the Mello-Roos tax district, which is also called a community facilities district, or CFD.

But in this case, H/S Development sold houses at The Meadows before the Mello-Roos tax district had been formed — a violation of the agreement it had signed with the city, which mandated the Mello-Roos district for the subdivision. That means that at least 14 owners who now live there will have votes in the election, which will be held in October via mail-in ballots.

It’s not known how many of the remaining 81 lots in the new neighborhood are still owned by H/S Development. The company did not respond to repeated calls seeking information for this story.

Ibarra said she plans to vote against the tax district. So did her neighbors Agustin Navarro on East San Pedro Street and Karla Suarez a few blocks away.

Navarro said when he signed the paperwork for his house, he asked whether there would be any more taxes or fees on the house and was told no.

“It’s not right,” said Navarro. “It’s (the developer’s) responsibility to let people know what bills they have to pay before they buy the house.” He added, “I think since they never told us, it’s on them to pay for everything for us.”

H/S Development has offered to pay one year of Mello-Roos fees for homeowners who agree to let H/S cast a ballot on their behalf. Ibarra, Navarro and Suarez all said they refused that offer.

“They don’t need to represent us,” said Ibarra. We’ll do our own representing.”

Homeowners at The Meadows interviewed for this story said they were curious about why the Mello-Roos fees are necessary, because they already pay about $2,000 in property taxes.

For the city, Mello-Roos taxes represent the reality of financing services and infrastructure in a post-Proposition 13 world, said City Manager Jim Marshall.

Proposition 13 was the 1978 ballot measure that capped county property taxes at one percent per year. Prior to Proposition 13, the city received between 15 and 22 cents of every county tax dollar, said Marshall. Now it’s less than 10 cents.

“(Proposition 13) cut millions of dollars out of cities’ budgets,” said city Finance Officer Brad Grant.

To remedy cities’ strapped finances, the Legislature passed the Community Facilities Act in 1982, sponsored by state Sen. Henry Mello and Assemblyman Mike Roos.

The law allowed cities to create special tax districts to raise money to pay for services such as police and fire protection and for physical improvements such as streets or sewers.

Mello-Roos fees are now well-known to home shoppers — one subdivision along Santa Fe Drive even has a red banner that advertises “No Mello-Roos” to drivers.

Since 2003, Merced has created Mello-Roos tax districts in 26 new subdivisions. Forming the tax districts allows the city to follow its “growth pays for growth” philosophy.

Of the Mello-Roos fees proposed for The Meadows, $459 would pay for citywide services such as police and fire protection, $544 would cover landscaping and storm drainage at The Meadows.

“If we’re going to grow, we can’t grow the community and dilute the level of service we’re providing in the existing community by extending police and fire at a faster rate than we can provide in new neighborhoods,” said Marshall.

For Navarro, the Mello-Roos tax represents “another extra bill that we don’t have money to pay,” he said.

“If I would have known about it, I probably wouldn’t have bought the house, because that’s just something I can’t afford.”

© 2007, Merced Sun-Star, Calif.